Zytronic : Interim Report for the six months to 31 March 2023

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POSITIONED FOR PROGRESS

ZYTRONIC PLC

INTERIM REPORT FOR THE SIX MONTHS TO 31 MARCH 2023

Text to be updated/supplied

OUR VISION

To make our unique touch sensor technology pre-eminent in markets that require medium to large sized touch interactive systems.

Learn more https://www.zytronic.co.uk/

FINANCIAL OVERVIEW

Highlights

• Group revenue of £4.7m (2022: £5.9m)
• Loss before tax of £0.9m (2022: profit of £0.4m)
• Basic loss per share of 7.5p (2022: earnings per share of 3.0p)
• Cash used in operations £0.4m (2022: generated from operations £0.1m)
• Net cash of £5.4m (30 September 2022: £6.4m)

Group revenue (£m)	Gross profit margin (%)
£4.7m	23.5%
19		9.5		19	34.7
20		7.4			20	30.3
21		4.8				21	27.0
22	5.9			22	31.7
23	4.7				23	23.5
(Loss)/profit before tax (£m)	Basic (loss)/earnings per share (p)
£(0.9)m	(7.5)p
19	1.4		19	7.4
20	0.5			20	2.5
21	(0.3)				21	(1.2)
22	0.4			22	3.0
23	(0.9)				23	(7.5)

Interim dividend (p)

0p

19

7.60

1. 0
2. 0
3. 0
4. 0

Contents

Review of the period

1. Financial overview
2. Chair's statement

Financial statements

3 Consolidated statement of comprehensive income

1. Consolidated statement of changes in equity
2. Consolidated statement of financial position
3. Consolidated cashflow statement
4. Notes to the interim report

1. Corporate information

REVIEW OF THE PERIOD

INTERIM REPORT FOR THE SIX MONTHS TO 31 MARCH 2023

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CHAIR'S STATEMENT

Headwinds remain

Introduction

As commented on in the trading updates issued at the time of the AGM on 9 February 2023 and latterly on 4 May 2023, the Group has observed a lower level of performance over the first half period of the year than was expected. Sales in H1 were £4.7m (2022: £5.9m), with some of this change related to degrees of overstocking by customers in Gaming and Vending, during FY2022, as a result of the supply chain uncertainties that were prevailing in the electronic components markets. However, these issues became further compounded in Gaming towards the end of the period, with customers whose end market customer is Aruze Gaming America, Inc. ("AGA"), who filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the State of Nevada.

This has continued to be demonstrated by the steady progress as measured by our CRM system which records the number of open opportunities. With the inevitable dynamic movement of opportunities closing for reasons previously detailed, the period ended with 491 open opportunities with a customer projected lifetime value ("CPLV") of £62m (30 September 2022: 484 and £59m respectively).

This activity has all been underpinned by the positive return of the international and regional, application-based trade expos and the business development activities that ensue around them, and our research and development ("R&D") department no longer having to spend excessive manpower on supporting supply chain issues. Our R&D function has therefore been able to allocate more time to supporting the critical business development process with customers and establishing new product development programmes.

As part of this process, R&D is continuing with work associated with utilising our technologies, capabilities and processes in the development of potential end-use products, such as bespoke interactive tables, rather than solely the touch components used in them.

Cash

Cash has inevitably been impacted over the period and closed at £5.4m (30 September 2022: £6.4m). Cash used in operations was £0.4m despite working capital decreasing by £0.2m over the first half of the year. £0.3m was due for collection at the half year end, relating to our customers in the AGA supply chain, and has subsequently been impaired. As the Group continues its recovery it has been more active in investing activities with £0.5m being incurred over tangible and intangible purchases. £0.2m was also paid over to shareholders for the final dividend from the prior year. More positively, the Group has been able to earn reasonable interest over the period from its cash balances.

Results

Group revenue for the half year ended 31 March 2023 was £4.7m (2022: £5.9m). The resultant gross margin was 23.5% (2022: 31.7%), adversely impacted by 4.5% due to the impairment of £0.2m of stock associated with the status of end customer AGA, as noted above. This gave rise to an EBITDA loss of £0.6m (2022: EBITDA of £0.8m) and a loss before tax of £0.9m (2022: profit of £0.4m), both of which were impacted by the £0.3m impairment of trade receivables also associated with products supplied for ultimate sale by AGA. Basic loss per share was 7.5p (2022: earnings per share of 3.0p).

As well as the now expected low levels of sales in the Financial market, sales in the period have generally been impacted across most markets, with the most sizeable impacts being in our top two market sectors of Gaming and Vending. Gaming, for reasons noted above, is approximately £0.6m lower than the same period last year, with reported sales of £1.5m (2022: £2.1m). Vending is £0.4m lower, with sales of £1.5m (2022: £1.9m), impacted in the main by the £0.5m reduction in comparable revenues for touch sensors supplied for a US-based end customer's brand- independent OEM drinks fountain (2022: £0.7m) due to FY2022 product overstocking. In both instances of overstocking we are expecting to see associated product supply delays, possibly into the start of FY2024.

Activities

Although the results are somewhat reflective of the effects

on the business of the periods of global business development inactivity caused by the pandemic across a near two-year period from the start of the second half of FY2020, and the well-reported historical two-year average bespoke project maturation timeframe, the increasing business development activity levels over this first half period are encouraging.

Dividends

On the basis of the interim results detailed above, and the Board's stated policy to only pay covered interim or full year dividends, the Board is not proposing the payment of a FY2023 interim dividend (2022: Nil).

Recruitment

Over the course of the period, we unfortunately saw the early retirement due to ill health of our Chair, David Buffham. Mark Cambridge was then temporarily appointed as Acting Executive Chair, to provide continuity through to the issuing and acceptance of the annual report for FY2022 at the AGM on 9 February 2023. At the conclusion of the AGM, I was appointed as Interim Chair whilst John Walter joined the Board as a temporary Non-executive Director on 10 February 2023.

John has subsequently been appointed as Chair of the nominations committee and is overseeing the present recruitment process to source a permanent Chair of the Board, which, it is hoped, will have concluded in the coming few months.

Outlook

The headwinds caused by the noted effects of the overstocking and Chapter 11 event are expected to remain to the end of the financial year. The positive resumption of business development activities and the Group's Board restructuring with the future Chair appointment, together with other initiatives being pursued, are expected to help position the Group more favourably for a future return to growth.

Mark Butcher

Interim Chair

16 May 2023

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

UNAUDITED RESULTS FOR THE SIX MONTHS TO 31 MARCH 2023

			Six months to	Six months to	Year to
			31 March	31 March	30 September
			2023	2022	2022
			Unaudited	Unaudited	Audited
		Notes	£'000	£'000	£'000
	Group revenue		4,728	5,910	12,340
	Cost of sales excluding impairment		(3,403)	(4,034)	(8,577)
	Impairment	3a	(214)	-	-
	Total cost of sales		(3,617)	(4,034)	(8,577)
	Gross profit		1,111	1,876	3,763
	Distribution costs		(107)	(132)	(258)
	Administration expenses excluding impairment		(1,638)	(1,345)	(2,810)
	Impairment	3b	(342)	-	-
	Total administration expenses		(1,980)	(1,345)	(2,810)
	Group operating (loss)/profit		(976)	399	695
	Finance revenue		79	-	10
	(Loss)/profit before tax		(897)	399	705
	Tax credit/(expense)	4	134	(56)	(94)
	(Loss)/profit for the period		(763)	343	611
	Other comprehensive income		-	-	-
	Total comprehensive (loss)/income		(763)	343	611
	(Loss)/earnings per share
	Basic	5	(7.5p)	3.0p	5.6p
All activities are from continuing operations.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

UNAUDITED RESULTS FOR THE SIX MONTHS TO 31 MARCH 2023

	Equity		Capital
	share	Share	redemption	Retained
	capital	premium	reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000
At 1 October 2022	102	8,994	58	6,033	15,187
Profit for the period	-	-	-	(763)	(763)
Dividends	-	-	-	(224)	(224)
At 31 March 2023 (unaudited)	102	8,994	58	5,046	14,200

INTERIM REPORT FOR THE SIX MONTHS TO 31 MARCH 2023

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