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annual report and financial statements 2010
Zytronic plc
Whiteley Road
Blaydon-on-Tyne
Tyne & Wear NE21 5NJ
Tel:
0191 414 5511
Fax: 0191 414 0545
Email: info@zytronic.co.uk
Web: www.zytronic.co.uk
_cover.indd 1
17/12/2010 10:06:40
Zytronic is the developer and
manufacturer of a unique range
of internationally award‑winning
touch sensor products.
these products employ an embedded sensing element and are based
on projected capacitive technology (“pct™”). pct offers significant
durability, environmental stability and optical enhancement benefits
to system designers of integrated electronic displays, beyond that
which was previously attainable.
Zytronic is also an industry leader in the development and manufacture
of customised optical filters to enhance electronic display performance
and an innovator in the production of specialised and transparent
laminates for niche markets.
operating from three modern factories near newcastle‑upon‑tyne
in the uK, Zytronic assembles touch sensors, optical filters and other
laminates, using special glass and plastic materials, in environmentally
controlled clean rooms.
Review of the year
01 Highlights
02 Our markets at a glance
04 Our customers and technology
at a glance
06 Chairman’s statement
08 Business review
Corporate governance
16 Board of Directors
18 Corporate information
19 Directors’ report
22 Corporate governance
25 Remuneration report
Financial statements
Group accounts
29 Independent auditors’ report
30 Consolidated income statement
30 Consolidated statement of
comprehensive income
30 Consolidated statement of changes
in equity
31 Consolidated balance sheet
32 Consolidated cashflow statement
33 Notes to the consolidated
financial statements
53 Five-year summaries
Company accounts
55 Statement of Directors’ responsibilities
in relation to the Parent Company
financial statements
56 Parent Company auditors’ report
57 Parent Company balance sheet
58 Notes to the Parent Company
financial statements
63 Notice of annual general meeting
_cover.indd 2
17/12/2010 10:06:40
Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
highlights
Group revenue increased by 16% to £18.5m (2009: £15.9m)
Export sales now represent 90% of Group sales (2009: 86%)
Record orders for the year of £19.8m (2009: £16.1m)
Profit before tax increased by 27% to £2.9m (2009: £2.3m)
Earnings per share (“EPS”) increased by 28% to 14.9p (2009: 11.6p)
Final dividend proposed of 5.0p (2009: 3.8p) – total for year increased by 40% to 7.0p (2009: 5.0p)
Growth in network of sales representatives includes new sales channels in Brazil and South Africa
Net cash inflow from operations of £3.8m (2009: £3.1m)
Gearing reduced to 11% (2009: 31%)
sales Revenue (£’000)
£18.5m
+16%
3
8
4
,
8
1
1
2
9
,
5
1
7
1
7
,
4
1
*
1
0
3
,
2
1
7
3
4
,
1
1
pRofit fRom Continuing opeRations (“pBt”) £’000
£2.9m
+27%
*
6
2
3
,
1
3
8
6
4
2
9
,
2
0
0
3
,
2
0
4
7
,
1
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
eps
14.9p
+28%
p
9
.
4
1
p
6
.
1
1
Cash flow fRom opeRating aCtivities (£’000)
£3.1m
+27%
*
9
9
2
1
,
9
1
3
1
,
7
4
1
3
,
2
8
4
2
,
8
8
9
,
1
*
p
8
7
.
p
3
.
7
p
6
.
3
* 2006 prepared under UK GAAP.
2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
01
_1_ZYT_ar10_front_[JW].indd 1
17/12/2010 10:05:52
Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
OuR MARkETS
at a glanCe
stRengthening
ouR gloBal netwoRk
the group has expanded its customer base and distribution and representation
networks over recent years so that it now sells into most of the world’s
leading economies.
Since 2005, we have expanded our overseas representation significantly. We now have 16 representatives
covering all of the uS, Brazil, Canada and Puerto Rico, and distributors covering ten countries in the Far East
(Asia Pacific “APAC”) and 25 countries in Europe, Middle East and Africa (“EMEA”).
The range of applications for our touch sensors is as wide as the imagination of leading designers.
it includes use in ATMs, petrol pumps, ticketing machines, information displays, gaming machines,
food retailing and other vending, jukeboxes, medical equipment, keypads,
solar powered parking meters, diagnostic engineering equipment and
helicopter simulation machines. There are many other and more
varied uses. Photographs of some of the applications are included
within this annual report.
ZytRoniC stRengthens sales
pResenCe in noRth/latin ameRiCa
Zytronic continues to expand its global presence and has entered into
a sales representation deal with marathon technical associates.
the new agreement will cover the south east of the united states
and Brazil.
Headquartered in Orlando, and with several sales offices in Florida and
Sao Paulo, Brazil, Marathon has been providing high tech companies with
local sales support for almost 25 years. it possesses a highly experienced,
technically-strong sales force and an impressive line card of blue-chip
electronic component products used in a variety of industries, including
display manufacture.
foR moRe news Releases on ouR maRkets
www.zytronic.co.uk/news-and-events
02
Zytronic plc Annual report and financial statements 2010
www.zytronic.co.uk
_1_ZYT_ar10_front_[JW].indd 2
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ameRiCas
emea (exCl. uk)
apaC
uk
Sales in North and South America
recovered in FY2010. Significant growth
from new customers using ZYBRID® touch
sensors and these sensors are now being
used in a wide range of applications
including gaming, self-service, vending
and information kiosks. During the year
we appointed a representative for Brazil.
The EMEA region, by sales value, continues
to represent the largest market for Zytronic
products and continues to exhibit good
growth. Direct product sales to EMEA
countries are represented by a broad
range of application uses, such as
ATMs, information kiosks, self-service
systems and jukeboxes. During the year we
appointed a representative in South Africa.
Sales in the APAC region continue
to exhibit very good growth. A number
of positive factors have driven this,
including a growing deployment
programme of ATMs in mainland China
and an increase in ZYPOS® sales to the
digital signage and gaming market
providers in both South Korea and Taiwan.
Invoiced sales within the UK have continued
to decrease as UK manufacturers “export”
their manufacturing overseas. As this
geographic analysis is prepared from
invoiced addresses, it cannot properly reflect
the continuing business which is undertaken
for UK companies but where we ship our
goods overseas for the first stage of their
integration/manufacture. Many such goods
ultimately return to the UK for finishing or as
completed products.
sales peR Region anD gRowth (%)
£3.7m
+22%
£8.5m
+16%
£4.5m
+36%
£1.8m
-21%
ZytRoniC signs italian DistRiBution
agReement with Camax Ds, sRl
Camax will provide local sales support in its role as master distributor for Zytronic’s
range of pCt-based glass touch sensor products, which includes ZyBRiD, Zypos,
ZyswitCh® and ZytouCh®.
This engagement complements the presence of Zytronic’s existing local distribution
partner, ElCAM, which is the main distributor for the Company’s PCT-based foil touch
sensor products, ZYPROFilM® and ZYFilM®.
Headquartered just outside Milan, and founded in 1979, Camax chose to focus its business
solely on the touchscreen market almost 20 years ago. This has enabled the Company
to provide its customers with a highly experienced and professional sales force that
has unrivalled market knowledge, and access to a broad range of component parts
to complete ready-to-use touch-enabled systems, including point-of-sale units
and public information applications.
ZytRoniC fuRtheR expanDs
gloBal pResenCe thRough
sales paRtneRs in China
Zytronic has established a strategic presence in
mainland China by announcing partnerships with
silicon professional asia Corporation ltd (“spaC”)
and anytouch technologies Co. ltd. Both are
experienced and respected technical sales
organisations with offices throughout mainland
China and hong kong.
SPAC is a sales representative with an infrastructure
spanning eight offices in mainland China as well as
a presence in Hong kong. A dynamic company
established in 2001, SPAC focuses on components
and computing markets including business-to-business
and e-commerce sectors.
AnyTouch, which has signed a distribution agreement
with Zytronic, is a specialist in touch-based products
and solutions including systems, hardware and software.
The company will open new markets for Zytronic’s
ultra-durable PCT touchscreens among customers in
the games, finance, telecommunications, electric power,
transportation, hospitals, real estate, tourism and
government sectors. The company provides a comprehensive
portfolio of sales and technical/design support services
to its partners and customers.
ZytRoniC appoints its fiRst
south afRiCan DistRiButoR
screenvision is to represent Zytronic in the region. headquartered in the
town of florida (in gauteng province), screenvision has built up a
highly effective sales network throughout south africa.
it produces its own display assemblies, which integrate high performance
lCDs and touchscreen solutions, for implementation in point-of-sale
terminals for retail outlets, digital signage systems, public information
kiosks and bank ATM units.
Through this new partnership, ScreenVision will gain access to Zytronic’s
full range of touch sensor products and supporting touch controller devices,
as well as its RFi/EMi shielding and optical filter offerings.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
03
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17/12/2010 10:06:01
Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
OuR CuSTOMERS AND TECHNOlOGY
at a glanCe
Continuing to woRk
Closely with CustomeRs
over the last ten years we have developed our patented technology
into a family of product offerings for use in a wide range of applications.
We continue to work closely with customers to develop new touch solutions to meet
their application requirements.
the i-table™ is already successfully in use in
gaming venues across north america, including
las vegas, san Diego and Delaware.
“The running of a gaming operation is becoming increasingly
challenging, with management needing to meet players’
demands for a greater array of game options, while at the
same time improving productivity and security levels“ states
Nathan Wadds, Senior Vice President of Research & Development
at Shuffle Master. “The i-Table™ has the look and feel of the live
tables that customers prefer without the heavy operating costs
or risks of theft and cheating associated with them. For this
product to be successful, however, the integrity and longevity
of the touchscreen areas’ functionality had to be assured. We
tested a variety of solutions from different suppliers, but these
could not adequately deal with our concerns about durability.
Zytronic’s PCT™ touch sensing system stood out as the best way
to guarantee touch performance and avoid downtime. The
customisable nature of PCT also provided us with the ability
to create an attractive, near seamless playing surface.”
Commenting that self-service kiosks are
known to increase productivity and customer
satisfaction in many types of enterprises,
peter kaszycki, vp Business Development,
manufacturing Resources international,
incorporated, says:
“Way2Order kiosks maximise business advantages for the
drive-through restaurant sector. ZYTOuCH provides the ideal
platform for our concept, as it is easy to integrate with the
powered display, ensures that the full screen brightness reaches
the user so that the graphics can be seen clearly in direct
sunlight, and provides reliable and accurate touch response
even through a thick glass overlay.” He continues, “ZYTOuCH
was the only solution we could find that offered front and
rear anti-reflective coating, and ensured all-weather durability.”
04
Zytronic plc Annual report and financial statements 2010
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_1_ZYT_ar10_front_[JW].indd 4
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To show the geographic
spread of customers, we list
alphabetically, some of those
who have featured in press
releases over the last three years.
Press releases are shown on our
website, www.zytronic.co.uk;
ACE interactive AB (Sweden)
Advantech (Taiwan)
Aristocrat leisure limited (uSA)
bCode Pty ltd (Australia)
Beckman Coulter (uSA)
CiVuE Optotech inc (Taiwan)
Dong Wha Prime (korea)
ECAST (uSA)
JC Decaux (France)
Manufacturing Resources
international (uSA)
NSM Music limited (uk)
Scheidt & Bachmann Gmbh
(Germany)
Sunvision Technology (Taiwan)
Winncomm Corporation
(Taiwan)
Yeahpoint (Australia)
37DistRiButoRs/
RepResentatives
39CountRies RepResenteD
90%sales expoRteD
new ContRolleR teChnology
At the Society of information Displays (“SiD”) Display Week 2010,
we introduced a new family of touch controllers designed to
enhance user experience. Designed for its proprietary range
of touch sensors, the new touch controllers offer features such
as dual-touch output for linkage to “multi-touch” or gesture
recognition software, Windows® 7 plug and play, in-field
firmware upgradeability and reduced PCB footprint.
state-of-the-aRt iCon™ Range of
online jukeBoxes
Zytronic has gained another high level endorsement for its
PCT-based touch sensors. By utilising these products, leading
digital entertainment system manufacturer, NSM Music ltd,
has added large format, durable, projected capacitive touch
screen functionality to its latest generation of online
jukeboxes, icon™.
ReaD moRe on this stoRy online
www.zytronic.co.uk/news-integral-role
ReaD moRe on this stoRy online
www.zytronic.co.uk/uploaded/nsm
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
05
_1_ZYT_ar10_front_[JW].indd 5
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Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
ChaiRman’s statement
summaRy of ChaiRman’s statement
Sales at £18.5m increased 16%
(2009: £15.9m)
Pre-tax profit increased 27% to £2.9m
(2009: £2.3m)
EPS increased 28% to 14.9p (2009: 11.6p)
Record orders received in the year of £19.8m
New sales reps in Brazil and South Africa
Export sales reached 90% (2009: 86%)
increasing cash inflow from operations
Net gearing reduced to 11% (2009: 31%)
Proposed dividend per share increased to
5.0p (2009: 3.8p) increasing the full year
dividend by 40% to 7.0p (2009: 5.0p)
The success of our touch sensor products in
the self-service, kiosk and digital signage markets
augurs well for the future. To this must be added
recent contract wins in the gaming sector and the
first white-goods product with a Zytronic touch
sensor display which is expected to be launched
early in 2011.
In my first statement since becoming Chairman
on 1 July 2010 I am pleased to be able to report
significant growth in both sales and profits in the
year to 30 September 2010, following a strong
second half performance.
Results
At £18.5m (2009: £15.9m), sales for the year were
16% higher than last year. Due to changes in sales
mix, gross margin dipped slightly to 32% (2009: 34%),
but pre-tax profit and earnings per share were still 27%
and 28% ahead of last year at £2.9m (2009: £2.3m)
and 14.9p (2009: 11.6p) respectively.
tRaDing
Orders received during the year were a record
for the Group at £19.8m (2009: £16.1m).
A number of new touch sensor developments
have been introduced successfully, giving customers
better value and helping to increase the volume
of units sold by nearly 11% over last year. In value
terms, touch sensor sales recovered in the second
half, having been 6% down on last year in the first
half, to finish 2% ahead for the full year.
Increased sales in the self-service and kiosk markets
have offset the downturn in sales to the gaming
market, which has been hard hit by the recession.
The growth in total sales was driven principally
by sales of optical filters to the cash dispenser
(ATM) market where volume increased by 36%.
We continue to see efficiency gains in the ZYPOS
production facility, created two years ago.
Our network of sales representatives, agents
and distributors has grown, including new sales
channels in Brazil and South Africa, where we
have not previously been represented. Since the
year end, we have also increased resources in our
own direct sales team.
Exports in the year to 30 September 2010 were
90% of total sales (2009: 86%).
Cash anD geaRing
The Group’s balance sheet remains solid, with net
assets increasing by 14% to £11.5m (2009: £10.0m).
Net cash inflow generated in the year from
operations was £3.8m (2009: £3.1m) and a
further £0.5m was received as the final instalment
of a government grant. After £0.9m of capital
expenditure and after paying interest, tax and
dividends and repaying £0.8m of borrowings,
cash and cash equivalents increased by £1.1m
in the year to £1.2m (2009: £0.1m).
At the year end net borrowings were £1.2m
(2009: £3.1m) and gearing (net borrowings
divided by net assets) had reduced to 11%
(2009: 31%).
DiviDenD
The Directors are pleased to recommend a final
dividend of 5.0p per share (2009: 3.8p per
share), payable on Friday 25 February 2011
to shareholders on the Register of Members on
Friday 11 February 2011. This will make the total
dividend for the year 7.0p per share (2009: 5.0p
per share), an increase of 40% over last year.
management anD peRsonnel
The trading performance could not have been
achieved without the abilities and hard work of
Chief Executive Mark Cambridge and his team.
I would like to thank all employees for their
contributions to a successful year for the
Zytronic Group.
I would also like to thank my predecessor,
John Kennair MBE, who stepped down as
Chairman at the end of June after thirty five
years as either Chairman or Chief Executive.
Zytronic simply would not be enjoying the success
it is today if it were not for John’s entrepreneurship
and his capability in leading and developing the
business of the Group. I am delighted that John
agreed to stay on as a Non-executive Director so
that we can continue to enjoy the benefits of his
wise counsel.
06
Zytronic plc Annual report and financial statements 2010
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_1_ZYT_ar10_front_[JW].indd 6
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Products
touch sensors
the manufacturing technology, pCt, employed in its touch sensors
is unique to Zytronic and offers significant benefits to traditional
users of resistive, capacitive and surface acoustic wave (“saw”)
technologies. unlike the other touch technologies, the active
component of Zytronic’s technology is embedded for protection,
providing a true safety laminated, pure glass fronted construction.
Zytronic’s product range includes:
> ZYTOuCH
> ZYPOS
> ZYBRiD
> ZYSWiTCH
> ZYPROFilM
> ZYFilM
Zytronic’s 65-inch ZYTOUCH sensor adds rugged touch capability to the Infinitus iMotion®
high-definition digital signage for the great outdoors. The innovative digital signage system
provides networkable screens for ski resorts, marinas and other harsh outdoor environments.
foR moRe infoRmation on ouR touChsCReens
www.zytronic.co.uk/products/touch-sensors
I am pleased to welcome David Buffham
to the Board; he joined as an Independent
Non-executive Director in September 2010.
outlook
The success of our touch sensor products
in the self-service, kiosk and digital signage
markets augurs well for the future. To this must
be added recent contract wins in the gaming
sector and the first white-goods product with a
Zytronic touch sensor display which is expected
to be launched early in 2011.
Whilst we do not expect a repeat of this year’s
dramatic growth in sales of optical filters to the
ATM market, the Directors are confident that the
continuous efforts to broaden both the product
range and geographical coverage will provide the
platform for further improvements in the Group’s
trading performance.
DaviD Banks, ma (CantaB), fCa
NON-ExECuTiVE CHAiRMAN
10 December 2010
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
07
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Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
Business Review
summaRy of Business Review
A year of “two halves”
Significant strengthening in H2
Profitability increased by 27% to £2.9m
(2009: £2.3m)
Significant progress with existing and
new touch sensor projects
Re-designs introduced for major
display products
Significant production efficiencies
achieved in manpower usage
Completion of development of new
ZxY100 family of controllers
Encouragingly, the overall growth in sales
in FY2010 has been underpinned by strong
order intake throughout the year of £19.8m
which, by close of the fiscal year, exhibited a
healthy 23% increase against the £16.1m of
orders received in FY2009.
Business Review
The following review provides information on the
sales, profitability, operational activities, research
and development and the financial aspects of the
business during FY2010 and, where helpful, draws
comparisons with the previous year.
oveRview of oRDeR intake,
sales anD pRofitaBility
FY2010 has continued the trend of being a year
of “two halves” as follows:
a) orders received in the first half increased by
16% to £9.7m (2009: £8.4m), whereas in the
second half they improved even further, by
31%, to £10.1m (2009: £7.7m), resulting
in an overall growth of 23% for the year;
b) in the case of sales, there was a modest
3% increase in turnover during H1 (£8.2m
compared to £8.0m in H1 2009), followed by
significantly increased H2 demand of £10.3m
(H2 2009: £7.9m). This resulted in 16% growth
for the full year to £18.5m (2009: £15.9m); and
c) similarly, profit before tax was only slightly
ahead at the half year by 1% at £1.06m
(H1 2009: £1.05m), but increased in H2
by 49% to £1.9m (H2 2009: £1.3m), resulting
in an increase of 27% for the full year to £2.9m
(2009: £2.3m).
key maRket faCtoRs
The key market factors affecting the reported
2010 sales and profitability include:
• with infrastructural upgrades scaled-back in the
largely saturated market of North America,
global competition in the ATM market is
continuing to drive cost reduction pressure
within the supply chain. This requirement has
empowered us to re-design a large proportion
of the components supplied and, from March
2010, both Zytronic and its ATM related
customers began to benefit from the
introduction of such products;
• with our ATM customers reporting continued
strong sales to the BRIC economies, we, in
turn, have benefited from an increase in the
volume of optical display filter units sold, as
non-touch ATMs are deployed more widely in
these countries. This increase, coupled with
the one-off uplift of sales from the introduction
of Vendor Managed Inventory (“VMI”), has
resulted in a 36% total increase in the volume
of units sold;
tRaDing Results
A summary of the results over the last four years shows the strong performance from 2007, the growth
in sales and the improving profitability (profit before tax) of the business:
Group revenue
Gross profit
Gross profit (%)
Profit from continuing operations (before tax)
Basic EPS
Dividends paid and proposed for the year
2010
£’000
18,483
5,894
31.9%
2,924
Pence
14.9
7.0
2009
£’000
15,921
5,407
34.0%
2,300
Pence
11.6
5.0
2008
£’000
14,717
4,739
32.2%
1,740
2007
£’000
11,437
3,466
30.3%
683
Pence
Pence
7.3
4.0
3.6
3.0
08
Zytronic plc Annual report and financial statements 2010
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_1_ZYT_ar10_front_[JW].indd 8
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Products
optical filters and displays
Zytronic optical filters are used to enhance the readability of
all types of electronic displays by controlling light transmission,
reflection and absorption. the filters can also provide protection
of the display from abrasion and damage from impact thereby
extending the life of the display.
our filters comprise the following options and features:
> Anti-reflection coatings to maximise transmission
> Anti-glare finishes
> Tinted or neutral density substrates/interlayers to improve contrast
> Transparent conductive coatings for static dissipation or
electromagnetic shielding
> Micro-fine mesh for electromagnetic shielding
> Circular polarisers to enhance contrast
Esprit Digital’s E5C digital poster technology operates London Underground’s first digital poster
network at Tottenham Court Road station, using Zytronic’s rugged, anti-glare, laminated
glass display panels. Positioned alongside the escalator, these digital posters show moving
images which pass from screen to screen, seamlessly cascading.
foR moRe infoRmation on ouR optiCal filteRs anD Displays
www.zytronic.co.uk/products/optical-filters-and-displays
• there has been a significant downturn in demand
from some of our established gaming equipment
customers, resulting from a market hit badly by the
global economic conditions, particularly in Europe.
Despite the prevailing conditions in the gaming
market, the Zytronic touch sensor value proposition
(customisation, robustness and durability)
continues to gain momentum. As a result, a
significant new gaming project in North America,
with a global top three manufacturer, moved forward
into production during the second half of 2010;
• the advantages of our touch technology for
public interactivity are continuing to gain traction
in the self-service and vending market. One
notable current example is the increasing
deployment of the Blockbuster Express branded
DVD vending kiosk throughout North America,
which use our ZYBRID touch sensor; and
• as The Coca-Cola Company® moved its
innovative Freestyle™ drinks fountain out of
field trials and into pilot deployment in North
America, we have benefited from an increase
in demand for this touch sensor during the
latter months of the fiscal year.
touCh sensoR sales
The net effect of these market factors has seen
total touch sensor units sold increase by around
11%. This has been driven by a 25% improvement
in the volume of units sold through our growing
global network of value added resellers, a more
then doubling of units sold into the self-service
and vending market, as well as small, but notable,
gains in other important markets of future opportunity
such as digital signage and telematics. The
improvements in these areas have been offset,
not only by the softening in the gaming market
described earlier, but also by a 7% decrease in
the volume of touch sensors sold to our ATM
customers as demand for high-end touch-operated
machines in Europe and North America remains soft.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
09
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Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
CONTiNuED
Business Review
sales expoRteD
90%
sales Revenue (£’000)
£18.5m +16%
2010
2009
2008
2007
2006
18,483
15,921
14,717
11,437
12,301
By mid-term 2010, the R&D team had completed
the development of the Zytronic Application Specific
integrated Circuit (“ASiC”) chip and new ARM® core
processor chip. The new controller family was
successfully launched into the market at the SiD
expo in Seattle, uSA during May 2010.
Business Review ContinueD
touCh sensoR sales CONTiNuED
Taking into account the shifting mix in touch sensor
designs and sizes, these market movements have
resulted in a favourable 8.5% upswing in touch
sensor turnover in the second half compared with
the reported 6.0% decline for the first half of the
year, leading to a net 2.5% increase for the year.
opeRations
Production management has made significant
strides forward in operational efficiency during
FY2010. This is highlighted by a comparison of the
increasing turnover of the Group with a reduction
in the productive labour being used, moving from
an average headcount of 169 persons in Q4 FY2009
to an average of 144 in Q4 FY2010.
oRDeR intake anD sales Channels
Encouragingly, the overall growth in sales in
FY2010 has been underpinned by strong order
intake throughout the year of £19.8m which, by
close of the fiscal year, exhibited a healthy 23%
increase against the £16.1m of orders received
in FY2009.
Our strategy for sales’ growth includes the
strengthening of our global sales channels,
which has continued with the signing of six
new representation agreements during the year.
This includes two new appointments in China
where we are looking to reproduce our successful
countrywide model, pioneered in the USA, through
regionalised representation agreements. We are
also actively establishing further sales support in
other emerging markets, and have appointed new
sales channels in Brazil and South Africa. In total
the Group now has sales channels covering
39 countries.
It is anticipated that these additional resources
will continue to drive our export sales, which
reached 90% of total sales (2009: 86%) and,
more impressively, our touch sensor export sales
which reached a record high of 93%
(2009: 88%).
The reduction in the average headcount is
testament to the efficiency improvements made
in using the new Britannia Court ZYPOS facility,
in introducing the new ATM product designs
and in effecting numerous changes to the
manufacturing processes.
To continue to gain efficiency improvements
in FY2011, two new laminating machines have
been ordered. The first arrived in November 2010
and the second should be delivered in early
January 2011. We also plan to refurbish the oldest
clean room facility in 2011 which will reduce
running costs and enhance its capabilities.
ReseaRCh anD Development (“R&D”) Review
The R&D function has continued in 2010 to drive
forward the underlying technology behind the
Group’s touch sensor products, satisfying both
customer expectations and service requirements.
In the year ended 30 September 2010, the Group
has expensed R&D costs of £215,000 directly to
the income statement (2009: £291,000) and
capitalised £172,000 of development expenditure
within intangible assets (2009: £133,000).
Amortisation of £153,000 on past capitalised
development expenditure has also been charged
to the income statement (2009: £135,000).
10
Zytronic plc Annual report and financial statements 2010
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Products
emi and Rfi shielded filters
a shielded window is the optimum solution for reducing radio
frequency interference (“Rfi”) and other electrical/magnetic
interference (“emi”) transmitted through monitors, lCD instrument
panels and inspection windows fitted to electronic equipment.
Zytronic’s unique attention to detail achieves high attenuation,
with minimum impact on optical performance.
Zytronic’s state-of-the-art facilities can produce one-piece shielding
meshes for windows up to 2m x 1m, as well as small windows for
cost-sensitive TFT-lCD applications.
Shielded window services from Zytronic create a total solution, covering
design, assembly, framing and termination.
The photograph above shows telephone equipment racks manufactured by Sweden’s ABB,
incorporating Zytronic’s shielded glass filters in the doors.
foR moRe infoRmation on ouR emi/Rfi shielDeD filteRs
www.zytronic.co.uk/products/rfi-emi-shielded-filters
new family of ContRolleRs
By mid-term 2010, the R&D team had completed
a new controller configuration, trade named the
ZXY100 series, which combined work undertaken
on the development of the Zytronic Application
Specific Integrated Circuit (“ASIC”) chip and new
ARM® core processor chip. The new controller
family was successfully launched into the market
at the SID expo in Seattle, USA during May 2010.
The new controller family now provides for a
complete suite of electronic solutions for sensor
sizes from 5” through to the largest commercial
panel size produced in 2010 at 72”, without any
changes in relative performance.
The development work also brings three key
features to the product which to date had not
been possible or practicable, these being:
• an in-field programming capability to allow
customers to update firmware in a manner
similar to that of other traditional consumer
hardware devices;
• dual touch functionality including full
Windows 7 gesturing and interactivity; and
• a two chip solution for high volume applications,
where direct integration of the electronic circuitry
onto the customer’s motherboard is more
advantageous and cost effective to the end user.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
11
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Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
CONTiNuED
Business Review
gRoss pRofit (£’000)
£5.9m +9%
2010
2009
2008
2007
2006
eps
5,894
5,407
4,739
3,466
3,852
14.9p +28%
2010
2009
2008
2007
2006
14.9p
11.6p
3.6p
7.3p
7.8p
ReseaRCh anD Development (“R&D”)
Review ContinueD
otheR pCt meDia
During 2010, the R&D team actively designed
and evaluated other sensor configurations and
processing media, especially those relating to the
use of transparent metallic coatings on both glass
and plastic substrates. Prototype sensors have
been manufactured based upon a Zytronic
proprietary derived array design, which utilises the
same patented sensing methodology as used
in the existing products, working in conjunction
with the new ZXY100 controller configuration.
Several early stage new projects, which have been
sampled with this new product revision, particularly
for products designed for robustness when used in
larger volume telematics and self-service applications,
are progressing well and the revised media has been
very favourably received by prospective customers.
otheR Developments
Our material, mechanical and industrial engineers
have continued to evaluate new processes and
materials throughout the year, as a means of
offering and meeting internal and customer
specific cost reduction programmes.
So far, the main beneficiary of this work has been
our optical display customers, especially those
within the ATM market, where new designs
utilising fewer materials and more time efficient
processes were brought to market towards the
end of March 2010.
As well as the specific development work described
above and general customer technical support,
the R&D team has continued to undertake numerous
customer specific development projects in
application fields including vending and digital
signage. These should start to impact positively
on the Group’s performance during 2011.
As we move into 2011, the main R&D efforts will
be focused on:
• the continuation of the work initiated in reviewing
and developing alternative sensing media;
• the development, and then support, of our
own in-house driver source code to reduce our
dependence on our existing third party driver
software provider. We can then more readily flex
the code to meet the ever changing demands
for various operating system support; and
• the evaluation of methods whereby Zytronic can
achieve true multi-touch capabilities above the
already achieved dual input functionality.
gRoss pRofit
The gross margin percentage has shown
a decrease this year, from 34% to 32%,
reflecting two main influences during the year.
The larger effect on the margin arose from the
large volume of sales of the privacy filter option
in ATM displays as the material cost in these
products is relatively expensive.
In addition, as already reported in the interim
results, we also experienced a significant fall-off
in sales of Ultra Large Form Factor (“ULFF˝)
touch sensors.
To improve the gross margin percentage, we
review regularly the sources and costs of raw
material supplies, the design of our products and
the processes that we are using in their manufacture
as well as our number and use of staff.
aDministRation oveRheaDs
anD DistRiBution Costs
Overheads are continually challenged and
opportunities are taken to reduce them
whenever possible.
12
Zytronic plc Annual report and financial statements 2010
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Products
Ballistic visors
we have developed a fully laminated ballistic face visor
combining the properties of pmma and polycarbonate bonded
together using a proprietary tpu sheet interlayer. the unique
process involved in bonding these two materials results in the
finished visor offering supreme optical quality, minimal distortion
and the highest light transmission when compared to the
traditional air-spaced option.
Our ballistic visors are only manufactured to meet customers’ often
individual and unique requirements so consequently the range of
versions available is continually expanding.
Our in-house machining facilities allow us to work to the most
demanding tolerances, specifications and designs.
The visors are exported worldwide and are supplied to many of the
major ballistic helmet manufacturers for military, para-military, bomb
disposal and EOD applications.
Fully laminated, removable ballistic face visors provide maximum protection and excellent
optical clarity.
foR moRe infoRmation on ouR BallistiC visoRs
www.zytronic.co.uk/products/ballistic-visors
As salary costs remain the largest single item in
administration overheads (over 55%), we review
them annually in comparison to market rates
and the developing roles of our employees and
only add to our headcount when necessary.
We have continued to keep these, and our other
administration costs, under tight control during
the year. We have also enjoyed the benefit of a full
year’s saving in rent and other related costs from
the acquisition of the freeholds of two of our
factories in June 2009. The net result is that our
administration overheads and distribution costs
have shown a marginal decrease, being £2.97m
against £3.03m in 2009.
otheR opeRating inCome
In April 2010, we received the second and final
instalment of a Selective Finance for Investment
(“SFI”) grant from the local regional development
agency, One North East. This follows on from the
first instalment which was received in April 2008.
Both grants are being amortised over a five year
period commencing with the first receipt and
ending on 31 March 2013. The “other income”
of £112,000 in FY2010 contains £102,000 of
amortised SFI grant.
pRe-tax pRofit
The profit before tax of £2.9m has increased by
£624,000 (27%) on the prior year figure of £2.3m.
The reasons for this excellent performance are
noted elsewhere in this annual report and
financial statements.
taxation
The Group’s taxation charge of £736,000
(25%) (2009: £593,000 (26%)) is slightly lower
than the standard rate of corporation tax of
28%. The factors which affect the Group’s
taxation charge are outlined further in note 6.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
13
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Review of the yeaR
CORPORATE GOVERNANCE
FiNANCiAl STATEMENTS
CONTiNuED
Business Review
DiviDenD foR the yeaR
7.0p +40%
(2009: 5.0p)
Cash flow fRom opeRating aCtivities (£’000)
£3.1m +27%
2010
2009
2008
2007
2006
3,147
2,482
1,988
1,319
1,299
The Group has continued with the scheduled
repayments on all of its debt and total
repayments in the year amounted to £818,000
(2009: £639,000). The net gearing level
(all borrowings less positive cash balances
divided by net assets) was reduced
significantly to 11% (2009: 31%).
eps anD DiviDenDs
The reported basic EPS of 14.9p has increased
by 28% from last year (2009: 11.6p) which largely
reflects the significant improvement in profitability,
discussed above. The number of shares in issue of
14,710,484 has increased only slightly from last
year (2009: 14,674,121), following the exercise
of options over 36,363 shares.
As expected, our working capital has increased
with the growth in the Group’s business, but only
by £0.2m (2009: £0.2m). Stocks have increased
by £85,000 (2009: static). Trade and other
receivables have increased by £356,000
(2009: £59,000) reflecting the growth in
sales in Q4, while trade creditors increased
by £258,000 (2009: decrease £133,000).
There was a grant of share options during the
financial year over 82,500 shares at 177.5p and
the total number of share options outstanding at
30 September 2010 was 561,215 (2009: 527,598),
excluding the CEO’s incentive scheme. The dilutive
effect on the EPS of all existing share-based
payments is 0.1p.
The Group paid an interim dividend of 2.0p on
25 June 2010. With the increasing profitability
seen in this financial year, the Group intends
to continue its progressive dividend policy.
A resolution to approve the payment of a final
dividend of 5.0p on Friday 25 February 2011
for the year ended 30 September 2010 is included
in the Notice of Annual General Meeting. This
will bring the total dividend for the year to 7.0p
(2009: 5.0p), an increase of 40%.
Cashflow anD woRking Capital
The Group has continued to generate net
cashflow from operating activities, as shown
in the consolidated cashflow statement, and
this has increased again with the growth in
profitability. It amounted to just over £3.1m
this year in comparison to £2.5m in 2009.
Capital expenDituRe on fixeD assets
Capital additions to plant and machinery within
property, plant and equipment and intangible
assets were £552,000 and £228,000 respectively
(2009: £152,000 and £223,000 respectively).
Total capex was £894,000 while total depreciation
and amortisation for the year was £987,000
(2009: £920,000).
funDing anD geaRing
The Group has continued with the scheduled
repayments on all of its debt and total repayments
in the year amounted to £818,000 (2009: £639,000).
Six of the HP agreements were finished by
30 September 2010 and the remaining four,
together with the Chattel mortgage loan,
will be paid off by 31 March 2011.
To ensure that the Group has adequate longer-term
funding to provide cover for future working capital
requirements and capital expenditure needs, the
Group has in place further loan facilities. In particular,
the Group has an unused £2.0m three year
revolving credit facility with Lloyds TSB Bank,
expiring in June 2012. The Group also has an
14
Zytronic plc Annual report and financial statements 2010
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The shares of Zytronic plc are traded on the
Alternative Investment Market (“AIM”) of the
London Stock Exchange (“LSE”).
QUOTED
overdraft facility of £1.0m with Lloyds TSB Bank,
of which £291,000 was in use at the year end
(for foreign exchange management purposes).
The Group has built up its cash balances and at
the year end the net cash balances were £1.2m
(2009: £109,000).
Medium term borrowings were £2.4m
(2009: £3.2m) so the total net debt was
£1.2m (2009: £3.1m). The net gearing level
(all borrowings less positive cash balances
divided by net assets) was reduced significantly
to 11% (2009: 31%).
thanks to all employees
Finally, we would like to express the thanks of
the Board of Directors to all employees of the
Zytronic Group for their commitment and
enthusiasm throughout 2010 in delivering
the business performance described above.
maRk CamBRiDge, B.sC
CHiEF ExECuTiVE
Denis mullan, B.sC, fCa
FiNANCE DiRECTOR
10 December 2010
Zytronic’s PCT technology is readily adapted
to make record breaking sizes of touch sensors.
The collages below show a variety of the numerous
touch sensors which we have made in sizes from
30 inches up to 80 inches.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
15
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REViEW OF THE YEAR
CoRpoRate goveRnanCe
FiNANCiAl STATEMENTS
BoaRD of DiReCtoRs
DaviD eRiC Banks ma (CantaB), fCa
(D.o.B. 13/08/53)
non-exeCutive ChaiRman
David held a variety of positions in industry
at Director level before forming David Banks
Associates, which provides temporary and part
time assistance in financial supervision and
management. He was appointed Finance Director
of Zytronic plc in June 2000, prior to its flotation,
and became a Non-executive Director with effect
from 1 September 2003 following the appointment
of Denis Mullan to that role. He was appointed
Chairman with effect from 1 July 2010. He is
Chairman of the Group’s trading subsidiary,
Zytronic Displays Limited. David is Finance
Director of Romag Holdings plc.
maRk CamBRiDge, B.sC
(D.o.B. 09/01/64)
Chief exeCutive
Mark graduated with a B.Sc (Hons) in Materials
Science in 1986 and has a Securities Institute
Certificate in Corporate Finance (2003). Joining
the Romag Group of companies in 1991, he
held the positions of Technical Manager, Quality
Manager and Technical and Quality Director,
up to the demerger and flotation of Zytronic plc.
Since 2000 he has overseen the development,
market introduction and sales of the ZYTOUCH
touch sensor product and the market launch of
ZYPOS touch sensors. Mark was Sales and
Marketing Director of Zytronic Displays Limited
from 2002 until his appointment as its Managing
Director in February 2006. On 1 June 2007
Mark was appointed to the Board and promoted
to Chief Executive on 21 January 2008.
Denis geRalD wilson mullan, B.sC, fCa
(D.o.B. 08/02/54)
finanCe DiReCtoR
Denis was formerly a partner in Ernst & Young LLP,
specialising in corporate finance. He was
based successively in its offices in London,
Newcastle-upon-Tyne and finally Bristol. While
based in Ernst & Young’s Newcastle-upon-Tyne
office, he led its work on the demerger of
Zytronic Displays Limited in June 2000 and
the subsequent admission to AIM of Zytronic plc
in July 2000. Shortly thereafter he transferred
to Ernst & Young’s Bristol office, at which time
his formal advisory role to the Group ceased.
He joined the Group in August 2003.
siR DaviD RoBeRt maCgowan Chapman Bt.,
Dl, B Comm
(D.o.B. 16/12/41)(1) (2)
inDepenDent non-exeCutive DiReCtoR
Sir David is a former Director of Northern Rock plc
and the London Stock Exchange and a member
of the Greenbury Committee on Directors’
Remuneration. He is a Director of a number
of regional venture capital funds. A former
Chairman of CBI – North East and a First Vice
President of Merrill Lynch International Bank,
Sir David is currently a consultant with UBS
Wealth Management (UK) Limited. Sir David
is Chairman of the remuneration committee.
DaviD john Buffham
(D.o.B. 13/08/59)
inDepenDent non-exeCutive DiReCtoR
David worked at the Bank of England (the “Bank”) for
32 years until earlier this year. He held several roles
in the Bank, including working in the Banking
Supervision Division for five years following the
changes to banking regulations introduced in 1987
and as a Credit Risk Manager. In addition, he
advised overseas central banks on the conduct of
monetary policy operations. Most recently he was
the Bank’s Agent for the North East of England for
nine years.
Since leaving the Bank, David has been appointed
a Non-executive Director of Newcastle Building
Society, where he has joined the audit committee.
He is also a Governor and audit committee member
of Northumbria University and a visiting fellow at
Teesside University. Until 2006, he was a Director
of The Northumbria Coalition Against Crime.
16
Zytronic plc Annual report and financial statements 2010
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(1) Member of audit committee.
(2) Member of remuneration committee.
All of the Directors served throughout the financial
year, except David Buffham who was appointed
on 22 September 2010.
tuDoR gRiffith Davies B.sC
(D.o.B. 02/12/51)(1) (2)
senioR inDepenDent non-exeCutive DiReCtoR
Tudor has wide industry experience at boardroom
level, as Chairman, Chief Executive and Executive
and Non-executive Director of several public
companies. These have included Hicking
Pentecost plc, Stratagem plc, Dowding & Mills plc
and, most recently, Castle Support Services plc.
He was formerly a partner in Arthur Young
(a predecessor firm of Ernst & Young LLP)
specialising in corporate finance and recovery.
Tudor is Chairman of the audit committee.
john maRtin kennaiR, mBe
(D.o.B. 11/03/44)
non-exeCutive DiReCtoR
John joined the Romag Group in 1971 and
was appointed Group Chief Executive in 1975.
He was responsible for the development of the
glass business of the Romag Group into a wide
range of new technologies, including bomb and
bullet resistant glass, electronic shielding and
touch sensors. In 1990 he was awarded an MBE
for services to the specialised glass industry.
He led the demerger of Zytronic Displays Limited
from the Romag Group and the flotation of its
Parent Company, Zytronic plc, in July 2000.
He also led the subsequent flotation on AIM in
November 2003 of Romag Holdings plc, of which
he is Chairman. John stepped down as Chief Executive
on 21 January 2008 on the appointment of
Mark Cambridge and handed over the chairmanship
to David Banks on 1 July 2010.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
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REViEW OF THE YEAR
CoRpoRate goveRnanCe
FiNANCiAl STATEMENTS
CoRpoRate infoRmation
weBsite
www.zytronic.co.uk
seCRetaRy
Denis G W Mullan, B.Sc, FCA
Email: denis.mullan@zytronic.co.uk
stoCkBRokeRs anD nominateD aDviseR
BRewin Dolphin limiteD
48 St. Vincent Street
Glasgow
G2 5TS
RegisteReD offiCe
Whiteley Road
Blaydon-on-Tyne
Tyne & Wear
NE21 5NJ
Tel: 0191 414 5511
Fax: 0191 414 0545
RegistRation numBeR
3881244
RegistRaRs
ComputeRshaRe investoR
seRviCes plC
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
auDitoRs
eRnst & young llp
Citygate
St James’ Boulevard
Newcastle-upon-Tyne
NE1 4JD
BankeRs
lloyDs tsB Bank plC
PO Box 686
First Floor
Black Horse House
91 Sandyford Road
Newcastle-upon-Tyne
NE99 1JW
santanDeR CoRpoRate Banking
Baltic Place
South Shore Road
Gateshead
NE8 3AE
soliCitoRs
waRD haDaway
Sandgate House
102 Quayside
Newcastle-upon-Tyne
NE1 3DX
muCkle llp
Time Central
32 Gallowgate
Newcastle-upon-Tyne
NE1 4BF
18
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Directors’ report
The Directors present their annual report and financial statements for the year ended 30 September 2010.
Business review
Details of developments and the progress of the Group are contained within this Directors’ report as well as in the Chairman’s statement and Business review.
principal activities
Zytronic is the developer and manufacturer of a unique range of internationally award-winning touch sensor products. These products employ an embedded
sensing element and are based on PCT. PCT offers significant durability, environmental stability and optical enhancement benefits to system designers of
integrated electronic displays, beyond that which was previously attainable.
Zytronic is also an industry leader in the development and manufacture of customised optical filters to enhance electronic display performance and an
innovator in the production of specialised and transparent laminates for niche markets.
competitive aDvantages
The Group’s competitive advantages are based upon both the patented technology relating to the operation of the touch sensors and the lamination
techniques and processes, built up over 40 years of operations, which are a feature of all the Group’s products. These advantages allow the Group to
produce products which have optical clarity and ruggedness and can be customised to include individual features for customers, including privacy filters
and anti-reflective and anti-glare properties. In the case of touch sensors, these advantages also result in the significant ability for them to be used by bare
fingers and gloved hands and result in them not experiencing positional drift and therefore not requiring periodic re-calibration.
The growth of the Group and its future prospects comes from the exploitation of this relatively new touch sensor technology. Differing adaptations of this
patented technology have resulted in four different product groups being developed: ZYTOUCH touch sensors and keypads; ZYPOS, and its derivative
ZYBRID, touch sensors; ZYSWITCH touch-switch sensors; and ZYFILM and ZYPROFILM plastic-based touch sensors. ZYTOUCH, ZYPOS and ZYBRID
touch sensors are designed to work in front of LCDs or other electronic devices where optical clarity is paramount. Conversely, the technology has been
adapted to produce ZYTOUCH keypads and ZYSWITCH touch-switch sensors which are not required to be transparent.
The Group’s Intellectual Property Rights include confidential operations and processes, technology covered by patents and licensed technology, trademarks
and copyrights. Over recent years the Group has taken significant steps to register its trademarks.
The Group will continue to identify further opportunities for the development of new product groups and expends a considerable amount on R&D. By continually
developing and adapting its technologies the Group has been able to expand the applications of the touch sensors into a widening range of applications
and new sectors of business and to promote the Group’s products on a global basis. At present 90% of all products are directly exported from the UK,
with a large proportion of UK sales eventually being exported as well.
The Group has continued the expansion of its worldwide selling operations, expanding its direct salesforce, based at the Group’s head office at Blaydon-on-Tyne.
In the year it has appointed distributors in South Africa, Brazil, Korea and China. Management is continuing to look for suitable appointees to expand the
Group’s presence worldwide.
Business risks
The main risk to the Group’s business is that of advances in competing technology, whereby a new, better touch sensor technology is created. Management
is conscious of this and monitors competitors’ developments and changes within the whole industry. By continually developing and evolving its own technologies,
the Group expects to build upon its competitive strengths and thereby keep its technology ahead of its competitors.
Another competitive risk arises from downward price pressures from competing technologies. This is most prevalent in the lower valued touch sensor sector
dominated by resistive, capacitive and surface acoustic wave touchscreens, as new Asian manufacturers continue to take advantage of the demise of the
patents on those technologies. However, price pressure in those markets does have a knock-on effect on prices throughout the industry.
Management has successfully met these challenges to date by re-designing and re-engineering the ZYTOUCH touch sensor in developing the ZYPOS touch
sensor. This has enabled the Group to reduce the cost of manufacture and therefore the sales price for ZYPOS touch sensors and is allowing the Group to
enter markets that were previously closed to it on price grounds. The Group has also re-designed optical filters to enable it to take advantage of the new
manufacturing processes first developed for making ZYPOS touch sensors.
Management is also continually reviewing the sources and costs of raw material supplies, the design of the Group’s products and the operational processes
that are used in the manufacture of all of the Group’s products.
A further risk, which is directly within the control of management, is that of managing increases in the overhead base to coincide with the growth in turnover,
thereby maintaining the growth in profitability. This is not straightforward when the business is developing new products and manufacturing processes.
A fourth risk is that, as a growing proportion of the Group’s sales are denominated in US Dollars and Euros, the Group is subject to risks associated with
currency movements. It is the Group’s policy to manage these risks and provide a degree of certainty for cashflows into the UK. Note 20 sets out details
of the Group’s financial risk management policy and financial instruments, including its management of its foreign exchange risk.
Natural hedging is adopted where possible to manage currency risk, whereby goods and services are sourced from Europe and the USA and the liability
arises in the respective currencies. This is especially relevant with specialised glass, some electronic components and certain other raw materials.
The Group does not hold speculative positions against movements in foreign currencies or interest rates.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
corporate governance
finAnciAl StAteMentS
continued
Directors’ report
Business review continueD
capital
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support
its business and maximise shareholder value.
As part of its capital management the Group monitors its overall level of borrowings and its gearing ratio, which is borrowings net of cash balances divided
by shareholders equity, and ensures that it is kept within acceptable bounds. The Group also ensures that it has sufficient committed and unused banking
facilities to provide the Directors with comfort on the Group’s foreseeable needs and its liquidity position.
No changes were made to these objectives, policies or processes during the years ended 30 September 2009 and 2010.
research anD Development
The Group has continued with the development of its electronic controllers, software and firmware used in the touch sensors, and launched a new family
of controllers, the ZXY100 controllers, during the year.
It has undertaken re-designs of several optical displays to enable them to be made with fewer materials and more quickly, incorporating some of the
manufacturing and process methods originally developed for the ZYPOS touch sensors.
The R&D team is continuing to investigate the use of other sensor configurations and processing media in the manufacture of its touch sensors.
Further details on the Group’s R&D activities are included in the Business review.
key performance inDicators (“kpis”)
The KPIs for the business are primarily financial.
The current KPIs consist of setting targets for and monitoring the level and growth of sales; improving the gross profit margin; and controlling the level of
overheads. The Directors set targets for operating management in terms of sales growth and margin improvement. The actual performance of the Group
against each of these KPIs is set out in the Chairman’s statement and Business review.
In addition, the Directors review an “activity monitor” which the sales team uses to record significant sales opportunities, the key dates in the development
of each sale’s prospect with the customer, volumes and values of the opportunities and expected production commencement dates.
The Directors have not developed KPIs relating to environmental matters, the Group’s employees, or social and community issues.
The Directors maintain a close watch on the level and competitiveness of wages paid to factory staff and the market level of staff salaries, to ensure that the
Group is not at a disadvantage when seeking to recruit or to retain staff. The Group also uses share option schemes to incentivise employees. The Remuneration
report summarises the policies relating to executive management.
results anD DiviDenDs
The consolidated income statement is set out on page 30. The Group profit after taxation amounted to £2.2m (2009: £1.7m). The Directors propose the
payment of a final dividend of 5.0p per share (2009: 3.8p). Following the dividend of 2.0p per share paid in June 2010, this will bring the total dividend
for the year to 7.0p per share (2009: 5.0p).
Directors
The Directors of the Company are shown on pages 16 and 17. All of the Directors were Directors for the whole of the year with the exception of
David Buffham who was appointed on 22 September 2010. The emoluments and interests of the Directors in the shares of the Company are set out in
the Remuneration report.
statement of Directors’ responsiBilities in relation to the group financial statements
The Directors are responsible for preparing the annual report and the Group financial statements in accordance with UK law and those International
Financial Reporting Standards (“IFRS”) as adopted by the European Union.
Under company law the Directors must not approve the Group financial statements unless they are satisfied that they present fairly the financial position
of the Group and the financial performance and cashflows of the Group for that period. In preparing those financial statements the Directors are required to:
• select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply
them consistently;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group’s financial position and financial performance;
• state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and
• make judgements and accounting estimates that are reasonable and prudent.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group, enabling them to ensure that the financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the
UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
20
Zytronic plc Annual report and financial statements 2010
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Disclosure of information to auDitors
The Directors who were members of the Board at the time of approving the Directors’ report are listed on pages 16 and 17. Having made enquiries of fellow
Directors and of the Company’s auditors, each of these Directors confirms that:
• to the best of each Director’s knowledge and belief, there is no information (that is, information needed by the Company’s auditors in connection with
preparing their report) of which the Company’s auditors are unaware; and
• each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that
the Company’s auditors are aware of that information.
significant interests in shares
On 7 December 2010, the following had significant interests in the ordinary shares of the Company:
Shareholders
SIS SEGA Intersettle AG/Omnibus
Axa S.A. (Framlington Investment Management Limited)
John Kennair, MBE – Past Chairman (beneficial and non-beneficial)
Schroder Investment Management
Saracen Investment Funds – Growth Fund
Number of
shares
3,201,722
2,891,766
1,364,928
1,158,500
755,289
Percentage
holding
21.8%
19.7%
9.3%
7.9%
5.1%
creDitor payment policy anD practice
It is the Group’s policy that payments to suppliers are made in accordance with those terms and conditions agreed between the Group and its suppliers,
provided that all trading terms and conditions have been complied with. At 30 September 2010, the Company had an average of 30 days’ (2009: 30 days’)
purchases outstanding in trade creditors.
political anD charitaBle contriButions
The Group did not make any political or charitable contributions during the year (2009: £Nil).
special Business
A resolution will be proposed at the forthcoming Annual General Meeting to renew the existing authority of the Directors, last conferred by a resolution passed at
the Annual General Meeting held in 2010, to allot unissued ordinary shares of the Company. The authority (special resolution 1 in the Notice of Annual General
Meeting) will extend until the Annual General Meeting held in 2012 and is in respect of one-third of the Company’s issued share capital.
The Directors consider it advisable that they continue to have power to make allotments of ordinary shares of the Company for cash without reference
to the statutory pre-emption rights, up to a maximum of 735,524 ordinary shares, being 5% of the issued ordinary share capital of the Company at
30 September 2010. The authority (special resolution 2 in the Notice of Annual General Meeting) will extend until the Annual General Meeting held in
2012 and also would enable the Directors to implement a rights issue.
In addition, the Directors consider it advisable that the Company has the authority to make market purchases of its own shares up to a maximum of
1,471,048 ordinary shares of the Company, being 10% of the issued ordinary share capital. The authority (special resolution 3 in the Notice of Annual
General Meeting) will extend until the Annual General Meeting held in 2012. The power conferred by this authority would only be used after careful
consideration by the Directors, having taken into account market conditions prevailing at the time, the investment needs of the Company, its opportunities
for expansion and its overall financial position. The authority would only be exercised by the Directors if they considered it to be in the best interests of
shareholders generally and if the purchase(s) could be expected to result in an increase in EPS.
auDitors
A resolution to re-appoint Ernst & Young LLP as the Company’s auditors will be put to the shareholders at the forthcoming Annual General Meeting.
By order of the Board
Denis mullan, B.sc, fca
coMpAny SecRetARy
10 december 2010
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
corporate governance
finAnciAl StAteMentS
corporate governance
As an AIM listed company, Zytronic is not obliged to comply with the revised Combined Code published in June 2008 (the “Combined Code”) but instead
uses its provisions as a guide, but only as considered appropriate to the circumstances of the Company.
The Company is committed to high standards of corporate governance. The Directors consider that, except for the matters noted below, the Company has,
throughout the year, been in full compliance with the provisions set out in Section 1 of the Combined Code.
• A4.1 – For reasons explained below, the Company does not have a separate nominations committee.
• A6
– The Board has not undertaken a formal evaluation of its own performance and that of its committees and individual members.
• A7.2 – The Non-executive Directors have not been appointed for a specific term, but their contracts are terminable with six months’ notice.
In view of the size and structure of the Group, the Board does not believe that these exceptions had any detrimental effect on the control environment and
corporate governance.
the workings of the BoarD anD its committees
the BoarD
Throughout the year, David Banks, the Non-executive Chairman, Mark Cambridge, the Chief Executive, Denis Mullan, the Finance Director, Tudor Davies
and Sir David Chapman, Bt., the two Independent Non-executive Directors and John Kennair, MBE, a Non-executive Director were members of the Board.
David Buffham joined the Board on 22 September 2010 as a Non-executive Director. David Banks and John Kennair, MBE, are not considered to be
independent because they were the Finance Director of the Group until August 2003 and CEO of the Group until 21 January 2010 respectively.
The Non-executive Directors demonstrate a range of experience and sufficient calibre to bring independent judgement on issues of strategy, performance,
resources and standards of conduct which are vital to the success of the Group.
The Board normally meets at least five times per year. Its direct responsibilities include setting annual budgets, reviewing trading performance, approving
significant capital expenditure, ensuring adequate funding, setting and monitoring strategy, examining major acquisition possibilities and reporting to shareholders.
Between meetings there is regular informal discussion between the Chairman, Chief Executive, Finance Director and individual Non-executive Directors.
The Non-executive Directors have a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully considered.
To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed by the Company
Secretary to all Directors in advance of Board meetings. The Chairman ensures that the Directors are able to take independent professional advice as
required, at the Company’s expense.
The standing committees established by the Board are the remuneration committee and audit committee, each of which operates within defined terms
of reference.
A nominations committee has not been established as the Board is small. The nominations process prior to Board appointments takes into account the
views of all existing Board members and some advisers. Any Director appointed to the Board since the last Annual General Meeting is required to seek
re-election at the subsequent Annual General Meeting. All Directors are subject to re-election at least once every three years.
The number of meetings of the Board, and the attendance of Directors, was as follows:
Directors
David Banks
Mark Cambridge
Denis Mullan
David Buffham
Sir David Chapman, Bt.
Tudor Davies
John Kennair, MBE
Number of
meetings
Attendance
5
5
5
1
5
5
5
4
5
5
1
5
3
5
22
Zytronic plc Annual report and financial statements 2010
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the workings of the BoarD anD its committees continueD
remuneration committee
The remuneration committee is chaired by Sir David Chapman, Bt., an Independent Non-executive Director. The other member is Tudor Davies,
the Senior Independent Non-executive Director. David Banks, the Non-independent Non-executive Chairman was a member until his appointment as
Chairman. The committee is responsible for making recommendations to the Board, within agreed terms of reference, on the Company’s framework of
executive remuneration and its cost, including the remuneration of some subsidiary Directors. The committee determines the contract terms, remuneration
and other benefits for each of the Executive Directors, including performance related bonus schemes, pension rights and compensation payments. Further
details of the Company’s policies on remuneration, service contracts and compensation payments are given in the Remuneration report. The Chairman’s
remuneration is determined by a sub-committee comprising only the Independent Non-executive Directors.
The number of meetings of the committee, and the attendance of members, was as follows:
Committee members
Sir David Chapman, Bt.
Tudor Davies
David Banks
Number of
meetings
Attendance
2
2
1
2
2
1
auDit committee
The audit committee is chaired by Tudor Davies. He and the other member, Sir David Chapman, Bt., are both Independent Non-executive Directors.
Meetings are also attended, by invitation, by the other Directors. The committee meets at least twice a year. The committee provides a forum for reporting
by the Group’s external auditors.
The audit committee is responsible for reviewing a wide range of matters including the half year and annual financial statements before their submission
to the Board and monitoring the controls which are in force to ensure the integrity of the information reported to the shareholders. The audit committee
advises the Board on the appointment of external auditors and on their remuneration both for audit and non-audit work, and discusses the nature, scope
and results of the audit with the auditors.
The audit committee keeps under review the cost effectiveness of the auditors. It also reviews the extent of the non-audit services provided by the auditors
and reviews with them their independence and objectivity. The Chairman of the audit committee reports the outcome of audit committee meetings to the
Board and the Board receives minutes of the meetings.
The number of meetings of the committee, and the attendance of members, was as follows:
Committee members
Tudor Davies
Sir David Chapman, Bt.
Number of
meetings
3
3
Attendance
2
3
relations with shareholDers
Communication with shareholders is given high priority. There is regular dialogue with major and/or institutional shareholders including presentations after
the Company’s announcements of the half year and full year results in May and December respectively. Presentations are also made to analysts and journalists
at those times to present the Group’s results and report on developments. This assists with the promotion of knowledge of the Group in the investment
marketplace and with shareholders. The financial statements include a review of the business and future developments. These financial statements,
the presentations and other information relating to the Group are also available on the Group’s website www.zytronic.co.uk.
Following the half year and year end presentations of results, the Executive Directors report to the Board on the feedback received from journalists, analysts
and shareholders. In addition, the Company’s financial PR advisers also produce a feedback report from those meetings which is made available to all
Directors. The Executive Directors also report to the Board on any meetings with shareholders or institutional investors that may take place at other times
of the year.
The Board uses both the annual report and financial statements and the Annual General Meeting to communicate directly with private and institutional
investors and welcomes their participation. The Chairman aims to ensure that the chairmen of the audit and remuneration committees are available at the
Annual General Meeting to answer questions. Details of resolutions to be proposed at the Annual General Meeting on 25 February 2011 can be found in
the Notice of Annual General Meeting on pages 63 and 64.
In addition, the Senior Independent Director is available to shareholders if they have any concerns which contact through the normal channels of the
Chairman, Chief Executive or the Finance Director has failed to resolve or for which such contact is inappropriate.
www.zytronic.co.uk
Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
corporate governance
finAnciAl StAteMentS
continued
corporate governance
internal control
The Board is responsible for establishing and maintaining the Group’s system of internal control and for reviewing its effectiveness. The system is designed
to manage rather than eliminate the risk of failure to achieve the Group’s strategic objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss. As an AIM listed company, the Company does not need to comply with Code provision C2.1 regarding the Directors
giving a summary of the process applied by the Board in reviewing the effectiveness of the system of internal control. Instead, the Directors set out below
some of the key aspects of the Group’s internal control procedures.
An ongoing process, in accordance with the guidance of the Turnbull Committee on internal control, has been established for identifying, evaluating and
managing the significant risks faced by the Group. The process has been in place for the full year under review and up to the date of approval of the annual
report and financial statements. The Board regularly reviews this process as part of its review of such risks within Board meetings. Where any weaknesses
are identified, an action plan is prepared to address the issues and is then implemented.
The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board. Authority to operate
the trading subsidiary, Zytronic Displays Limited, is delegated to its Board of Directors and through them it is run by its management within limits set by the
Board. The appointment of Executives to the most senior positions within the Group requires the approval of the Board.
Each year the Board approves the annual budget. Key risk areas are identified, reviewed and monitored. Performance is monitored against budget, relevant
action is taken throughout the year and updated forecasts are prepared as appropriate. The reports reviewed by the Board include reports on operational as
well as financial issues.
Capital and development expenditure is regulated by a budgetary process and authorisation levels. For expenditure beyond specified levels, detailed written
proposals have to be submitted to the Board for approval. Reviews are carried out after the purchase is complete. The Board requires management to explain
any major deviations from authorised capital proposals and to seek further sanction from the Board.
Due diligence work is carried out if a business is to be acquired.
The Board has reviewed the need for an internal audit function and concluded that this is not currently necessary in view of the small size of the Group and
the close supervision by senior management of its day-to-day operations. The Board will continue to keep this under review.
The Group has a whistle-blowing policy and procedures to encourage staff to contact the Chairman if they need to raise matters of concerns other than via
the Executive Directors and senior management.
going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Business review
on pages 8 to 15. The financial position of the Group, its cashflows, liquidity position and borrowing facilities are described within the Business review also.
In addition, note 20 to the financial statements includes the Group’s objectives, policies, its financial risk management objectives, details of its financial
instruments and hedging activities and its exposure to credit risk and liquidity risk.
The Group’s business is well diversified, with relationships with customers and suppliers across different geographic areas and industries. It also has
considerable financial resources. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite
the current uncertain economic outlook.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.
24
Zytronic plc Annual report and financial statements 2010
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remuneration report
As the Company is AIM listed, the Directors are not required, under Section 420(1) of the Companies Act 2006, to prepare a Directors’ remuneration report
for each financial year of the Company and so Zytronic plc makes the following disclosures voluntarily, which are not intended to, and indeed do not, comply
with the requirements of the Companies Act 2006.
The remuneration committee is responsible for determining the remuneration and other terms of employment for the Executive Directors of Zytronic plc
and some of the Directors in its trading subsidiary, Zytronic Displays Limited. The committee is composed of the two Independent Non-executive Directors.
In determining remuneration for the year, the committee has given full consideration to the requirements of the Combined Code.
remuneration policy
The remuneration of Executive Directors is determined by the committee and the remuneration of Non-executive Directors is approved by the full Board
of Directors. The remuneration of the Chairman is determined by the Independent Non-executive Directors.
The key objectives of the committee in determining the remuneration packages of Executive Directors are:
• the recruitment, retention and incentivisation of executive management of the right calibre; and
• the alignment of executive management and shareholder interests.
The remuneration packages of Executive Directors comprise the following elements:
Basic salary anD Benefits
Basic salaries for Executive Directors are reviewed annually having regard to individual performance and market practice. In most cases benefits provided
to Executive Directors comprise the provision of a company car, or appropriate allowance, health insurance and contributions to a Group personal pension
scheme. Details of emoluments for the Directors of Zytronic plc are set out on page 26.
annual Bonus
A discretionary bonus may be awarded by the remuneration committee to reward exceptional individual performance.
share options anD incentive schemes
The Company believes that share ownership by Executive Directors and employees strengthens the link between their personal interests and those of the
Company and the shareholders.
The Company has executive share option and incentive schemes, which are designed to promote long term improvement in the performance of the Group,
sustained increase in shareholder value and clear linkage between executive reward and the Group’s performance. The share options and incentive schemes
of the Directors of Zytronic plc are set out on page 27.
It will normally be the case that, on the option holder ceasing employment with the Group, the options will be terminated. In some circumstances, the Board
may have discretion to waive this where the past contribution to the business by the option holder justifies it.
The Company also has a sharesave option scheme. Membership is open to all eligible employees, including Directors, who have more than three months’
employment with the Group at the time options are offered under a scheme. In compliance with the Combined Code the Board has agreed that it will not
grant share options to Non-executive Directors.
service contracts
Mark Cambridge and Denis Mullan both have a service contract with a notice entitlement of six months.
The committee considers the Directors’ notice entitlements to be appropriate as they are in line with the market and take account of the Directors’
knowledge and experience. There are no special provisions for predetermined compensation in the event of loss of office.
non-executive Directors
The fees of the Non-executive Directors are determined by the full Board within the limits set out in the Memorandum and Articles of Association.
The Non-executive Directors are not eligible for bonuses, pension benefits or share options.
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
corporate governance
finAnciAl StAteMentS
continued
remuneration report
Directors’ emoluments
Emoluments of the Directors for the year ended 30 September 2010 are:
Non-executive Chairman
David Banks**
Executive
Mark Cambridge
Denis Mullan
Non-executive
John Kennair, MBE
Tudor Davies
Sir David Chapman, Bt.
David Buffham***
* Excluding pension contributions.
Salary
£’000
Fees
£’000
Benefits
£’000
Bonus
£’000
Total
emoluments*
2010
£’000
Total
emoluments*
2009
£’000
—
105
90
66
—
—
—
261
46
—
—
6
26
26
1
105
—
18
10
—
—
—
—
28
—
8
7
—
—
—
—
15
46
131
107
72
26
26
1
409
37
119
99
88
27
27
—
397
** Fees are paid to David Banks Associates, a partnership in which David Banks is a partner. David Banks was appointed Non-executive Chairman on 1 July 2010 following
John Kennair, MBE, stepping-down on the same day.
*** David Buffham joined the Board on 22 September 2010.
pension contriButions
During the year, the Group made annual pension contributions for Mark Cambridge and Denis Mullan, Executive Directors, to a personal pension scheme
(i.e. a defined contribution scheme). Neither benefits in kind nor bonuses are pensionable.
Details of contributions payable by the Company are:
Director
Mark Cambridge
Denis Mullan
Total
2010
£’000
3
3
6
Directors’ shareholDings
Beneficial interests of the Directors in the shares of the Company, including those of their immediate families, were:
John Kennair, MBE – beneficial
– as trustee
Denis Mullan
Tudor Davies
Sir David Chapman, Bt.
Mark Cambridge
David Banks
David Buffham
There has been no change in Directors’ shareholdings since 30 September 2010.
30 September 2010
30 September 2009
Number
1,058,065
129,643
140,109
90,909
40,000
36,113
24,545
5,000
%
7.19
0.88
0.95
0.62
0.27
0.25
0.17
0.03
Number
1,058,065
129,643
140,000
90,909
40,000
36,113
14,545
—
2009
£’000
3
3
6
%
7.21
0.88
0.95
0.62
0.27
0.25
0.10
—
26
Zytronic plc Annual report and financial statements 2010
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Directors’ share options
Enterprise
Management
Incentive Scheme
Denis Mullan
Denis Mullan
Denis Mullan
Denis Mullan
30 September
2009
Number
100,000
17,182
2,300
Granted
during
year
Number
—
—
—
—
7,500
Mark Cambridge
Mark Cambridge
17,182
27,250
Unapproved Scheme
Denis Mullan
30 September
2009
Number
12,700
—
—
Granted
during
year
Number
—
Exercised
during
year
Number
—
—
—
—
—
—
30 September
2010
Number
100,000
17,182
2,300
7,500
17,182
27,250
Exercised
during
year
Number
30 September
2010
Number
—
12,700
Exercise dates
16 March 2006 to
15 March 2014
18 January 2008 to
17 January 2015
28 February 2011 to
27 February 2018
15 July 2013 to
15 July 2020
18 January 2008 to
17 January 2015
11 January 2009 to
10 January 2016
Exercise dates
28 February 2011 to
27 February 2018
Option
price
70.0p
145.5p
216.5p
177.5p
145.5p
274.5p
Option
price
216.5p
Director’s share incentive scheme
share incentive scheme for mark camBriDge, chief executive
The remuneration committee agreed an incentive award scheme for Mark Cambridge, Chief Executive, to offer him up to 200,000 shares at a price of 25.0p
per share to vest based on specified performance criteria.
These are measured by an EPS, calculated on the audited pre-tax profit and a standard 28% tax charge. The EPS criteria are shown below:
Performance criteria
Lower limit
Upper limit
EPS
Pence
13.5
18.3
24.5
Shares
to vest
80,000
60,000
60,000
EPS
Pence
15.0
22.0
24.5
Shares
to vest
100,000
80,000
20,000
Year to 30 September 2009 (year 1)
Year to 30 September 2010 (year 2)
Year to 30 September 2011 (year 3)
Vesting is:
• the entitlement to buy, which doesn’t disappear once earned;
• pro rata between the upper and lower limits;
• timed on signature of audited accounts with a clean audit report; and
• cumulative, e.g. 200,000 shares can vest in year 3 if the upper limit is reached, even if the lower limits have not been achieved in the previous years.
If the 24.5p EPS criteria is not achieved in year 3, there will still be an opportunity for shares to vest in year 4 (to 30 September 2012) or year 5
(to 30 September 2013) on the achievement of 24.5p EPS on the basis that, on achievement, the maximum total entitlement reduces to 125,000
shares or 50,000 shares respectively, or the number of shares already vested if that is greater.
As at 30 September 2010, no shares had vested under this incentive scheme.
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
corporate governance
finAnciAl StAteMentS
continued
remuneration report
Director’s share incentive scheme continueD
share incentive scheme for mark camBriDge, chief executive continueD
Vesting will also take place in the event of a successful takeover and will be based on the takeover price, with full vesting at a share price of 500p
and pro rata vesting down to a price of 300p as follows:
• 1,000 shares for each 1p above 300p up to 500p until 30 September 2011, reduced for any shares which have already vested;
• 625 shares for each 1p above 300p up to 500p between 1 October 2011 and 30 September 2012, reduced for any shares which have already vested; and
• 250 shares for each 1p above 300p up to 500p between 1 October 2012 and 30 September 2013, reduced for any shares which have already vested.
share price During the year
During the year to 30 September 2010, the highest share price was 241.0p and the lowest share price was 146.5p. The market price of the shares
at 30 September 2010 was 176.0p.
Directors’ interests in material contracts
As noted on page 26, the Company has paid Directors’ fees to David Banks Associates, a partnership in which David Banks is a partner. At 30 September 2010
the amount due to David Banks Associates was £6,365 (2009: £3,546).
With this exception, no Director was materially interested either at the year end or during the year in any contract of significance to the Group other than
their employment or service contract.
28
Zytronic plc Annual report and financial statements 2010
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inDepenDent auDitors’ report
to the memBers of Zytronic plc
We have audited the Group financial statements of Zytronic plc for the year ended 30 September 2010 which comprise the Consolidated Income Statement,
the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity, the Consolidated Balance Sheet, the Consolidated
Cashflow Statement and the related notes 1 to 25. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
respective responsiBilities of Directors anD auDitors
As explained more fully in the Director’s Responsibilities Statement set out on page 20, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
scope of the auDit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate
to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made
by the Directors; and the overall presentation of the financial statements.
opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s affairs as at 30 September 2010 and of its profit for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
opinion on other matters prescriBeD By the companies act 2006
In our opinion the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is consistent with
the Group financial statements.
matters on which we are requireD to report By exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
other matter
We have reported separately on the Parent Company financial statements of Zytronic plc for the year ended 30 September 2010.
annie graham (senior statutory auDitor)
for anD on Behalf of ernst & young llp statutory auDitor
newcAStle-upon-tyne
10 december 2010
notes
1. The maintenance and integrity of the Zytronic plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements, since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Zytronic plc Annual report and financial statements 2010
29
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
consoliDateD income statement
for the year enDeD 30 septemBer 2010
Group revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Group trading profit
Other operating income
Group operating profit from continuing operations
Finance costs
Finance revenue
Profit from continuing operations
Tax expense
Profit for the year from continuing operations
Earnings per share
Basic
Diluted
Notes
2
3
5(a)
5(b)
6
8
8
2010
£’000
18,483
12,589
5,894
231
2,738
2,925
112
3,037
(126)
13
2,924
(736)
2,188
14.9p
14.8p
consoliDateD statement of comprehensive income
for the year enDeD 30 septemBer 2010
There are no recognised gains or losses other than the profit attributable to shareholders of the Company as presented in the consolidated income
statement above.
consoliDateD statement of changes in equity
for the year enDeD 30 septemBer 2010
At 30 September 2008
Profit for the year
Tax recognised directly in equity
Share-based payments
Dividends
At 30 September 2009
Profit for the year
Tax recognised directly in equity
Exercise of share options
Refund of VAT on flotation expenses previously disallowed
Share-based payments
Dividends
At 30 September 2010
Called
up share
capital*
£’000
Share
premium**
£’000
Retained
earnings
£’000
147
—
—
—
—
147
—
—
—
—
—
—
147
6,479
—
—
—
—
6,479
—
—
40
31
—
—
6,550
2,256
1,707
(4)
29
(616)
3,372
2,188
5
—
—
42
(852)
4,755
* Share capital represents proceeds on issue of the Company’s equity share capital.
** Share premium comprises the excess in proceeds on issue of the Company’s equity share capital above the nominal value of the shares issued.
30
Zytronic plc Annual report and financial statements 2010
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2009
£’000
15,921
10,514
5,407
183
2,850
2,374
20
2,394
(98)
4
2,300
(593)
1,707
11.6p
11.5p
Total
£’000
8,882
1,707
(4)
29
(616)
9,998
2,188
5
40
31
42
(852)
11,452
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consoliDateD Balance sheet
at 30 septemBer 2010
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and short term deposits
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Financial liabilities
Accruals
Taxation liabilities
Government grants
Non-current liabilities
Financial liabilities
Deferred tax liabilities (net)
Government grants
Total liabilities
Net assets
Capital and reserves
Equity share capital
Share premium
Revenue reserve
Total equity
Notes
9
10
12(b)
11
12(a)
13
14
15
14
16
19
21
22
22
2010
£’000
2009
£’000
1,869
8,387
198
10,454
2,588
3,466
1,505
7,559
1,974
8,375
210
10,559
2,503
3,110
739
6,352
18,013
16,911
1,582
669
600
357
192
3,400
2,045
827
289
3,161
6,561
11,452
147
6,550
4,755
11,452
1,306
1,442
574
300
—
3,622
2,428
820
43
3,291
6,913
9,998
147
6,479
3,372
9,998
These financial statements have been approved by the Board of Directors on 10 December 2010 and signed on their behalf by:
DaviD Banks
chAiRMAn
10 december 2010
Denis mullan, B.sc, fca
finAnce diRectoR
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
consoliDateD cashflow statement
for the year enDeD 30 septemBer 2010
Operating activities
Profit before tax
Net interest expense
Depreciation of property, plant and equipment
Amortisation of intangible assets
Amortisation of government grant
Share-based payments
Increase in inventories
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
Taxation paid
Net cashflow from operating activities
Investing activities
Interest received
Receipt of government grant
Purchases of property, plant and equipment
Payments to acquire intangible assets
Net cashflow from investing activities
Financing activities
Interest paid
Dividends paid to equity shareholders of the parent
Proceeds from share issues re. options
New borrowings
Refund of VAT on flotation expenses previously disallowed
Repayment of borrowings
Repayment of capital element of hire purchase contracts
Net cashflow from financing activities
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the year end
Notes
2010
£’000
2009
£’000
2,924
2,300
113
654
333
(102)
42
(85)
(356)
279
3,802
(655)
3,147
13
540
(640)
(228)
(315)
(128)
(852)
40
—
31
(342)
(476)
(1,727)
1,105
109
1,214
94
613
307
(12)
29
(7)
(59)
(137)
3,128
(646)
2,482
4
—
(3,673)
(223)
(3,892)
(94)
(616)
—
2,217
—
(163)
(476)
868
(542)
651
109
10
13
13
32
Zytronic plc Annual report and financial statements 2010
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notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
1. accounting policies
(a) statement of compliance
The consolidated financial statements have been prepared in accordance with IFRS as adopted for use in the European Union and as applied in accordance with
the provisions of the Companies Act 2006. The Directors consider the following accounting policies to be relevant in relation to the Group’s financial statements.
(B) JuDgements anD key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted accounting principles requires the Directors to make judgements and assumptions
that affect the reported amounts of assets, liabilities and disclosures at the date of the financial statements and the reported income and expense during
the year. Although these judgements and assumptions are based on the Directors’ best knowledge of the amount, events or actions, actual results may
differ from those estimates.
In the process of applying the Group’s accounting policies, the Directors have made the following judgements which, apart from those involving estimations,
have the most significant effect on the amounts recognised in the financial statements:
impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill is tested for impairment
annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying
amounts may not be recoverable.
When value in use calculations are undertaken, management must estimate the expected future cashflows from the asset or cash-generating unit and
choose a suitable discount rate in order to calculate the present value of those cashflows.
Development costs
Development costs are capitalised in accordance with the accounting policy given below. Initial capitalisation of costs is based on management’s judgement
that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone.
(c) Basis of consoliDation anD gooDwill
The consolidated financial statements comprise the financial statements of Zytronic plc and its subsidiaries as at 30 September each year. They are presented
in Sterling and all values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.
All intra-group balances and transactions, including unrealised profits arising from them, are eliminated.
Business comBinations from 1 January 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination,
the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net
assets. Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration which is deemed to be an asset or liability, will be recognised in accordance with IAS 39 either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling
interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary
acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired
in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Business comBinations prior to 1 January 2010
Acquisitions were accounted for using the purchase method. Goodwill arising on acquisitions was initially measured at cost, being the excess of the cost
of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities, was capitalised and classified
as an asset on the balance sheet, and was not amortised. After initial recognition, goodwill was stated at cost less any accumulated impairment losses, with
the carrying value being reviewed for impairment, at least on an annual basis and whenever events or changes in circumstances indicated that the carrying
value may be impaired. This required an estimation of the value in use of the cash-generating units to which the goodwill was allocated.
When subsidiaries were sold, the difference between the selling price and the net assets plus unimpaired goodwill was recognised in the consolidated
income statement.
(D) foreign currencies
The consolidated financial statements are presented in Sterling, which is the Company’s functional and presentation currency. Transactions in foreign currencies
are initially recorded in the functional currency at the rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.
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Zytronic plc Annual report and financial statements 2010
33
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
1. accounting policies continueD
(e) property, plant anD equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment charges. Such costs include those directly attributable to
making the asset capable of operating as intended and the cost of replacing significant parts of such plant and equipment when that cost is incurred, if the
recognition criteria are met. Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost,
less estimated residual value, of each asset evenly over its expected useful life, as follows:
Freehold land
Freehold property
Long leasehold property
– Nil
– 50 years
– 50 years
Plant and machinery
– varying rates between 5% and 25% per annum
Any gain or loss arising on disposal of an asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset)
is included in the income statement in the year the asset is derecognised.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted, if appropriate. The Group assesses
at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists the Group makes an estimate of the asset’s
recoverable amount. An asset’s recoverable amount is the higher of the asset’s fair value, or the cash-generating unit’s fair value of which it forms part, less
costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and
is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the income statement in those expense categories
consistent with the function of the impaired asset.
(f) intangiBle assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is deemed
to be their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and
any accumulated impairment losses. Other than capitalised development costs, internally generated intangible assets are not capitalised.
Intangible assets are amortised on a straight line basis over their useful economic lives and reviewed for impairment at each financial year end. The amortisation
expense on intangible assets is recognised in the income statement in the expense category consistent with the function of the intangible asset. The estimated
useful lives are as follows:
Licences
– period of licensing agreements (10 and 17 years)
Capitalised development expenditure – 4 to 10 years
(g) research anD Development costs
Research expenditure is written off as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when
the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and
its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to
measure reliably the expenditure during the development.
During the period of development, the asset is tested annually for impairment. Following the initial recognition of the development expenditure, the cost
model (as defined in IFRS) is applied, requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses.
Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future sales.
(h) inventories
Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are
accounted for as follows:
Raw materials and consumables
– purchase cost on a first-in, first-out basis
Finished goods and work in progress – cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating
capacity but excluding borrowing costs
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary
to make the sale.
(i) traDe anD other receivaBles
Trade receivables are recognised and carried at original amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made
when collection of the full amount is no longer probable. Bad debts are written off when identified. Trade and other receivables do not carry interest.
34
Zytronic plc Annual report and financial statements 2010
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1. accounting policies continueD
( J) cash anD cash equivalents
Cash and short term deposits in the balance sheet comprise cash at bank and in hand and short term deposits with an initial maturity of three months or
less. Bank overdrafts are shown within financial liabilities, in current liabilities on the balance sheet. For the purpose of the cashflow statement, cash and
cash equivalents comprise these balances, net of outstanding bank overdrafts.
(k) interest-Bearing loans anD Borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the income statement when the liabilities are derecognised, as well as through the amortisation process.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready
for its intended use are capitalised as part of the costs of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing
costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
(l) Derecognition of financial assets anD liaBilities
A financial asset or financial liability is derecognised when the contract that gives rise to it is discharged, sold, cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is recognised in the income statement.
(m) pension scheme
The Group operates a group personal pension scheme, which is a defined contribution scheme, for its employees. Contributions are recognised in the
income statement as they become payable in accordance with the rules of the scheme.
(n) leases
group as a lessee
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception
of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between
the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged directly against income. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.
Leases where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and payments are
recognised as an expense in the income statement on a straight line basis over the lease term.
(o) share-BaseD payment transactions
equity-settleD transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised
as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined
using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any service performance conditions (vesting conditions),
other than performance conditions linked to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market vesting condition, which are
treated as vesting irrespective of whether or not the market vesting condition or non-vesting condition is satisfied, provided that all other non-market vesting
conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and
management’s best estimate of the achievement or otherwise of non-market vesting conditions and the number of equity instruments that will ultimately
vest, or in the case of an instrument subject to a market vesting condition or a non-vesting condition, be treated as vesting. The movement in cumulative
expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting
period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the
modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income
statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted
from equity, with any excess over fair value being treated as an expense in the income statement.
IFRS 2 Share-based Payments has only been applied to grants of equity instruments after 7 November 2002 that had not vested at 1 October 2006.
For awards granted before 7 November 2002, the Group recognises only the intrinsic value or cost of these potential awards as an expense. This is
accrued over the performance period of each plan based on the intrinsic value of the equity-settled awards.
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Zytronic plc Annual report and financial statements 2010
35
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
1. accounting policies continueD
(p) revenue recognition
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. This is when the
goods have been dispatched or made available to the customer, an invoice has been raised for them and the Group’s obligations to the customer have been
met. There is not usually any significant delay between the occurrence of these three events.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates and other sales taxes. Appropriate provisions for known
returns are deducted from revenue.
(q) government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with,
normally when a grant claim has been approved by the Government authority and the grant monies have been received. The fair value of grants is credited
to a deferred income account and released to the income statement over the life of the projects to which they relate.
(r) royalty payments
Under the terms of its patent licence, Zytronic Displays Limited pays royalties to the patent owner on the value of the touch sensors which it sells. An agreed
annual payment is made by monthly instalment under the licence.
In the event that the actual quarterly royalties due from Zytronic Displays Limited exceed the payments on account for that quarter, Zytronic Displays Limited
pays the balance to the patent owner.
In the event that the payments on account for that quarter exceed the actual royalties due to that date, the excess payment is treated by Zytronic Displays
Limited as a prepayment of royalties that will become due in the future. Similarly, should the annual agreed payment be in excess of the royalties due for
the year, the difference is rolled over and deducted from future years’ royalty calculations.
Management reviews its forecasts of future sales to determine whether any impairment has occurred which might affect the carrying value of the prepayment.
From 1 January 2008, and for each subsequent calendar year, the annual payment will increase either by the greater of RPI or to the level of the previous
year’s actual royalties.
(s) DeferreD tax
Deferred tax is recognised in respect of all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
• where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination
that at the time of the transaction affects neither accounting nor taxable profit or loss;
• in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of
the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and
• deferred taxation assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the related asset or liability is settled,
based on tax rates and laws enacted or substantively enacted at the balance sheet date.
(t) new stanDarDs anD interpretations not applieD
The International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) have issued the
following standards and interpretations with an effective date after the date of these financial statements:
IASB
IFRS 2
IAS 32
IAS 24
IFRS 9
IFRIC
IFRIC 19
Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions
Amendment to IAS 32 Classification of Rights Issues
Related Party Disclosures (revised)
Improvements to IFRS (May 2010)
Financial Instruments: Classification and Measurement
Extinguishing Financial Liabilities with Equity Instruments
Effective date
1 January 2010
1 February 2010
1 January 2011
1 January 2011
1 January 2013
Effective date
1 July 2010
The Directors do not anticipate adoption of these standards and interpretations will have a material impact on the Group financial statements.
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1. accounting policies continueD
(u) new stanDarD aDopteD
The following new standards or interpretations are mandatory for the first time for the financial year ended 30 September 2010:
IASB
IFRS 1 and IAS 27
IFRS 2
IFRS 3
IFRS 8
IAS 1
IAS 23
IAS 27
IAS 32 and IAS 31
IAS 39
Amendments to IFRS 1 and IAS 27 Amendments for Determining the Cost of an Investment in Separate Financial Statements
Amendment to IFRS 2 Vesting Conditions and Cancellations
Business Combinations (revised January 2008)
Operating Segments
Presentation of Financial Statements (revised September 2007)
Borrowing Costs (revised March 2007)
Consolidated and Separate Financial Statements (revised January 2008)
Amendments to IAS 32 and IAS 31 Puttable Financial Instruments and Obligations Arising on Liquidation
Amendment to IAS 39 Eligible Hedged Items
Improvements to IFRS
The adoption of IAS 1 Presentation of Financial Statements (revised) has required the “Statement of Changes in Equity”, previously described in note 22 to the
annual report for the year ended 30 September 2009, to be presented as a primary statement entitled “Consolidated Statement of Changes in Equity”.
In addition, the “Consolidated Statement of Recognised Income and Expense” has been replaced with the “Consolidated Statement of Comprehensive Income”.
In adopting IFRS 8 Operating Segments, the Group has concluded that the operating segment is the same as the business segment determined
in accordance with IAS 14 Segment Reporting.
Adoption of the remaining new standards and interpretations did not have a material impact on the financial performance of the Group.
2. group revenue anD segmental analysis
Revenue represents the invoiced amount of goods sold and services provided, stated net of value added tax, rebates and discounts.
IFRS 8 Operating Segments has been applied for the first time in these financial statements.
For management purposes, the Group considers that it has a single business unit comprising the development and manufacture of customised optical filters
to enhance electronic display performance. All revenue, profits or losses before tax and net assets are attributable to this single reportable business segment.
Management monitors the operating results of its entire business for the purposes of making decisions about resource allocation and performance
assessment. Business performance is evaluated based on operating profits.
All manufacturing takes place in the UK and accordingly all segment assets are located in the UK. The analysis of segment revenue by geographical area
based on the location of customers is given below:
Sale of goods – UK
– Americas
– EMEA (excl. UK)
– APAC
Revenue
Finance revenue
Total revenue
30 September 2010
30 September 2009
£’000
1,762
3,682
8,516
4,523
18,483
13
18,496
%
10
20
46
24
100
£’000
2,238
3,018
7,344
3,321
15,921
4
15,925
%
14
19
46
21
100
Individual revenues from three major customers exceed 10% of total revenue for the year. The total amount of revenue is £10.0m (2009: £8.5m).
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
3. group operating profit
This is stated after charging/(crediting):
R&D costs
Amortisation of development expenditure
Auditors’ remuneration –
–
in respect of audit services*
in respect of taxation services
Depreciation of owned assets
Depreciation of assets held under HP agreements
Amortisation of licences
Cost of inventories recognised as an expense including:
– write-down of inventories to net realisable value
– reversals of impairments in inventories**
Hire of plant and machinery
Operating lease rentals – minimum lease payments
Amortisation of capital grants
Net foreign currency differences
Rental income
* £15,000 of this relates to the Company (2009: £36,000).
** The reversal of impairments in inventories has arisen as a result of previously impaired stock being utilised.
4. staff costs (incluDing Directors)
Wages and salaries
Social security costs
Other pension costs
30 September
2010
£’000
30 September
2009
£’000
215
153
368
46
17
494
160
125
7,222
118
(12)
2
44
(102)
49
(3)
291
135
426
48
19
456
157
123
5,300
27
(69)
2
324
(12)
153
(9)
30 September
2010
£’000
30 September
2009
£’000
4,121
379
54
4,554
3,736
346
48
4,130
Included in wages and salaries is a total expense of share-based payments of £42,000 (2009: £29,000) all of which arises from transactions accounted for
as equity-settled share-based payment transactions.
The total of Directors’ emoluments is £409,000 (2009: £397,000). The aggregate value of contributions paid to money purchase pension schemes includes
£6,000 (2009: £5,600) in respect of two Directors (2009: two).
Amounts paid to the highest paid Director are £131,000 (2009: £119,000) plus a contribution paid to the money purchase pension scheme of £3,000
(2009: £3,000).
The average number of employees during the year was made up as follows:
Production
Administration and sales
30 September
2010
Number
30 September
2009
Number
156
37
193
156
37
193
The information required by Schedule 5 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 is contained
in the Remuneration report under Directors’ emoluments, pension contributions, Directors’ shareholdings and Directors’ share options.
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5. finance costs (payaBle)/revenue receivaBle
(a) finance costs
Interest payable
Finance charges payable under HP agreements
Bank loans and overdrafts
(B) finance revenue
Interest receivable
Bank interest receivable
6. taxation
Current tax
UK corporation tax
Corporation tax over-provided in prior years
Total current tax charge
Deferred tax
Effect of change in tax rates
Origination and reversal of temporary differences
Total deferred tax charge
Tax charge in the income statement
tax relating to items chargeD or creDiteD to equity
Deferred tax
Tax on share-based payment
Total deferred tax charge
Tax charge in the statement of comprehensive income
30 September
2010
£’000
30 September
2009
£’000
(15)
(111)
(126)
(31)
(67)
(98)
30 September
2010
£’000
30 September
2009
£’000
13
4
30 September
2010
£’000
30 September
2009
£’000
(728)
4
(724)
20
(32)
(12)
(736)
(602)
10
(592)
—
(1)
(1)
(593)
30 September
2010
£’000
30 September
2009
£’000
5
5
5
(4)
(4)
(4)
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
6. taxation continueD
reconciliation of the total tax charge
The effective tax rate of the tax expense in the income statement for the year is 25% (2009: 26%) compared with the standard rate of corporation tax in the
UK of 28% (2009: 28%). The differences are reconciled below:
Accounting profit before tax
Accounting profit multiplied by the UK standard rate of corporation tax of 28% (2009: 28%)
Effects of:
Expenses not deductible for tax purposes
“Gain” on exercise of share options allowable for taxation purposes but not reflected in the income statement
Depreciation in respect of non-qualifying items
Enhanced tax reliefs
Difference in tax rates
Tax over-provided in prior years
Total tax expense reported in the income statement
30 September
2010
£’000
30 September
2009
£’000
2,924
819
4
(22)
51
(93)
(11)
(12)
736
2,300
644
14
—
40
(95)
—
(10)
593
factors that may affect future tax charges
Under current tax legislation, some of the amortisation of licences will continue to be non-deductible for tax purposes.
Under HMRC’s R&D tax credit scheme, the Group will receive an annual uplift of 75% on qualifying R&D expenditure for tax purposes. Until the financial
year 2006, where R&D expenditure has been capitalised, the benefit of this uplift is only recognised as the asset is amortised. The unrecognised element,
relating to the year ended 30 September 2005 and prior, at 30 September 2010 was £100,000 (2009: £130,000). Following changes to HMRC’s rules
which took effect for financial year 2006, the uplift on expenditure which has been capitalised in any year is recognised in that year.
The “gain” on the exercise of share options, being the difference between the grant/exercise price and the market value at the time of exercise, is allowable
as a taxable deduction from profits although it is not reflected within the income statement. These gains will arise in future years but their timing and
amount is uncertain.
There are no tax losses carried forward at 30 September 2010 (2009: £Nil).
Following announcements in the Emergency Budget of 22 June 2010, it was proposed that the full rate of corporation tax be reduced by 1% per year from
April 2011, ultimately bringing the corporation tax rate down to 24%. The reduction from 28% to 27% was substantively enacted on 20 July 2010 and will
be effective from April 2011. At the year end, the change in the tax rate will have no effect on current tax liabilities arising prior to the effective date of
change, however the change will result in a reduction in deferred tax assets and liabilities. The effect of the rate change to 24%, if enacted at the balance
sheet date, would have been a reduction in the deferred tax liability of £62,000.
7. DiviDenDs
The Directors propose the payment of a final dividend of 5.0p per share (2009: 3.8p), payable on Friday 25 February 2011 to shareholders on the Register of
Members on Friday 11 February 2011. This dividend has not been accrued in these financial statements. The dividend payment will amount to some £735,000.
Ordinary dividends on equity shares
Final dividend of 3.0p per ordinary share paid on 9 March 2009
Interim dividend of 1.2p per ordinary share paid on 26 June 2009
Final dividend of 3.8p per ordinary share paid on 26 February 2010
Interim dividend of 2.0p per ordinary share paid on 25 June 2010
30 September
2010
£’000
30 September
2009
£’000
—
—
558
294
852
440
176
—
—
616
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8. earnings per share
Basic EPS is calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in
issue during the year. All activities are continuing operations and therefore there is no difference between EPS arising from total operations and EPS arising
from continuing operations.
Weighted
average
number
of shares
30 September
2010
Thousands
14,696
14,696
Earnings
30 September
2010
£’000
2,188
2,188
EPS
30 September
2010
Pence
14.9
14.9
Earnings
30 September
2009
£’000
1,707
1,707
Weighted
average
number
of shares
30 September
2009
Thousands
14,674
14,674
Profit on ordinary activities after taxation
Basic EPS
The weighted average number of shares for diluted EPS is calculated by including the weighted average number of shares under option.
Weighted
average
number
of shares
30 September
2010
Thousands
14,696
111
14,807
Earnings
30 September
2010
£’000
2,188
—
2,188
EPS
30 September
2010
Pence
Earnings
30 September
2009
£’000
14.9
(0.1)
14.8
1,707
—
1,707
Software
£’000
Goodwill
£’000
Licences
£’000
284
43
327
47
374
170
49
219
55
274
100
108
114
235
—
235
—
235
—
—
—
—
—
235
235
235
2,072
47
2,119
9
2,128
971
123
1,094
125
1,219
909
1,025
1,101
Weighted
average
number
of shares
30 September
2009
Thousands
14,674
79
14,753
Development
expenditure
£’000
1,519
133
1,652
172
1,824
911
135
1,046
153
1,199
625
606
608
Profit on ordinary activities
after taxation attributable to
ordinary equity holders
Weighted average number
of shares under option
Diluted EPS
9. intangiBle assets
Cost
At 30 September 2008
Additions
At 30 September 2009
Additions
At 30 September 2010
Amortisation
At 30 September 2008
Provided during the year
At 30 September 2009
Provided during the year
At 30 September 2010
Net book value at 30 September 2010
Net book value at 30 September 2009
Net book value at 30 September 2008
As from the date of transition to IFRS, goodwill is no longer amortised but is now subject to an annual impairment test.
EPS
30 September
2009
Pence
11.6
11.6
EPS
30 September
2009
Pence
11.6
(0.1)
11.5
Total
£’000
4,110
223
4,333
228
4,561
2,052
307
2,359
333
2,692
1,869
1,974
2,058
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
9. intangiBle assets continueD
impairment of gooDwill
The goodwill of £235,000 relates to the operations of Intasolve Limited which were merged into the business of Zytronic Displays Limited on 1 September 2002.
Zytronic Displays Limited operates in one continuing area of activity, which is the lowest level at which goodwill is monitored for internal purposes. That activity
has demonstrated underlying growth in sales revenues, gross profit margins, profitability before tax and cash generation over recent years.
The recoverable amount of goodwill has been determined based on a value in use calculation for the cash-generating unit, using cashflow projections based
on financial budgets and forecasts approved by senior management covering a three-year period. Growth has been extrapolated forward from the end of the
forecasts, using a growth rate of 3% which reflects the Directors’ view of the long term growth rate in the business.
The cashflows for all cash-generating units have been discounted using a discount rate of 10%, based on the Group’s weighted average cost of capital.
The calculation of value in use is most sensitive to the forecast operating cashflows, the discount rate and the growth rate used to extrapolate cashflows
beyond the budget period. The operating cashflows are based on assumptions of revenue, cost of sales and general overheads. These assumptions are
influenced by several factors both internally and externally.
The Directors consider the assumptions used to be consistent with the historical performance and to be realistically achievable in light of economic and
industry measures and forecasts. It is believed that any reasonably possible movement on assumptions will not lead to an impairment and we have therefore
not presented any sensitivity analysis.
10. property, plant anD equipment
The amounts carried in the balance sheet comprise:
Cost
At 30 September 2008
Additions
Disposals
At 30 September 2009
Additions
Disposals
At 30 September 2010
Depreciation
At 30 September 2008
Provided during the year
Disposals
At 30 September 2009
Provided during the year
Disposals
At 30 September 2010
Net book value at 30 September 2010
Net book value at 30 September 2009
Net book value at 30 September 2008
Land
£’000
100
107
—
207
—
—
207
—
—
—
—
—
—
—
207
207
100
Freehold
property
£’000
1,499
1,461
—
2,960
108
—
3,068
56
40
—
96
59
—
155
2,913
2,864
1,443
Long
leasehold
property
£’000
Plant and
machinery
£’000
196
1,953
—
2,149
6
—
2,155
39
28
—
67
54
—
121
2,034
2,082
157
8,882
152
(1)
9,033
552
(1,727)
7,858
5,267
545
(1)
5,811
541
(1,727)
4,625
3,233
3,222
3,615
Total
£’000
10,677
3,673
(1)
14,349
666
(1,727)
13,288
5,362
613
(1)
5,974
654
(1,727)
4,901
8,387
8,375
5,315
Included in the amounts for plant and machinery are the following amounts relating to assets acquired under HP agreements:
Cost
Accumulated depreciation
30 September
2010
£’000
30 September
2009
£’000
2,241
853
2,241
692
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11. inventories
Raw materials and consumables
Work in progress
Finished goods
The difference between purchase price or production cost of stocks and their replacement cost is not material.
12. traDe anD other receivaBles
(a) current assets
Trade receivables
VAT recoverable
Prepayments
Trade receivables are denominated in the following currencies:
Sterling
US Dollar
Euro
30 September
2010
£’000
30 September
2009
£’000
1,674
639
275
2,588
1,566
501
436
2,503
30 September
2010
£’000
30 September
2009
£’000
3,200
107
159
3,466
2,839
77
194
3,110
30 September
2010
£’000
30 September
2009
£’000
1,628
1,242
330
3,200
1,736
883
220
2,839
Out of the carrying amount of trade receivables of £3.2m (2009: £2.8m), £1.7m (2009: £1.8m) is the amount of debts owed by three major customers.
Regular reviews are undertaken on these major customers so as to ascertain that there are no going concern issues with them.
Trade receivables are non-interest bearing and are generally on 30 to 60 days’ terms. They are shown net of a provision for impairment.
As at 30 September 2010, trade receivables at a nominal value of £52,000 (2009: £10,000) were impaired due to poor payment history. Movements in the
provision for impairment of trade receivables were as follows:
At 30 September 2008
Charge for the year
Utilised
At 30 September 2009
Charge for the year
Utilised
At 30 September 2010
£’000
101
6
(97)
10
52
(10)
52
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
12. traDe anD other receivaBles continueD
(a) current assets continueD
At 30 September, the ageing analysis of trade receivables overdue but not impaired is as follows:
2010
2009
Past due but not impaired
Neither past due
nor impaired
0–3 months
£’000
>3 months
£’000
2,186
2,072
1,036
731
(22)
36
Total
£’000
3,200
2,839
The good credit quality of trade receivables at 30 September 2010 is reflected in the improved ageing of the year end receivables, in comparison to the prior
year, and the reduction of the impairment provision. Credit limits are set for each customer, using Dun & Bradstreet credit reports as appropriate, or pro-forma
invoices are raised, or cash up-front is received for a new customer where a credit limit is not easily established. Slow payers are chased vigorously, including
making use of solicitors in the collection process.
(B) non-current assets
Royalty prepayments
13. cash anD short term Deposits
Cash at bank and in hand
Cash at bank earns interest at floating rates based on daily bank deposit rates.
30 September
2010
£’000
30 September
2009
£’000
198
210
30 September
2010
£’000
30 September
2009
£’000
1,505
739
At 30 September 2010, the Group had available £2.7m (2009: £2.4m) of undrawn committed borrowing facilities in respect of which all conditions
precedent had been met. £0.7m (2009: £0.4m) of these facilities fall for review within one year and the remainder is available until 30 June 2012.
For the purpose of the consolidated cashflow statement, cash and cash equivalents comprise the following:
Cash at bank and in hand
Bank overdraft
The fair value of cash and cash equivalents is £1.2m (2009: £109,000).
14. traDe anD other payaBles
Trade payables
Other taxes and social security costs
Accruals
30 September
2010
£’000
30 September
2009
£’000
1,505
(291)
1,214
739
(630)
109
30 September
2010
£’000
30 September
2009
£’000
1,449
133
1,582
600
2,182
1,191
115
1,306
574
1,880
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15. financial liaBilities – current
Bank loan (note 17a)
Bank loans (note 17b and 17c)
Obligations under HP agreements (notes 17d and 18a)
Bank overdrafts
16. financial liaBilities – non-current
Bank loan (note 17a)
Bank loans (note 17b and 17c)
Obligations under HP agreements (notes 17d and 18a)
30 September
2010
£’000
30 September
2009
£’000
6
327
45
291
669
33
303
476
630
1,442
30 September
2010
£’000
30 September
2009
£’000
—
2,045
—
2,045
5
2,378
45
2,428
17. Bank loans
(a) chattel mortgage
On 28 September 2004, Zytronic Displays Limited entered into a term loan with Yorkshire Bank which is secured by a Chattel mortgage over certain items
of plant and machinery. Interest is payable at 1% above that bank’s base rate. The loan has been guaranteed by Zytronic plc. The original loan of £250,000,
repayable in 36 equal monthly instalments, was paid off in November 2007. On 23 November 2007 an additional amount of £100,000 was borrowed under
the terms of this same Chattel mortgage, again repayable by 36 equal monthly instalments.
(B) property mortgage
On 13 January 2006, Zytronic plc drew down funds under a ten-year mortgage with Lloyds TSB Bank plc under which it borrowed £750,000, repayable
by monthly instalments. The loan is secured against its freehold interest in Britannia Court, the freehold factory premises which it acquired in January 2006.
Interest is payable at 1.25% above that bank’s base rate.
(c) property mortgage
On 4 June 2009, Zytronic plc borrowed £2.25m under a ten-year mortgage with Alliance & Leicester Commercial Bank, repayable by monthly instalments.
The loan is secured against its freehold interest in Haworth Court and its interest in a 999-year long leasehold on its third factory. Previous to the acquisitions
of these interests, the Group occupied these premises on leases expiring in 2019. Interest is payable at 2.5% above three month LIBOR. The balance is
shown net of issue costs which are being amortised over the life of the loan.
(D) hp agreements
As at 30 September 2010, there were only four outstanding HP agreements. In the year ended 30 September 2008, these four HP agreements were put
in place with Yorkshire Bank to provide the final funding for equipping the new ZYPOS manufacturing facility. These agreements total £338,000 and are
repayable over three years. All of these HP agreements are guaranteed by Zytronic plc.
18. oBligations unDer hp agreements anD leases
(a) oBligations unDer hp agreements
Minimum HP payments:
– not later than one year
– later than one year and not later than five years
30 September
2010
£’000
30 September
2009
£’000
45
—
45
476
45
521
The HP contracts at 30 September 2010 attract variable interest which is payable separately on the balance of capital outstanding. As such, the amounts
payable at 30 September 2010 do not include a liability for finance charges.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
18. oBligations unDer hp agreements anD leases continueD
(B) oBligations unDer operating leases
Minimum lease payments under non-cancellable operating leases are as follows:
Group as lessee
Operating leases which expire:
– not later than one year
– later than one year and not later than five years
– later than five years
19. DeferreD taxation liaBility/(asset)
The deferred tax included in the balance sheet is as follows:
Deferred tax liability
Accelerated capital allowances
R&D tax credit
Other
Deferred tax asset
Share-based payment
Pension asset
30 September
2010
£’000
30 September
2009
£’000
30
40
6
76
25
27
7
59
30 September
2010
£’000
30 September
2009
£’000
(711)
(138)
(20)
(869)
40
2
42
(713)
(117)
(20)
(850)
27
3
30
Disclosed on the balance sheet
(827)
(820)
The deferred tax included in the Group income statement is as follows:
Deferred tax in the income statement
Accelerated capital allowances
R&D tax credits
Share-based payment
Other
Effect of change in tax rates
Deferred income tax expense
30 September
2010
£’000
30 September
2009
£’000
(15)
(25)
9
(1)
(32)
20
(12)
18
—
(1)
(18)
(1)
—
(1)
20. financial risk management policy anD financial instruments
The Group’s principal financial instruments comprise three secured bank loans, four HP agreements, an overdraft facility and cash. The main purpose of
these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments, such as trade receivables and
trade payables that arise directly from its operations.
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20. financial risk management policy anD financial instruments continueD
The main risks associated with the Group’s financial assets and liabilities are set out below:
creDit risk
The risk of financial loss due to a counterparty’s failure to honour its obligations arises principally in relation to transactions where the Group provides goods
on deferred terms.
Group policies are aimed at minimising such losses and require that deferred terms are granted only to customers who demonstrate an appropriate payment
history and/or satisfy credit worthiness procedures. Individual exposures are monitored with customers subject to credit limits to ensure that the Group’s
exposure to bad debts is not significant. Goods may be sold on a cash-with-order basis to mitigate credit risk.
Management’s assessment of the maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date.
liquiDity risk
The Company aims to mitigate liquidity risk by managing cash generated by its operations. Capital expenditure is approved at Group level.
Flexibility is maintained by retaining surplus cash in readily accessible bank accounts.
The Group has an unsecured overdraft facility of £1.0m arranged with its principal banker, Lloyds TSB Bank plc. This facility extends until 30 April 2011
and is to provide funding for working capital. On 28 April 2009, the Group renegotiated its other facility with Lloyds TSB Bank plc, being a revolving credit
facility for £2.0m, which extends until 30 June 2012. This facility is to provide additional working capital and funding for further capital expenditure, should
it be required.
In January 2006, the Company acquired a freehold property and in May and June 2009 the Company acquired the freehold of, and a 999-year lease on,
its existing two leased factories. To manage liquidity risk, the Company part-funded these acquisitions using two secured property loans, each repayable
over ten years.
foreign exchange risk
The Group’s policy is that no trading in financial instruments should be undertaken. Spot contracts and forward currency contracts may be used to sell
surplus US Dollars and Euros, generated from sales less purchases in those currencies. However the Group uses natural hedging as the main basis of
minimising its exposure to these currencies.
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense are
denominated in a different currency from the Group’s functional currency).
The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar and Euro exchange rate, with all other variables held
constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities).
2010
Sterling
2009
Sterling
Change in
US Dollar rate
Effect on profit
before tax
£’000
Change in
Euro rate
Effect on profit
before tax
£’000
+ 5%
- 5%
+ 5%
- 5%
(19)
20
(11)
13
+ 5%
- 5%
+ 5%
- 5%
(24)
27
(2)
7
interest rate risk
The Group has not sought to tie itself into fixed rate debt but has instead accepted a degree of interest rate risk from having only floating rate debt. This is
because the Group has positive net cash balances, a relatively low level of borrowings and estimates that an increase of 1% in interest rates would not have
a material effect on the Group’s pre-tax profits.
The main risks arising from the Group’s financial instruments are as follows:
• foreign currency risk – the magnitude of this risk that has arisen over the period is detailed below; and
• interest rate risk on floating rate financial liabilities to the extent not covered by interest rate benefit on floating rate financial assets – details of floating rate
financial liabilities and assets are overleaf.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
20. financial risk management policy anD financial instruments continueD
interest rate risk continueD
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit
before tax (through the impact on floating rate borrowings). There is no impact on the Group’s equity.
2010
Sterling
2009
Sterling
Increase/
decrease in
basis points
+ 100
- 100
+ 100
- 100
Effect
on profit
before tax
£’000
(23)
23
(29)
29
The floating rate financial assets comprise cash. The benchmarks for floating rates on both liabilities and assets is LIBOR and Bank of England base rate.
currency exposures
The table below shows the Group’s currency exposures; in other words, those transactional exposures that give rise to the net currency gains and losses
recognised in the income statement. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the
operating currency of the Group.
These currency exposures were:
30 September 2010
30 September 2009
Net foreign currency monetary assets
US Dollar
£’000
613
384
Euro
£’000
608
163
Total
£’000
1,221
547
The year-end net foreign currency monetary assets comprise cash and trade receivable balances less trade payable balances. These are the inherent
constituents of the natural hedging policy whereby foreign currency sales are turned into cash for the settlement of purchases of goods denominated
in those foreign currencies. Cash at a month end is held to settle creditors’ payments due in the next two months and to meet future anticipated capital
expenditure in those currencies.
maturity profile of financial liaBilities
year enDeD 30 septemBer 2010
Interest-bearing loans and borrowings
Trade and other payables
Total
On
demand
£’000
291
1,618
1,909
<3 months
£’000
3–12 months
£’000
96
564
660
316
—
316
1–5 years
£’000
1,897
—
1,897
>5 years
£’000
369
—
369
Total
£’000
2,969
2,182
5,151
Interest-bearing loans and borrowings comprise principal repayments due of £2.7m and contractual interest payments of £255,000. Interest is calculated
based on interest rates prevailing at the balance sheet date.
year enDeD 30 septemBer 2009
Interest-bearing loans and borrowings
Trade and other payables
Total
On
demand
£’000
630
1,502
2,132
<3 months
£’000
3–12 months
£’000
195
378
573
677
—
677
1–5 years
£’000
1,887
—
1,887
>5 years
£’000
902
—
902
Total
£’000
4,291
1,880
6,171
fair values of financial assets anD financial liaBilities
The fair value of all financial assets and liabilities is not significantly different to their carrying amount.
capital management
The Group’s policies on capital management are included in the Directors’ report on page 20.
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21. share capital anD share-BaseD payments
(a) share capital
Authorised
Ordinary shares of 1p each
Allotted, called up and fully paid
Ordinary shares 1p each
2010
Number
Thousands
2009
Number
Thousands
25,000
25,000
14,710
14,674
2010
£’000
250
147
2009
£’000
250
147
During the year the Group had three share option schemes, an Unapproved Executive Option Scheme, an Enterprise Management Incentive (“EMI”)
Scheme and a Sharesave Scheme. Under these schemes, options to subscribe for the Company’s shares have been granted as follows:
30 September
2009
Number
36,363
12,700
52,175
Unapproved
Executive Scheme
Sharesave Scheme
(2009) – 3-year term
– 5-year term
28,402
EMI Scheme
100,000
91,408
82,250
87,800
36,500
Granted
during
year
Number
—
—
—
—
—
—
—
—
—
—
82,500
Exercised
during
year
Number
36,363
—
—
—
—
—
—
—
—
—
Lapsed
during
year
Number
—
—
3,664
8,856
—
—
—
—
—
—
30 September
2010
Number
Exercise
dates
Option
price
—
12,700
48,511
19,546
100,000
91,408
82,250
87,800
36,500
82,500
7 June 2003
to 6 June 2010
28 February 2011
to 27 February 2018
1 April 2011
to 30 September 2011
1 April 2013
to 30 September 2013
16 March 2006
to 15 March 2014
18 January 2008
to 17 January 2015
11 January 2009
to 10 January 2016
28 February 2011
to 27 February 2018
19 February 2012
to 18 February 2019
15 July 2013
to 15 July 2020
110.0p
216.5p
220.0p
220.0p
70.0p
145.5p
274.5p
216.5p
106.0p
177.5p
Performance conditions have not been attached to the share options awarded under the EMI Scheme.
(B) share-BaseD payments
senior executive plans
Share options are granted to senior executives at the discretion of the remuneration committee. The exercise price of the options is equal to the market price
of the shares at the date of grant. The options vest three years from the date of grant. The contractual life of each option granted is ten years. There are no
cash settlement alternatives.
all employee share-option plan, the sharesave scheme
Periodically the Board of Directors will agree to the setting up of a new Sharesave Scheme for all employees under the SAYE regulations. All employees are
entitled to apply for a grant of options once they have been in service for three months. The options will vest if the employee remains in service for a period
of three or five years from the date of grant. The exercise price of the options is equal to the market price of the shares less a discount decided by the
Board of Directors on the date of grant. The contractual life of the options is three or five years with a six-month exercise period.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
21. share capital anD share-BaseD payments continueD
(B) share-BaseD payments continueD
income statement expense for year enDeD 30 septemBer 2010
The expense recognised for share-based payments in respect of employee services received during the year to 30 September 2010 is £42,000 (2009: £29,000).
The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in, share options during the year:
Outstanding at 30 September*
Granted during the year
Lapsed during the year
Exercised during the year
Outstanding at 30 September
Exercisable at 30 September
2010
Number
727,598
82,500
(12,520)
(36,363)
761,215***
273,658
2010
WAEP
Pence
151.2
177.5
220.0
110.0**
155.2
156.7
2009
Number
692,668
36,500
(1,570)
—
727,598***
310,024
2009
WAEP
Pence
154.1
106.0
220.0
—
159.5
151.2
* Included within this balance are options over 100,000 (2009: 136,363) shares that have not been recognised in accordance with IFRS 2 as the options had vested before
1 October 2006. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
** The weighted average share price at the date of exercise for the options exercised is 110.0p.
*** Included within this balance are 200,000 shares belonging to the Director’s share incentive scheme.
For the share options outstanding as at 30 September 2010, the weighted average remaining contractual life is five years (2009: five years).
There was one grant of options during the year, as shown in note 21(a). The weighted average fair value of options granted during the year was 41.7p
(2009: 20.0p). The range of exercise prices for options outstanding at the end of the year was 70.0p to 274.5p (2009: 70.0p to 274.5p).
The fair value of equity-settled share options granted is estimated as at the date of grant using a model designed by the Quoted Company Alliance
(based on a Black-Scholes-Merton model), taking into account the terms and conditions upon which the options were granted. The following table
lists the inputs to the model used for the years ended 30 September 2010 and 30 September 2009:
Dividend yield
Expected share price volatility
Risk-free interest rate
Expected life of option (years)
2010
2009
3.4%
35.0%
4.0%
3.0 to 5.0
3.5%
30.0%
4.2%
3.0 to 5.0
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility
reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
No other features of options grant were incorporated into the measurement of fair value.
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21. share capital anD share-BaseD payments continueD
(c) Director’s share incentive scheme
share incentive scheme for mark camBriDge, chief executive
The remuneration committee agreed an incentive award scheme for Mark Cambridge, Chief Executive, to offer him up to 200,000 shares at a price of 25.0p
per share to vest based on specified performance criteria.
These are measured by an EPS calculated on the audited pre-tax profit and a standard 28% tax charge. The EPS criteria are shown below:
Performance criteria
Lower limit
Upper limit
EPS
Pence
13.5
18.3
24.5
Shares
to vest
80,000
60,000
60,000
EPS
Pence
15.0
22.0
24.5
Shares
to vest
100,000
80,000
20,000
Year to 30 September 2009 (year 1)
Year to 30 September 2010 (year 2)
Year to 30 September 2011 (year 3)
Vesting is:
• the entitlement to buy, which doesn’t disappear once earned;
• pro rata between the upper and lower limits;
• timed on signature of audited accounts with a clean audit report; and
• cumulative, e.g. 200,000 shares can vest in year 3 if the upper limit is reached, even if the lower limits have not been achieved in the previous years.
If the 24.5p EPS criteria is not achieved in year 3, there will still be an opportunity for shares to vest in year 4 (to 30 September 2012) or year 5
(to 30 September 2013) on the achievement of 24.5p EPS on the basis that, on achievement, the maximum total entitlement reduces to 125,000
shares or 50,000 shares respectively, or the number of shares already vested if that is greater.
Vesting will also take place in the event of a successful takeover and will be based on the takeover price, with full vesting at a share price of 500p
and pro rata vesting down to a price of 300p as follows:
• 1,000 shares for each 1p above 300p up to 500p until 30 September 2011, reduced for any shares which have already vested;
• 625 shares for each 1p above 300p up to 500p between 1 October 2011 and 30 September 2012, reduced for any shares which have already vested; and
• 250 shares for each 1p above 300p up to 500p between 1 October 2012 and 30 September 2013, reduced for any shares which have already vested.
22. capital commitments
Amounts contracted for at 30 September 2010 but not provided in the financial statements amounted to £428,000 (2009: £25,000) for the Group.
23. pension scheme commitments
Contributions for the year ended 30 September 2010 amounted to £54,000 (2009: £48,000) and the outstanding contributions at the balance sheet date
were £6,000 (2009: £7,600). The Group is a member of a group personal pension scheme which is a defined contribution scheme. Contributions are charged
to the income statement as they become payable in accordance with the rules of the scheme.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to the consoliDateD financial statements
for the year enDeD 30 septemBer 2010
24. relateD party transactions
Fees are paid to David Banks Associates, a partnership in which David Banks is a partner. There are no other related party transactions required to be
disclosed in the financial statements.
The key management personnel are considered to be the Directors of the Group. The following table highlights the remuneration payable to the Directors:
Salaries/fees
Bonuses
Pension contributions
Share-based payments
2010
£’000
394
15
6
2
417
2009
£’000
388
9
6
2
405
25. guarantees
Zytronic plc has given a guarantee to Yorkshire Bank in connection with the bank loan and HP agreements detailed in notes 17a and 17d and
to Lloyds TSB Bank plc in connection with the overdraft facility and the revolving credit facility detailed in note 20.
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five-year summaries
consoliDateD income statement
for the five years enDeD 30 septemBer 2006 to 2010
Group revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Group trading profit
Other operating income
Group operating profit from continuing activities
Finance costs
Finance revenue
Profit from continuing operations
Tax expense
Profit for the period from continuing operations
Earnings per share
Basic
Diluted
Dividends per share
2010
£’000
18,483
12,589
5,894
231
2,738
2,925
112
3,037
(126)
13
2,924
(736)
2,188
14.9p
14.8p
5.8p
2009
£’000
15,921
10,514
5,407
183
2,850
2,374
20
2,394
(98)
4
2,300
(593)
1,707
11.6p
11.5p
4.2p
2008
£’000
14,717
9,978
4,739
217
2,675
1,847
27
1,874
(146)
12
1,740
(677)
1,063
7.3p
7.2p
3.0p
2007
£’000
11,437
7,971
3,466
197
2,556
713
36
749
(73)
7
683
(149)
534
3.6p
3.6p
3.0p
2006
£’000
12,301
8,449
3,852
170
2,356
1,326
—
1,326
(59)
6
1,273
(153)
1,120
7.8p
7.7p
2.5p
The results for the years ended 30 September 2007 to 2010 are presented under IFRS whilst the results for the year ended 30 September 2006 are
presented under UK GAAP.
In the year ended 30 September 2006, there were no recognised gains or losses as defined in FRS 3 other than those stated above. The consolidated
income statement on page 30 shows the consolidated statement of comprehensive income and the consolidated statement of changes in equity for the
year ended 30 September 2010.
The results for all the above years derive from continuing operations.
Dividends are shown in the accounts in the year in which they are paid.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
five-year summaries
consoliDateD Balance sheet
at 30 septemBer 2006 to 2010
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and short term deposits
Total assets
Equity and liabilities
Current liabilities
Trade and other payables
Financial liabilities
Accruals
Taxation liabilities
Government grants
Non-current liabilities
Financial liabilities
Deferred tax liabilities (net)
Government grants
Total liabilities
Net assets
Capital and reserves
Equity share capital
Share premium
Revenue reserve
Total equity
2010
£’000
2009
£’000
1,869
8,387
198
10,454
2,588
3,466
1,505
7,559
1,974
8,375
210
10,559
2,503
3,110
739
6,352
2008
£’000
2,058
5,315
210
7,583
2,496
3,039
1,260
6,795
2007
£’000
2,122
5,208
194
7,524
1,828
2,767
317
4,912
2006
£’000
2,120
3,737
—
5,857
1,706
2,852
931
5,489
18,013
16,911
14,378
12,436
11,346
1,582
669
600
357
192
3,400
2,045
827
289
3,161
6,561
11,452
147
6,550
4,755
11,452
1,306
1,442
574
300
—
3,622
2,428
820
43
3,291
6,913
9,998
147
6,479
3,372
9,998
1,480
1,182
533
341
—
3,536
1,088
817
55
1,960
5,496
8,882
147
6,479
2,256
8,882
1,376
621
399
—
—
2,396
1,340
479
—
1,819
4,215
8,221
147
6,473
1,601
8,221
1,167
653
466
28
—
2,314
658
266
—
924
3,238
8,108
146
6,450
1,512
8,108
The results for the years ended 30 September 2006 to 2010 are presented under IFRS.
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statement of Directors’ responsiBilities
in relation to the parent company financial statements
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial
statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
These financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company
for that period. In preparing those financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation
in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that the financial statements comply with the above requirements.
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
parent company auDitors’ report
to the memBers of Zytronic plc
inDepenDent auDitors’ report to the memBers of Zytronic plc
We have audited the Parent Company financial statements of Zytronic plc for the year ended 30 September 2010 which comprise the balance sheet and
the related notes 1 to 13. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
respective responsiBilities of Directors anD auDitors
As explained more fully in the Directors’ responsibilities statement set out on page 55, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
scope of the auDit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are
appropriate to the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall presentation of the financial statements.
opinion on financial statements
In our opinion the Parent Company financial statements:
• give a true and fair view of the state of the Company’s affairs as at 30 September 2010;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
opinion on other matter prescriBeD By the companies act 2006
In our opinion the information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the
financial statements.
matters on which we are requireD to report By exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
other matter
We have reported separately on the Group financial statements of Zytronic plc for the year ended 30 September 2010.
annie graham (senior statutory auDitor)
for anD on Behalf of ernst & young llp statutory auDitor
newcAStle-upon-tyne
10 december 2010
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parent company Balance sheet
at 30 septemBer 2010
Fixed assets
Tangible assets
Investments
Current assets
Debtors:
– amounts falling due within one year
– amounts falling due after one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Deferred tax
Capital and reserves
Called up share capital
Share premium
Profit and loss account
Shareholders’ funds
Notes
3
4
5
5
6
7
9
10
11
11
2010
£’000
5,022
9,448
14,470
822
2,000
630
3,452
486
2,966
17,436
2,045
76
15,315
147
6,550
8,618
15,315
2009
£’000
5,008
9,448
14,456
306
3,000
736
4,042
431
3,611
18,067
2,378
65
15,624
147
6,479
8,998
15,624
These financial statements have been approved by the Board of Directors on 10 December 2010 and signed on their behalf by:
DaviD Banks
chAiRMAn
10 december 2010
Denis mullan, B.sc, fca
finAnce diRectoR
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
notes to parent company financial statements
for the year enDeD 30 septemBer 2010
1. accounting policies
(a) Basis of preparation
The financial statements of Zytronic plc were approved for issue by the Board of Directors on 10 December 2010. The financial statements are prepared
under the historical cost convention and in accordance with applicable accounting standards.
A profit and loss account is not presented for the Company as permitted by Section 408 of the Companies Act 2006 and the Company has taken the
exemptions under FRS 1 not to present a cashflow statement.
The Company has taken advantage of the exemption available to parent companies under FRS 29 Financial Instruments: Disclosures so as not to provide
the information otherwise required by the standard, as the Group’s consolidated financial statements, in which the Company is included, provide equivalent
disclosures under IFRS 7 Financial Instruments and Disclosure.
(B) revenue recognition
Rental income from tenants is recognised in the profit and loss account on a straight line basis over the term of the lease.
(c) share-BaseD payments
equity-settleD transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised
as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined
using an appropriate pricing model. In valuing equity-settled transactions, account is not taken of any service performance conditions (vesting conditions),
other than performance conditions linked to the price of the shares of the Company (market conditions).
An expense is not recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market vesting condition, which
are treated as vesting irrespective of whether or not the market vesting condition or non-vesting condition is satisfied, provided that all other non-market
vesting conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired
and management’s best estimate of the achievement or otherwise of non-market vesting conditions and the number of equity instruments that will
ultimately vest, or in the case of an instrument subject to a market vesting condition or a non-vesting condition, be treated as vesting as described
above. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding
entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on
the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the
new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair
value of the modified award, both as measured on the date of the modification. A reduction is not recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the profit and loss
account for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted
from equity, with any excess over fair value being treated as an expense in the profit and loss account.
(D) tangiBle fixeD assets
Property, plant and machinery is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes costs directly
attributable to making the asset capable of operating as intended. Borrowing costs attributable to assets under construction are recognised as an expense
when incurred.
Depreciation is provided on all tangible fixed assets, at rates calculated to write off the costs, less estimated residual value, of each asset evenly over its
expected useful life, as follows:
Freehold land
– Nil
Freehold property
– 50 years
Long leasehold property – 50 years
Plant and machinery
– varying rates between 5% and 25% per annum
The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be
recoverable. The expected useful lives of assets are reviewed annually.
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1. accounting policies continueD
(e) DeferreD taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events
that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date, with the exception of deferred tax
assets which are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which
the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based
on tax rates and laws enacted or substantively enacted at the balance sheet date.
(f) interest-Bearing loans anD Borrowings
All interest-bearing loans and borrowings are initially recognised at net proceeds, being fair value of the consideration received net of issue costs associated
with the borrowings. Finance costs (including issue costs) are taken to the profit and loss account over the term of the debt at a constant rate on the balance
sheet carrying amount. The carrying amount is increased by the finance charges amortised and reduced by payments made in respect of the accounting period.
(g) pensions
The Company is a member of a group personal pension scheme which is a defined contribution scheme. Contributions are charged to the profit and loss
account as they become payable in accordance with the rules of the scheme.
2. auDitors’ remuneration
Auditors’ remuneration for the year ended 30 September 2010 was £15,000 (2009: £36,000).
3. tangiBle fixeD assets
Cost
At 30 September 2009
Additions
At 30 September 2010
Depreciation
At 30 September 2009
Provided during the year
At 30 September 2010
Net book value at 30 September 2010
Net book value at 30 September 2009
Land
£’000
207
—
207
—
—
—
207
207
Freehold
property
£’000
2,960
108
3,068
96
60
156
2,912
2,864
Long
leasehold
property
£’000
1,950
5
1,955
13
39
52
1,903
1,937
Total
£’000
5,117
113
5,230
109
99
208
5,022
5,008
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to parent company financial statements
for the year enDeD 30 septemBer 2010
4. investments
investments in suBsiDiary companies
Shares in subsidiary companies
At beginning and end of year
2010
£’000
2009
£’000
9,448
9,448
Details of the investments in which the Company holds 20% or more of the nominal value of any class of share capital are as follows:
Holding
Ordinary shares
Ordinary shares
Ordinary shares
Proportion of
voting rights and
shares held
100%
100%
100%
Nature of
business
Manufacture of transparent composites,
including touch sensors
Dormant
Dormant
Name of company
Zytronic Displays Limited
Intasolve Limited
Zytronic Glass Products Limited
The trading subsidiary is incorporated in England.
5. DeBtors
Trade debtors
Amounts owed by Group undertakings
Prepayments and accrued income
Amounts falling due after more than one year included above are:
Amounts owed by Group undertakings
6. creDitors: amounts falling Due within one year
Bank loans (note 8)
Trade creditors
Other creditors and accruals
Other amounts owed to subsidiary undertakings
Corporation tax
7. creDitors: amounts falling Due after more than one year
Bank loans (note 8)
2010
£’000
2
2,803
17
2,822
2010
£’000
2,000
2010
£’000
327
20
53
81
5
486
2010
£’000
2,045
2009
£’000
2
3,275
29
3,306
2009
£’000
3,000
2009
£’000
303
23
24
81
—
431
2009
£’000
2,378
8. Bank loans
On 13 January 2006, Zytronic plc drew down funds under a ten-year mortgage with Lloyds TSB Bank plc under which it borrowed £750,000, repayable
by monthly instalments. The loan is secured against its freehold interest in Britannia Court, the freehold factory premises which it acquired in January 2006.
Interest is payable at 1.25% above that bank’s base rate.
On 4 June 2009, Zytronic plc borrowed £2.25m under a ten-year mortgage with Alliance & Leicester Commercial Bank, repayable by monthly instalments.
The loan is secured against its freehold interest in Haworth Court and its interest in a 999-year long leasehold on its main factory. Previous to the acquisitions
of these interests, the Group occupied these premises on leases expiring in 2019. Interest is payable at 2.5% above three-month LIBOR. The balance
is shown net of issue costs which are being amortised over the life of the loan.
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9. DeferreD taxation liaBility
The deferred tax included in the balance sheet is as follows:
Accelerated capital allowances
Other timing differences
At 1 October
Charged in the profit and loss account
At 30 September
2010
£’000
74
2
76
65
11
76
2009
£’000
63
2
65
51
14
65
Following announcements in the Emergency Budget of 22 June 2010, it was proposed that the full rate of corporation tax be reduced by 1% per year from
April 2011, ultimately bringing the corporation tax rate down to 24%. The reduction from 28% to 27% was substantively enacted on 20 July 2010 and will
be effective from April 2011. At the year end, the change in the tax rate will have no effect on current tax liabilities arising prior to the effective date of
change; however the change will result in a reduction in deferred tax assets and liabilities.
10. share capital anD share-BaseD payments
(a) share capital
Authorised
Ordinary shares of 1p each
Allotted, called up and fully paid
Ordinary shares 1p each
2010
Number
Thousands
2009
Number
Thousands
25,000
25,000
14,710
14,674
2010
£’000
250
147
2009
£’000
250
147
Note 21(a) in the Group financial statements sets out the details of the share option schemes of the Group and the numbers of shares in the Parent Company
which are contingently exercisable under them.
(B) share-BaseD payments
Note 21(b), share-based payments, in the Group financial statements identifies the basis of the Senior Executive Plans and the Sharesave Scheme. It also
contains a table which illustrates the number and weighted average exercise prices of, and movements in, share options during the year.
(c) Director’s share incentive scheme
Note 21(c) in the Group financial statements sets out the details of the Share Incentive Award Scheme for Mark Cambridge, Chief Executive, in shares of the
Parent Company.
11. reconciliation of movements in shareholDers’ funDs
At 30 September 2009
Exercise of share options
Refund of VAT on flotation expenses previously disallowed
Profit on ordinary activities after taxation
Share-based payments
Dividends
At 30 September 2010
Called
up share
capital
£’000
147
—
—
—
—
—
147
Share
premium
£’000
6,479
40
31
—
—
—
6,550
Profit
and loss
account
£’000
8,998
—
—
471
1
(852)
8,618
Total
£’000
15,624
40
31
471
1
(852)
15,315
A profit of £471,000 (2009: £470,000), before payments of dividends of £852,000 (2009: £616,000), has been dealt with in the financial statements
of the Company which, under the exemption contained in Section 408 of the Companies Act 2006, has not presented its own profit and loss account.
Included in the Company’s opening and closing profit and loss account reserves is an amount of £8,919,000 which was a dividend received from
a subsidiary company in a prior year. This is not included in Group reserves and does not form part of the Company’s distributable reserves.
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notes to parent company financial statements
for the year enDeD 30 septemBer 2010
12. pension scheme commitments
Contributions for the year ended 30 September 2010 amounted to £2,700 (2009: £2,600) and the outstanding contributions at the balance sheet date were
£1,800 (2009: £3,800).
13. guarantees
Zytronic plc has given guarantees, regarding funding advanced to Zytronic Displays Limited, to Yorkshire Bank in connection with a bank loan and HP agreements
detailed in notes (a) and (b) and to Lloyds TSB Bank plc in connection with an overdraft facility and a revolving credit facility detailed in note (c) below.
(a) chattel mortgage
On 28 September 2004, Zytronic Displays Limited entered into a term loan with Yorkshire Bank which is secured by a Chattel mortgage over certain items
of plant and machinery. Interest is payable at 1% above that bank’s base rate. The original loan of £250,000, repayable in 36 equal monthly instalments,
was paid off in November 2007. On 23 November 2007, an additional amount of £100,000 was borrowed under the terms of the same Chattel mortgage,
again repayable by 36 equal monthly instalments.
(B) hp agreements
As at 30 September 2010, there were only four outstanding HP agreements. In the year ended 30 September 2008, these four HP agreements were put
in place with Yorkshire Bank to provide the final funding for equipping the new ZYPOS manufacturing facility. These agreements total £338,000 and are
repayable over three years.
(c) Borrowing facilities
The Group has an unsecured overdraft facility of £1.0m arranged with its principal banker, Lloyds TSB Bank plc. This facility extends until 20 April 2010.
This facility is to provide funding for working capital. On 28 April 2009, the Group entered into an additional facility with Lloyds TSB Bank plc, being
a revolving credit facility for £2.0m, which extends until 30 June 2012. This facility is to provide additional working capital and funding for capital
expenditure, should it be required.
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notice of annual general meeting
Notice is hereby given that the Annual General Meeting of the Company will be held at Whiteley Road, Blaydon-on-Tyne, Tyne & Wear NE21 5NJ
on Thursday 10 February 2011 at 2.00pm for the following purposes:
orDinary Business
To consider and, if thought fit, to pass the following resolutions as ordinary resolutions of the Company:
1. To receive the financial statements for the year ended 30 September 2010 and the reports of the Directors and auditors thereon.
2. To pay a final dividend of 5.0p per ordinary share of 1.0p for the year ended 30 September 2010 on 25 February 2011 to members on the Register
at the close of business on 11 February 2011.
3. To re-elect John Kennair, MBE as a Director.
4. To re-elect Sir David Chapman, Bt. as a Director.
5. Following his appointment to the Board during the year, to elect David Buffham as a Director.
6. To re-appoint Ernst & Young LLP as auditors and to authorise the Directors to fix their remuneration.
special Business
To consider and, if thought fit, to pass the following resolutions as special resolutions of the Company:
1. The Directors of the Company be and are hereby generally and unconditionally authorised (in substitution for any previous authority) for the purposes
of Section 551 of the Companies Act 2006 (as amended) (the “Act”) to exercise all the powers of the Company to allot shares in the Company, or to
grant rights to subscribe for or to convert any security into shares in the Company (such shares and such rights to subscribe for or to convert any
security into shares in the Company being “relevant securities”) on such terms and in such manner as they shall think fit, up to a maximum aggregate
nominal amount of £49,034.94 at any time (unless and to the extent previously revoked, varied or renewed by the Company in general meeting) during
the period from the date hereof until the conclusion of the Company’s Annual General Meeting held in 2012 provided that the Directors of the Company
may make an offer or enter into an agreement which would or might require relevant securities to be allotted offered or otherwise dealt with or disposed
of after the expiry of such authority and the Directors may allot any relevant securities after the expiry of such authority in pursuance of any such offer
or agreement as if this authority had not expired.
2. Subject to and conditional upon the passing of special resolution 1 above, the Directors of the Company be given power pursuant to Sections 570 and
573 of the Act to allot equity securities (as defined in Section 560 of the Act) of the Company for cash pursuant to the authority, conferred by special
resolution 1 above, as if Section 561 of the Act did not apply to any such allotment, such power to expire at the conclusion of the Company’s Annual
General Meeting held in 2012 provided that before such expiry the Directors of the Company may make an offer or enter into an agreement which would
or might require equity securities to be allotted after the expiry of such power and the Directors may allot equity securities after such expiry under this
power in pursuance of any such offer or agreement as if this power had not expired. This power is limited to:
2.1 the allotment of equity securities for cash in connection with a rights issue or other pre-emptive offer to holders of ordinary shares of 1.0p each in
the capital of the Company where the equity securities respectively attributable to the interests of such holders are proportionate (as nearly as may
be practicable) to the respective numbers of ordinary shares of 1.0p each in the capital of the Company held by them but subject to such exclusions
or other arrangements as the Directors may deem necessary or expedient to deal with any fractional entitlements or any legal or practical problems
under the laws of, or the requirements of any regulatory body or any recognised stock exchange in, any territory; and
2.2 the allotment (other than pursuant to 2.1 of this special resolution) of equity securities up to a maximum aggregate nominal amount of £7,355.24.
This power applies in relation to any sale of shares which is an allotment of equity securities by virtue of Section 560(3) of the Act as if in the first
paragraph of this resolution the words “pursuant to the authority conferred by special resolution 1 above,” were omitted.
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Zytronic plc Annual report and financial statements 2010
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Review of the yeAR
coRpoRAte GoveRnAnce
financial statements
continued
notice of annual general meeting
special Business continueD
3. That the Company be and is hereby generally and unconditionally authorised pursuant to Section 701 of the Act to make market purchases (within the
meaning of Section 693(4) of the Act) of ordinary shares of 1.0p each in the capital of the Company (for the purposes of this special resolution 3 “Shares”)
provided that:
3.1 the maximum number of Shares hereby authorised to be purchased shall be 1,471,048;
3.2 the minimum price which may be paid for a Share shall be 1.0p;
3.3 the maximum price which may be paid for a Share shall be not more than 5% above the average of the middle market quotations for Shares as
derived from the London Stock Exchange daily list for securities admitted to the AIM market of the London Stock Exchange for the five business days
immediately preceding the date of the purchase of the Share; and
3.4 unless previously renewed, revoked or varied, the authority hereby conferred shall expire at the conclusion of the Company’s Annual General Meeting
held in 2012 save that the Company may, prior to such expiry, enter into a contract to purchase Shares which will or may be executed wholly or
partly after the expiry of such authority and may purchase Shares pursuant to such contract as if such authority has not expired;
and that all Shares so purchased in pursuance of this authority shall be held as Treasury Shares (as defined by Section 724 of the Act) for future resale
for cash; transfer for the purposes of an employees’ share scheme; or for cancellation.
By order of the Board
Denis mullan, B.sc, fca
coMpAny SecRetARy
Zytronic plc
whiteley roaD
BlayDon-on-tyne
tyne & wear ne21 5nJ
10 december 2010
notes
1. Every member entitled to attend and vote at the meeting may appoint a proxy or proxies to attend, speak and vote (whether on a show of hands or on a poll) at the meeting
on their behalf. A proxy need not be a member of the Company. A prepaid form of proxy is enclosed. Completed forms of proxy must be returned to the Company’s Registrars
at the address shown on the form of proxy not later than 4.00pm on Tuesday 8 February 2011 or two working days prior to any adjourned meeting or, in the case of a poll
taken more than 48 hours after it is demanded, one working day before the time appointed for the taking of the poll. The sending of a completed form of proxy to the
Company’s Registrars will not preclude members from attending and voting at the meeting, or any adjournment thereof, in person, should they so wish.
2. The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), specifies that only those holders of ordinary shares of 1.0p each
of the Company registered in the Register of Members of the Company as at:
2.1 4.00pm on Tuesday 8 February 2011; or
2.2 if this meeting is adjourned, at 4.00pm two working days prior to the adjourned meeting;
shall be entitled to attend and vote at the meeting in respect of the number of ordinary shares of 1.0p each in the capital of the Company registered in their name at that time. Changes
to entries on the Register of Members after 4.00pm on Tuesday 8 February 2011 shall be disregarded in determining the rights of any person to attend or vote at the meeting.
3. Copies of contracts of service between Directors and the Company or any of its subsidiary undertakings, will be available for inspection during normal business hours by
members at the registered office of the Company on each business day from the date of this notice until the date of the Annual General Meeting, and at the place of the
Annual General Meeting for at least 15 minutes prior to, and during, that meeting.
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innovation.
technology.
customers.
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annual report and financial statements 2010
Zytronic plc
Whiteley Road
Blaydon-on-Tyne
Tyne & Wear NE21 5NJ
Tel:
0191 414 5511
Fax: 0191 414 0545
Email: info@zytronic.co.uk
Web: www.zytronic.co.uk
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