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16 October 2024

Zytronic plc

("Zytronic" or the "Company" and its subsidiaries)

Pre-Close Trading Update

&

Strategic Review

The Board of Zytronic plc, a leading specialist manufacturer of touch sensors, announces the following update.

The Company expects to report unaudited revenues for the financial year ended 30 September 2024 ("FY24") of £7.2m (FY23: £8.6m). Whilst the Company is expected to generate a 22% increase in revenues in the second half of FY24 versus the first half (H2 FY24: £3.9m versus H1 FY24: £3.3m), trading conditions remained challenging and based on current order intake, the Board does not anticipate a material recovery in volumes over the short to medium term.

Strategic Review

The Company has witnessed a sustained lack of recovery in business performance to its pre-Covid operating level and Management's efforts to battle against a difficult macroeconomic environment have not delivered meaningful results. After observing disappointing volumes in FY24, the Board has come to the opinion that it is unlikely that a significant improvement will be forthcoming without a strategic catalyst.

As previously articulated, the Board of Zytronic has undertaken a full business and operational review (the "Internal Review") which has now been completed. As a result, the Board has a clearer vision for what is required to turn the Company around. The Company is today announcing its intention to undertake a strategic review (the "Strategic Review"), in conjunction with shareholders, to assess the future options for the Company, which are:

1.     the implementation of a new strategic business plan ("Transformation Plan");

2.     an orderly solvent liquidation of the Company's assets;

3.     the potential sale of the Company;

4.     delisting and continuing as a private company, either:

a.     continuing with the business as currently undertaken but without the considerable costs associated with maintaining the Company's admission to trading on AIM, or

b.     implementing the Transformation Plan; or

5.     selling the Company's assets and continuing as a cash shell.

The following information provides further background and context on the options to be explored.

Transformation Plan

Overview

The Board, in collaboration with the executive management of Zytronic Displays Ltd ("ZDL"), the Company's operating subsidiary has, based on the Internal Review, developed a new strategic and operational Transformation Plan which aims to leverage ZDL's proven knowledge and experience of projected capacitance ("PCAP") touch technology. The plan aims to pivot ZDL's operational focus away from copper-wire sensor ("Wire") manufacturing and towards providing consultative expertise during the design and prototyping phase, whilst outsourcing alternative material sensor supply to third parties.

The Transformation Plan encompasses three strategic initiatives:

1)    An expansion of ZDL's PCAP solution offerings, where ZDL will significantly diversify its PCAP sensor portfolio by becoming a supplier of a broader range of PCAP touch solutions, utilising Metal Mesh ("MM")* and Indium Tin Oxide ("ITO")* powered by the Zytronic developed ZXY500 touch electronics. The Board believe this will enhance Zytronic's market penetration as the growth demand for these PCAP solutions is far greater than its present Wire offering, which is a PCAP sensor solution the Board now considers to be in relative decline;

2)    the establishment of a focused collaborative design and sales process with market and application-specific original equipment manufacturers ("OEMs") to deliver interactive PCAP sensor and display solutions. In this model, ZDL will seek to lead the supply chain management; and

3)    a reduction of its manufacturing footprint at its current facilities, transforming it into a premier PCAP engineering and solutions hub. The transformation of the current site during FY27, may thereafter include the establishment of a new smaller purpose-built or adapted facility appropriate to support the revised business.

* A MM PCAP sensor is created by multi-stage chemically etching of a 2-micron thick copper layer that has been deposited on a plastic film substrate, forming a near-invisible electrode pattern with 6-micron wide electrodes, and combining separate X and Y electrode layer arrays to create the sensor. An ITO PCAP sensor is made by laser ablating a circa 70-nanometer thick ITO layer that has been coated on to a glass or plastic film substrate, resulting in an invisible complex electrode pattern. Separate X and Y electrode arrays are bonded together to form the sensor.

Market Size

The Board believes the Transformation Plan could materially expand ZDL's accessible market and create a more sustainable business model. The Board, in consultation with a third-party consultancy company, estimates the addressable market for ZDL's expanded PCAP solution offerings, excluding China, will be c.$3.5bn by 2030. Securing a relatively modest share of the expanded addressable market would represent a material growth opportunity for the business.

Transformation Plan Implementation

Execution of the Transformation Plan is divided into three broad stages:

1)    Continued focus of selling the current Wire solutions to existing customers in the short-term, to stimulate demand, through the established operating model.

2)    Focus on distributing Wire solutions to new customers. Whilst the Board anticipate this market is in decline, it foresees residual demand where Wire's PCAP attributes fit some applications better than MM or ITO.

3)    Target a broader range of PCAP solutions to new and existing customer segments. Under this plan, the Company will:

·      Develop PCAP solutions in both MM and ITO, based on partnerships with lower cost manufacturers. Zytronic will both manage this global supply chain and source integrated PCAP monitor solutions incorporating its developed ZXY500 controllers and underlying electronics.

·      As the MM and ITO solutions are established there will be a global launch of the extended option suite.

·      The sales strategy will be refreshed with an increased refocus on direct consultative selling to OEMs.

·      The value proposition will be developed to emphasise differentiated features of the Zytronic wider service offer rather than solely focusing on the technical attributes of the solution.

The Board believes a consultative selling skillset integrated with Zytronic's well regarded advanced engineering competencies will enable the business to step forward in the industry value chain. This will enable Zytronic to sell directly to OEM's at both component level as it has done in the past and also at an advanced monitor solution level taking the business beyond the display integrator.

Scenario Planning

Whilst there can be no guarantee that the Company will be able to finance the Transformation Plan using its existing financial resources, under its base case scenario, the expected operational cost of the Transformation Plan over the implementation period is estimated to consume between £2.5m and £3.5m of the Company's available headroom.

Assumptions underpinning the Transformation Plan Include:

·      A gradual reduction in revenue mix from the Company's existing Wires business over the next five financial years;

·      Sales from MM-based products increasing substantially in FY26;

·      Initial sales from ITO-based products commencing during FY26; and

·      Overheads increasing over the three-year period, to drive the transformation.

The Board ascribes a reasonable probability to a scenario in which Wire product sales decline faster than expected or the Transformation Plan costs exceed estimates which could impact cash reserves in the second half of FY25 or beyond. To support the plan, the Board has identified a number of possible funding options to generate liquidity should there be an additional cash requirement.

The Board will meet quarterly to appraise the ongoing progress and viability of the Transformation Plan to ensure safeguarding of shareholder assets.

Solvent Liquidation

As at 31 March 2024, being the date of the Company's most recently notified statement of financial position, Zytronic had net assets of £12.9m of which £8.4m comprised property, plant and equipment and cash. An extract of the Company's statement of financial position from its most recent unaudited set of financial statements to 31 March 2024 (being the latest practicable date) is set out below:

Note: the total issued share capital figure used for the per share figures was 10,161,737 ordinary shares.

The Company's cash balance as at 30 September 2024 was £3.7m (H1 FY24: £3.7m).

The Directors note that a recent third-party valuation report obtained by the Company concurs with the value of property assets as at the latest statement of financial position date.

It should be noted that there can be no guarantee that the Company will be able to achieve the stated statement of financial position values in the event of a solvent liquidation and that these values are included for reference only and do not constitute an asset valuation under Rule 29 of the Code.

The Potential Sale of the Company

One possible outcome of the Strategic Review is the sale of the Company. The Takeover Panel Executive has granted a dispensation from the requirement of Rule 2.4 (a) and (b) of the Takeover Code such that Zytronic is not required to identify any potential offeror which Zytronic subsequently refers to the existence of in an announcement unless that potential offeror has been specifically identified in any rumour or speculation.

The Company is not in discussions with, nor in receipt of any approach from, any potential offeror at the time of this announcement.

As a consequence of this announcement, Zytronic is now in an "offer period" as defined in the Takeover Code and the attention of Zytronic shareholders is drawn to the dealing disclosure requirements of Rule 8 of the Takeover Code, which are summarised below.

Shareholder Consultation and Next Steps

The Board intends to undertake informal discussions with shareholders and invites shareholders to send comments to the Chairman via Singer Capital Markets Advisory LLP ("Singer Capital Markets"), in particular on their priorities for their investment in the Company and the options described above.

We would respectfully remind shareholders that any such informal discussions will be conducted on a confidential basis and the Board may not be able to answer certain queries, provide any assurances as to the outcome of the consultation exercise or the wider process and/or provide shareholders with all the information they may request in relation to the Strategic Review or otherwise.

Next Steps

The Board looks forward to updating shareholders on the progress of the Strategic Review and will make further announcements in due course, noting that there is currently no certainty as to the outcome of the Strategic Review.

Investor Presentation via Investor Meet Company

ZYTRONIC PLC is pleased to announce that Mark Cambridge, Chief Executive Officer and Claire Smith, Chief Financial Officer will provide a presentation relating to the Strategic Review via Investor Meet Company on 24 Oct 2024, 11:00 BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 21 Oct 2024, 16:30 BST.

Investors can sign up to Investor Meet Company for free and add to meet ZYTRONIC PLC via:

https://www.investormeetcompany.com/zytronic-plc/register-investor

Investors who already follow ZYTRONIC PLC on the Investor Meet Company platform will automatically be invited.

Enquiries:

Notes to Editors

The Company's operating subsidiary Zytronic Display Ltd ("ZDL") is an established developer and manufacturer of a unique range of internationally award-winning optically transparent interactive touch sensor overlay products for use with electronic displays in industrial, self-service and public access equipment.

ZDL's products employ a copper wire-based sensing solution that is readily configurable and is embedded in a laminate core which offers significant durability, environmental stability, and optical enhancement benefits to meet system-specific design requirements.

ZDL has continually developed process and technological know-how and intellectual property since the late 1990's around two PCAP sensing methodologies; trademarked by it as PCT™ ("Projected Capacitive Technology") and MPCT™ ("Mutual Projected Capacitive Technology"), in respect of which 15 internationally granted patents are held. As part of this the Company has invested in and developed an advanced controller, the ZXY500.

The Company is headquartered at Blaydon-upon-Tyne in the United Kingdom. ZDL operates from this site, providing its manufactured products globally through a number of sales channel partners. ZDL differentiates itself from others in the touch eco-system as it offers a complete one-stop solution including processing internally of the form and factor of glass and film substrates, the assembly of the associated touch overlay products, in environmentally controlled cleanrooms to customer's specific requirements and the development of the bespoke firmware, software and electronic hardware which comprise the controller that links the manufactured touch interactive overlays to a customer's integrated systems and product.

For more information about ZDL's technologies and products please see www.zytronic.co.uk and for more information about the Company please see https://www.zytronicplc.com

Notice related to the Nominated Adviser and Broker

Singer Capital Markets Securities Limited ("SCM Securities"), which is authorised and regulated in the United Kingdom by the FCA is acting solely for the Company and no-one else in connection with the subject matter of this announcement. SCM Securities is not responsible to anyone other than Zytronic for providing the protections afforded to clients of SCM Securities or for providing advice in connection with the subject matter of this announcement.

Singer Capital Markets, which is authorised and regulated in the United Kingdom by the FCA, is acting as nominated adviser to Zytronic for the purposes of the AIM Rules and no-one else in connection with the subject matter of this announcement. Singer Capital Markets is not responsible to anyone other than Zytronic for providing the protections afforded to clients of Singer Capital Markets or for providing advice in connection with the subject matter of this announcement. Singer Capital Market's responsibilities as Zytronic's nominated adviser under the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not owed to the Company or to any Director or to any other person.

Disclosure requirements of the Takeover Code

Under Rule 8.3(a) of the Takeover Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Takeover Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Rule 26.1 disclosure

In accordance with Rule 26.1 of the Takeover Code, a copy of this announcement will be available (subject to certain restrictions relating to persons resident in restricted jurisdictions) at www.Zytronic.com by no later than 12 noon (London time) on the business day following the date of this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Rule 2.9 information

In accordance with Rule 2.9 of the Code, Zytronic confirms that as at the close of business on 15 October 2024 its issued share capital consisted of 10,161,737 ordinary shares of 1 pence each (excluding shares held in treasury). The International Securities Identification Number for Zytronic ordinary shares is GB0006971013.

Risk Factors

The alternative available options outlined above ("Strategic Review options"), which are likely to be considered in further detail following discussions with shareholders in due course as part of the Strategic Review, all involve the assessment and making of certain assumptions and bring potential risks, which could ultimately impact the success or otherwise of any of the available options. No assurance can be given that shareholders will ultimately realise a profit or will avoid a loss on their investment.

The Board has identified the following risks in connection with the Strategic Review options which it considers to be the most significant for shareholders in the Company. The risks outlined below do not purport to be exhaustive and do not necessarily comprise all the risks to which the Company and its subsidiaries may be exposed. In assessing the potential risks involved with the Transformation Plan the Board has sought to identify and analyse the mitigating factors that may help to mitigate relevant potential risks, The risk factors described below are not set out in any particular order of priority.

If any of the following events identified below occur the business of the Company and its subsidiaries business, financial condition, capital resources and/or future operations or prospects could be materially adversely affected. In that case, the market price of the Company's shares could decline and shareholders may lose part or all of their investment. Additional risks and uncertainties not currently known to the Board, or which the Board currently deem immaterial, may also have an adverse effect on the Company's business. In particular the Company's performance may be affected by changes in the market and/or economic conditions and in legal, regulatory and tax requirements. A shareholder should carefully consider their investment in the Company and its suitability in light of his, her or its individual circumstances and the financial resources available to him, her or it. If a shareholder is in any doubt about the action a shareholder should take then they should consult your independent financial adviser authorised under FSMA.

Risks relating to the Company's operations

Revenues arising from new product offerings are uncertain or may take longer to materialise

The Company's Transformation Plan is predicated on the business being able to deliver a material change in its product mix towards technologies, namely MM and ITO,  in which the Company has recently started to generate small levels of revenue in the former. There is a risk that sales of these new technologies take longer to grow, or the Company is unable to offer its products at a suitably competitive rate to generate sales demand.

Current Financial Resources and potential requirement for further funding

Should the Company not have sufficient cash resources to be able to fund the Transformation Plan then the Company is likely to require additional capital, whether from equity or debt sources. If the Company is not able to obtain such capital on acceptable terms or at all then it may be required to alter, curtail or abandon the Transformation Plan. The Company's current available overdraft facility is an on-demand facility and could therefore be withdrawn by the Company's incumbent bank at any time which would therefore affect its ability to take advantage of it should such overdraft facility be required in order to fund the Transformation Plan. 

The Company is subject to risks associated with developments in its sector of operation

The success of the Company, and in particular the Transformation Plan, depends on the ability to successfully develop, identify, expand into new sectors and take to market viable price-appropriate products in the Company's sector of operation and to generate a sufficient volume of sales and revenue as a result of doing so. The Company cannot be certain that such a successful outcome is possible. Should the Company's sector and markets undergo technological change, new product introductions or enhancements involving evolving industry standards then the Company may encounter unforeseen operational, technical or other challenges which may in particular impact the ability of the Company to successfully enact the Transformation Plan.

The implementation of the Transformation Plan will depend on the ongoing retention and engagement of the Company's key employees and recruitment of new personnel in order to implement and execute the Transformation Plan

The ability of the Company to achieve the Transformation Plan is significantly dependent upon the ongoing retention of the Company's  key employees, as well as the ability of the Company to attract and retain other staff required to ensure the success of the Transformation Plan. The impact of the departure of one or more of the key employees on the Transformation Plan cannot be determined or underestimated and may depend on, amongst other things, the subsequent ability to recruit other individuals of similar experience and credibility.

General economic conditions

The Company is affected by general economic and political changes and uncertainty. Factors such as global conflicts impacting the supply chain, supply and demand of capital, import tariffs, export and trading arrangements, industrial disruption and any future increases in the cost of labour have an impact on business costs and stock market prices. The Company's operations, business and profitability can be affected by these factors, which are beyond the control of the Company.

An orderly solvent liquidation of the Company's assets or the potential sale of the Company or its assets

Any potential return to shareholders as a result of an orderly solvent liquidation will ultimately be dependent upon the value able to be achieved by a liquidator for the assets of the Company, including the value able to be obtained in respect of a sale of some or all of the Company's property, which may be a different value to the independent valuation of the property obtained by the Company in August 2024.  Any potential sale of either the Company or its assets will also depend upon the availability of a suitable purchaser wishing to purchase the same at an appropriate sale price.