Zytronic plc Annual Report 2018

FY2018 Annual Report · Zytronic plc

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Durable, reliable
and adaptable
touch technology.

Zytronic plc
Annual Report and Financial Statements 2018

LEADERS IN PROJECTED
CAPACITIVE TOUCH
TECHNOLOGY

We live in a world that has become interactive
and responsive to our touch, where touch
technology is second nature and enhances
every aspect of our lives.

WHERE OUR PRODUCTS ARE TOUCHING LIVES

Design
New York Metropolitan
Transportation Authority
(“MTA”), USA

We help our customers to
create innovative touchscreen
interfaces that are unique to
their brand and manufactured
to the highest standards, such
as the extensive network of
interactive wayfinding digital
information kiosks in subway
stations throughout Manhattan.

Service
ebebek, Turkey

With decades of glass
processing, laminating, and
electronics experience, we can
support our customers and their
projects from design to delivery.
This allows our customers to
create innovative, interactive
concepts like ebebek’s
“clicks-to-bricks” retail project
in 132 stores across Turkey.

Performance
SK Telecom, South Korea

Responsive, accurate and
reliable, Zytronic MPCT™ can
detect 80 or more touches
in lightning quick time, as
discovered by Korea’s largest
wireless carrier, SK Telecom,
which utilised Zytronic’s
latest multi-touch controller
(the ZXY500) for its
“smart city” kiosks.

CONTENTS

Strategic report

Overview

At a glance

Chairman’s statement

Chief Executive Officer’s review

Our business model

Our markets

Our strategy

Our key performance indicators

Risk management

Sustainability

Financial review

Corporate governance

Board of Directors

Corporate governance

Audit committee report

Remuneration report

Directors’ report

Financial statements

Group accounts

Independent auditor’s report

Consolidated statement
of comprehensive income

Consolidated statement
of changes in equity

Consolidated statement
of financial position

Consolidated cashflow statement

Notes to the consolidated
financial statements

Five-year summaries

Parent Company accounts

Parent Company statement
of financial position

Parent Company statement
of changes in equity

Notes to the Parent Company
financial statements

Notice of Annual General Meeting

Corporate information

Find out more about us and watch
our video at www.zytronic.co.uk

OVERVIEW

f Group revenues of £22.3m (2017: £22.9m), impacted
by a £1.3m reduction in revenues generated from the
Financial market, offset in part by growth in the
Gaming market

f Gross margin reduced to 37% (2017: 41.1%), reflecting
the impact from reduced Financial market products on
production efficiencies and the combined effects of
some new product and process introductions

f Administration costs of £3.6m (2017: £3.6m); with savings
in salaries offset by £0.3m of one-off, settled litigation costs

f Reported profit before tax of £4.2m (2017: £5.4m), as
a result of reduced revenues, lower gross margin and
litigation costs

f Final dividend of 15.2p proposed (2017: 15.2p), bringing
total dividends for the year to 22.8p (2017: 19.0p), up
20% year on year

f Basic earnings per share of 22.7p (2017: 29.0p)

f Finalisation of new MPCT™ ASIC chip development

and new ZXY500 series controller family

FINANCIAL OVERVIEW
Group revenue (£m)

Gross profit margin (%)

£22.3m -3%

37.0% -10%

.
1
2

1
.
1
2

2
2

8
1

.
1
4

2
4

1
.
1
4

0
7
3

6
3

Earnings per share (p)

22.7p -22%

Dividends (p)

22.8p +20%

0
9
2

6
2

7
4
2

2
2

6
9
1

2
2

0
9
1

4
1

0
2
1

18
16

0
0
1
14

Profit before tax (£m)

£4.2m -23%

4
5

Cash generated from
operating activities (£m)

£4.8m +3%

7
4

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSAt a glance

WHY ZYTRONIC?

DESIGN
• You choose the shape and size

• Available in a variety of materials

• Any quantity you need

See our business model
in action P10

SERVICE
• There is no substitute for experience

• Pushing touch to the limit

• Leaders in touch control electronics

See our business model
in action P11

PERFORMANCE
• Durable and reliable

• Accurate and responsive

• In any location

See our business model
in action P12

OUR BENEFITS

At Zytronic we go the extra mile to
make sure our products and services
are extraordinary.

In fact, we are unique in the industry –
designing our own touch controllers
and writing our own proprietary touch
detection firmware. Coupling this with
our customisable touch sensors, and
adaptable manufacturing processes,

ZYTRONIC PLC

means we can create touch electronics,
software and hardware that specifically
meet the requirements of our customers
and help take our customers’ visions
to reality, and keep them ahead of
the competition.

Sustainability P22–23

OUR
TECHNOLOGY

SINGLE TOUCH
PCT™ self–capacitive
touch sensing technology
provides the durability
needed for the toughest
industrial and self-service
applications.

MULTI-TOUCH
MPCT™ mutual capacitive
technology offers most of
the durability advantages
of PCT™ projected
capacitive technology, but
with added multi–touch
capability and provides
the same level of sensitivity
experienced on smartphones
and tablets.

WHO WE WORK WITH

WHERE OUR
TECHNOLOGY IS USED

Our customers produce electromechanical
systems designed for self-service or public
use in a variety of commercial applications.
We categorise these as:

Leisure

Our customers in this sector include manufacturers
of slot machines, wagering and lottery terminals
and other entertainment systems, such as video
juke boxes. Touchscreens are gradually replacing
mechanical buttons in these devices due to their
increased reliability and flexibility.

Surfaces

Our award-winning multi-touch MPCTTM touch
sensors are available in any shape or size up to
85”, perfect for multi-user touch tables in retail,
leisure and commercial applications.

Signage

As advertising and public information moves
from static billboards to large, dynamic digital
displays, our touch sensors are increasingly
used by advertisers and brands to introduce
interactivity to the screens, personalising the
customer experience and enabling municipalities
to engage with citizens and tourists.

Industrial

From medical diagnostic devices in hospitals
to process control panels on oil rigs, our touch
sensing products are specified by a wide range
of customers seeking to deploy intuitive, reliable
user interfaces within their systems.

Retail

Our durable, all-weather touch technology is
used in a wide range of self-service vending
applications, such as ticket machines, car washes
and automated food and beverage dispensers.
As traditional retailers struggle to stay relevant in
an online age, engaging and reliable touchscreens
are an increasingly useful tool.

Financial

We supply vandal resistant touch sensors to the
leading producers of ATMs and other types of
self-service kiosks and financial technology
systems, enabling them to automate transactions
and routine services. Our products enable end-users
to access services 24/7 and all year round.

See our business model P8–12

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSChairman’s statement

INCREASE IN ANNUAL
DIVIDEND OF 20%

After four years of uninterrupted growth we have this
year experienced a flattening of revenues and a change
in the mix of our business but, despite lower profits, we
have continued to generate more than our profits in
cash enabling us to increase dividends for shareholders
by 20%.

Results
Revenues for the year ended
30 September 2018 were slightly lower
at £22.3m (2017: £22.9m) but a lower
gross margin of 37.0% (2017: 41.1%)
was the main contributor to a fall in
reported profit before tax to £4.2m
(2017: £5.4m).

This year we continued to experience
encouraging growth in sales of our
touchscreens to the Gaming sector
which somewhat offset the decline
in the sales to Financial markets.
However, the benefit of growth in this
market area was partly offset by lower
margins, principally from labour and
material inefficiencies, as new and
different products and methods
associated with Gaming replaced more
familiar tried and tested touchscreens
for the ATM sector.

Distribution and administration costs
remained tightly controlled at £4.1m
(2017: £4.0m) even after incurring
£0.3m of one-off costs associated with
an intellectual property claim which
was settled during the year.

the year and after the payment
of dividends of £3.7m (2017: £2.4m)
resulted in a net increase in cash
of £0.5m to £14.6m (2017: £14.1m).

Dividend
The Directors have recommended a
final dividend of 15.2p which, together
with the interim dividend of 7.6p paid
in July 2018, has resulted in an increase
in the total dividend payable for the
year ended 30 September 2018 of
20% to 22.8p (2017: 19.0p).

Outlook
We are in a strong financial position
and cash generative which provides
a strong platform on which to develop
our business, and to grow profits and
dividends for shareholders. Revenues
and trading are currently at similar
levels as last year, and the focus will be
to improve margins from production
efficiencies and to secure new projects
from the launch of the new electronic
ASIC controllers.

Cash generation
Net cashflow from operating activities
was £4.8m (2017: £4.7m). £0.7m was
invested in capital expenditure during

Tudor Davies
Chairman
10 December 2018

Our strategy P14–15

Sustainability P22–23

We are in a strong
financial position and cash
generative which provides
a strong platform on which
to develop our business,
and the focus will be to
improve margins from
production efficiencies
and to secure new projects
from the launch of the new
electronic ASIC controllers.”

OUR CULTURE
AND VALUES

We believe in the following
three core values to serve
as the guidelines for our
conduct as an organisation
and for the behaviour of
our employees.

Integrity
Building relationships
of mutual respect with
colleagues, customers,
suppliers, advisers and
investors, ensuring that
we conduct ourselves at
all times in an open, honest
and ethical manner.

Performance
Driving for profitable growth
and increasing shareholder
value through the balance of
short term demands and long
term strategies.

Quality
Providing customer
satisfaction through the
continual improvement of
our products and processes
and the capabilities of our
employees, through innovation,
development and training.
We work with both our
customers and suppliers
to meet their and our needs
in delivering exceptional
products tailored exactly to
our customers’ requirements.

ZYTRONIC PLC

Chief Executive Officer’s review

STRONG SALES OF
GAMING PRODUCTS

I would like to start this review by
thanking all employees for their valued
contribution to the performance of the
business over the reporting period.

The information detailed below provides
insights into the various operational
aspects of Zytronic Displays Limited
(“ZDL”), our wholly owned operating
subsidiary, that have influenced the
reported trading performance over the
fiscal year, drawing comparisons with
the prior periods where necessary.

Sales
The second half trading revenues
of £11.7m showed a 10% improvement
on the £10.6m reported for the first
half. However, as detailed at the
interims, first half revenues were
affected by the performance of the
Financial market (comprising ATM
touch and non-touch products), which
at £2.8m was £1.1m lower than the
prior year (H1 2017: £3.9m). The second
half performance was also impacted
by the Financial market, but to a lesser
degree, as the improvement in the level
of sales did not materialise as quickly
as hoped. As a result, the total impact
was £1.3m of reduced Financial sales
for the full year, composed of £0.9m
of touch and £0.4m of non-touch.
Although growth was seen in other
areas such as Gaming, it was the
reduced Financial market revenues
that significantly contributed to the
reported 3% full-year reduction in
trading revenues to £22.3m (2017:
£22.9m). Total export revenues (as
measured by ZDL, being the location
of the customers to whom products are
invoiced), were £19.5m (2017: £19.9m).

Revenues generated by sales of
our touch products were lower than
the prior year at £20.1m (2017: £20.6m).
As inferred above, the Financial
market significantly contributed
to this reduction, as Financial touch
revenues reduced from £6.3m to £5.4m.

Export touch product revenues remained
flat at £18.0m, even though all of our
Financial touch products are exported,
with the Americas (North, Central
and South America) and Asia Pacific
(“APAC”) regions growing, by £0.2m
to £4.0m (2017: £3.8m) and £1.0m
to £8.2m (2017: £7.2m) respectively.
Europe, Middle East and Africa (“EMEA”)
experienced the brunt of the Financial
market decline, reducing to £5.8m
(2017: £7.0m).

Vending continued to be our second
highest market in terms of units produced
at 28,000 units, but this was 7,000 units
lower than the prior year, due in the main
to two factors: the finalised supply
of the Freestyle™ Coca Cola® drinks
machine and a reduced supply into
a German-based customer in the
field of parking management and
fare collection. In terms of revenue,
it remained our third largest market
at £3.0m (2017: £3.5m).

Touch sales
Gaming, which was dominated by
casino-based upright cabinet designs,
as it was in the prior year, has continued
to be our top revenue-generating
application market, with growth in
both units produced at 23,000
(2017: 20,000 units) and revenues
generated, contributing £8.2m
(2017: £7.7m). This growth reflects the
maturation of existing projects and
new predominantly Asian invoiced
PCT™ and MPCT™ projects which
moved into production during
the period.

Financial touch sales saw a decline on
the back of total unit volumes falling
by 6,000 to 44,000 units. We believe
the observed decline has been down
to several factors which have generally
been felt by the larger ATM OEMs in
the market. These were: an imposed
change in procurement practices in
China for the Chinese market; a slower
than anticipated change to the
outsourcing of ATM assembly to third
parties; and the move by Financial
institutions to a Windows 10 operating
system from the previously deployed
Windows 7 and the consequent delays
caused in them placing new unit
orders. There is also little doubt that
consumer digital money management
may be influencing future ATM
deployment levels.

The Industrial market (comprising
applications for control panels in
difficult operating environments
and non-transactional kiosks) saw an
8,000 unit increase in sensors sold to
24,000 units, and an increase in the
revenues generated to £1.8m (2017:
£1.6m). The Signage market increased
to £1.2m (2017: £0.8m), on the back of
a 1,000 unit increase in large sensors
sold to 2,000 units as the number of
Smart City type street furniture
deployments increased, particularly
for cities in the USA, which offer on
the street internet, wayfinding and
wifi hotspot capabilities.

The other markets which are
predominantly in the small size
ranges and are open to much greater
competition from alternative suppliers
are Home Automation, Healthcare and
Telematics, in total decreased to £0.5m
(2017: £0.7m). This reflects the units
supplied to Home Automation almost
halving to 5,000 units, as the Bosch
cooktop moves towards end of design
life, and those supplied to Health
reduced by nearly two thirds to
1,000 units.

As has been well documented in prior
years, ZDL’s touch revenues are not only
linked to the markets, which influence
the number of touch sensors produced,
but more substantially to the mix of
the sensor sizes, as large format units
carry a higher price per unit, as well as
technology choice between MPCT™
and PCT™ and sensor shape.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSChief Executive Officer’s review continued

Touch sales continued
The total number of sensor units
supplied was lower than that of 2017
by 5,000 units to 133,000 units (2017:
138,000 units) but, as the table below
illustrates, there was growth in the
higher priced large format sensors.

Within the 133,000 total, we had a
5,000 unit increase in the number of
MPCT™ sensors sold to 17,000, as well
as continued opportunities in and the
uptake of non-flat touch sensors, with
the volume of shaped sensors increasing
to 10,000 units from 9,000 units in 2017.

Strategic sales and
marketing initiatives
As a business, ZDL focuses on the
development and production of touch
interactive component solutions for
self-service and commercial use, providing
its bespoke touch componentry to
equipment designers and manufacturers
across several market sectors, as
detailed above.

As a UK operating business with
the overwhelming majority of sales
represented by exports, we employ a
team of sales and business development
managers located at our headquarters
and in more recent years have expanded
to provide equivalent direct local support
in international locations within our major
markets. In addition, we have built a
global network of sales channel partners.
These partners are a combination
of commissioned manufacturers’
representatives or agents, aiding our
direct sales team, and distributors or
value-added resellers (“VARs”), which
buy and resell our products (indirect
sales). The choice of the type of sales
channel partner for any specific territory
is determined after significant territory
and market evaluation.

The current composition of our global
channel partners is presented on the
ZDL website and can be found at
zytronic.co.uk/where-to-buy/. ZDL
continually reviews the suitability of its
direct and indirect partners depending
upon their performance, as well as
local market preferences and
requirements. This is continually

refined and over the course of the year
we made several changes.

• We concluded the year with twelve
regional agreements covering the
Americas as we terminated the
agreement with one underperforming
agent. Looking forward we are likely
to terminate a further three agencies
but have already agreed terms with
two replacements. Although previously
stating our intention to increase the
USA-based Zytronic Inc. direct sales
team from two persons to three, a
conscious decision was made to
delay the recruitment. We continue
to evaluate this with a view to
restarting the search and selection
process during 2019.

• At the end of the fiscal period we
had twelve agreements covering
the APAC region. During the year
we appointed a further indirect
employee in Japan, through our
service partner Business Link Japan,
to increase the regional technical
sales support. Additionally, we have
been working closely with a new
VAR for Thailand, which we shortly
expect to sign an agreement with.

• In EMEA and the UK we concluded
the financial year with 13 active
agreements, unchanged from 2017.

• Additionally, we continued to work
with two global distribution/VAR
partners, Future Electronics and
Quixant Group.

Our 2018 marketing strategy in support
of sales activities continued to focus
on increasing our regional profile in
European, North American and
Chinese trade publications in key
vertical markets, both in traditional
press and digital online publications.
Much of the activity during the first half
of the year was geared to the launch
and promotion of our new MPCT™
application specific integrated circuit
(“ASIC”) chip and the resultant
associated products and benefits.
Several new international case studies
were also issued during the year,
highlighting the various applications of
our technology. These included Cryptera
(Denmark), Ebebek (Turkey), Santander

(Chile) and Smartlink (USA), in addition
to several whitepapers, “thought
leadership” articles and product releases.

Towards the latter part of the year,
having reviewed the respective
outputs of each, we moved our Asian
focus from China and have repositioned
it to Japan, appointing a Japan-based
search engine optimisation (“SEO”)
specialist to better manage the
microsite and a local PR agency. In
addition, we completed a review of our
digital and social media requirements
and changed our UK service provider
to improve our SEO success. The new
agency has helped us enhance our
main website to further highlight our
product attributes and improve site
navigation, with many of these changes
cascaded down to the regional microsites.
During the year we have also initiated
trial pay-per-click advertising campaigns
on appropriate social media platforms,
targeting relevant keywords and job
functions. We continue to review the
results of these programmes and
will adapt and continue or stop
as appropriate.

We continue to see the benefits of
directly participating in relevant market
tradeshows, primarily as regional
networking opportunities with customers,
suppliers and sales channel partners.
Consequently, during 2018 we exhibited
at several events: the Global Gaming
Exhibition (“G2E” October 2017,
Las Vegas), the International Casino
Exhibition (February 2018, London),
Integrated Systems Europe (February
2018, Amsterdam) and the Digital Signage
Exhibition (March 2018, Las Vegas).

Indirectly, our products were also well
represented at tradeshows around the
world by distributors and customers.
These included Embedded World
(February 2018, Nuremberg), Infocomm
(June 2018, Las Vegas) and Transport
Publics (June 2018, Paris). Notably,
the encrypted touch solution sold by
Cryptera was shown by it at several USA
retail and financial shows, such as the
National Retail Federation (January 2018,
New York) and additionally Money
20/20 (June 2018, Amsterdam).

Sensor size

Small – (0–14.9”)

Medium – (15.0–29.9”)

Large – (30.0”+)

Total

ZYTRONIC PLC

2018

Units
(’000)

133

% total

100

2017

Units
(’000)

138

% total

100

Variance

Units
(’000)

% total

(8)

(5)

(9)

(4)

We continue to see
the benefits of directly
participating in relevant
market tradeshows,
primarily as regional
networking opportunities
with customers, suppliers
and sales channel partners.”

Opportunities analysis
Incoming leads from all sources (website,
tradeshows, channel partners, sales
management, etc.) are fed into our
tailored Microsoft Dynamics customer
relationship management (“CRM”)
software system. Once validated
those leads are then categorised as
opportunities according to vertical
market (application), annual quantity,
touch sensor type, project duration,
estimated unit price and production
start date. Opportunities have an
average maturation period of two
years from lead to production.

As an opportunity progresses, an
estimated probability of success is
dynamically assigned. Only those
opportunities at the point in time when
they are assigned with a high probability,
are then classified as a “Project”; otherwise
they remain a “Prospect” and only
those designated as a Project at the
time of our quarterly sales reviews
are added into our dynamic forecast
model. As this is a dynamic system,
probability levels can change, so a
Prospect one day can be upgraded
to a Project on another, or vice versa.

The CRM information is constantly
being updated by the sales team to
account for changes to opportunities,
which may be because they become
dead or lost to a competitor, moved
into production or, as mentioned above,
reassessed for probability of success.
Accordingly, the number of active
opportunities and the volume and value
of active Projects varies significantly
day to day. At 30 September 2018,
there were a total of 414 active
opportunities in the system, with 41 of
those opportunities classified on that
day as Projects, with an unsensitised
and theoretical lifetime contribution
of £8.0m. This compares with
30 September 2017 values of 551,
60 and £8.2m respectively.

The net movement in 19 Projects over
the year was represented by six

Projects being re-classified back
to Prospects as they did not maintain
their high probability status; 15 Projects
were lost, due to projects either being
terminated by the customer, or lost to
a competitor; 129 new Projects were
added during the year and 127 Projects
moved through into production.

Strategic research
and development
As is customary, the emphasis of
the research and development team
evolved throughout 2018 as the year
progressed. At the start of the fiscal
year, the emphasis was on the
completion of the development of our
MPCT™ ASIC chip and its introduction
into production and to customers. An
initial supply of 24,000 production ASICs
were received around January 2018.
This spawned further complementary
work on the release of a new family of
controllers incorporating the new ASIC
with a designation of ZXY500 and the
availability of an MPCT™ chipset, to
allow equipment designers the
freedom of building Zytronic touch
control features directly on to mother
or daughterboards.

In conjunction with the release of the
ZXY500 series, new flexible printed
circuit (“FPC”) tail designs and sensor
configurations were introduced, that
provided industry leading narrow border
considerations, which had been
configured using years of customer
feedback and wider market input.
To bring these components together,
a new fibre laser bonding system was
introduced, which had been designed
and developed by the R&D team over
the prior 18-month period.

As these elements were handed off
to production, the R&D team returned
to other future development
programmes and those related to
alternative material considerations
based on the functional performance
headroom created by the new ASIC
development. The collaboration work
undertaken on the Hi-Response
European funded H2020 project for
ink-jet printed electronics continues to
progress, but extremely slowly and it
now looks likely as that project moves
to conclusion that an immediately
usable output will not be the result.
However, a resurgence in indium tin
oxide (“ITO”), due in the main to the
instability issues of emerging tech such
as metal mesh and silver nano-wire,
has had ZDL look much closer to the
marrying of ITO with its new ASIC and
the results presently look promising.

However, competitiveness and pricing
need further consideration.

Over the course of the year, ZDL has
had three further patents granted,
associated with USA and China regional
divisions of selected GB MPCT™ 2012
filed patents. The team continued
to progress innovative work on the
incorporation of mechanical push
buttons within the active and visible
area of touchscreens. In doing so, it
worked on using our unique micro-wire
and pattern design capabilities to
develop an interlacing method to
provide invisible power and data lines
to and from the button. A further patent
application has been filed for this, with
the solution successfully demonstrated
on a four button player 55” multi-touch
table game at the G2E tradeshow.

Operations
Over the course of 2018, the productive
headcount has varied significantly with a
weekly average of 118 persons compared
with 115 persons over 2017. The higher
average in 2018, being more a result of
production inefficiencies from the
significant reduction in the manufacture
of Financial products, and unprecedented
yield issues associated with related
new product and process introductions
whilst maintaining on-time customer
deliveries in Q4, resulting in an average
of 128-person headcount in Q4.

As a result of the short order book
and batch project nature of the business,
productionising of new processes or
product configurations on active orders
is our common practice and when issues
arise, they are normally readily managed.
However, the yield issues observed in Q4
were extreme and unfortunately related
to the productionising of new Gaming
projects. These comprised large format
and new shaped touch sensors, which
incorporated the new FPC tail designs
and narrow inactive border features
of the new ZXY500 MPCT™ solutions,
and required the exclusive use of
the new fibre laser jointing process.
Adopting these new technologies and
manufacturing processes in combination
proved problematic.

Significant work continues to be
undertaken to understand, and where
possible, eradicate the issues observed
and bring the yields of the new product
offerings and newly introduced processes
back in line with our expectations.

Mark Cambridge
Chief Executive Officer
10 December 2018

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOur business model

OUR COMPETITIVE
ADVANTAGES – ADDING VALUE
TO OUR CAPABILITIES

OUR KEY RESOURCES
AND RELATIONSHIPS

OUR MANUFACTURING
CAPABILITIES

Our products
We know glass. Our in-house facilities include
automated cutting, edge grinding, polishing
and drilling machines, complemented by bending
and thermal tempering ovens and screen printing
equipment. Our dedicated and talented
manufacturing team has decades of experience
in glass processing and lamination.

Diverse product range
Since the turn of the century, Zytronic has
concentrated on the development and marketing of
its range of interactive touch sensor products based
upon its unique projected capacitive technologies
(PCT™ and MPCT™) to industrial, public access and
self-service equipment designers and end-users, in
market areas such as Financial, Retail, Leisure,
Signage, Industrial, Medical, etc.

Design options
Zytronic’s PCT™ and MPCT™ products offer
equipment designers and end-users a unique blend
of high durability and environmental stability, in
customer and application specific designs in a limitless
variety of shapes, sizes, thicknesses, strengths,
colours, etc., and capable of use in any location.

Location
The Group is headquartered and operates from
three modern factories totalling 80,000ft²,
which are all located on a single site in the UK.

Technology
We coined the term “projected capacitive”
more than 18 years ago and we are global leaders
in its development with our proprietary PCT™
and patented MPCT™ technology.

R&D
We are pioneers in the field of projected
capacitive touch technology – now the most
widely used touchscreen technology in the world.
We constantly strive to be ahead of trends and
to further the advancement of new products and
processes, including our patented, customisable,
multi-touch technology.

We have applied for new patents over the year
to further strengthen our presence in the market,
and have also had three further patents granted
under the 2012 MPCT™ applications.

Experienced team
Over the last eight years, we have built up a diverse
team of mechanical, electronic, software and firmware
engineering experts, to continually develop the
processes, materials and functionality across the
full gamut of all products that Zytronic designs
and manufactures.

This ensures that the developed and, where
appropriate, patented IP in our touch technologies
and products remains at the forefront of the industry
and allows us to take an important position within
the touch ecosystem.

In-house facilities
Our commitment to developing innovative
touch technology is backed up by stringent
(ISO-approved) quality and environmental systems
and our multi-lingual/multi-national sales, customer
service and technical support teams are always on
hand to assist customers throughout a project.

Chief Executive Officer’s review P5–7

At a glance P2–3

ZYTRONIC PLC

HOW WE ADD VALUE

RE-INVESTMENT

Customers
We have been honoured to work with dynamic and
prestigious companies, which are global leaders in
their respective fields. We do this by putting our
customers’ needs at the forefront of our business.

Using a consultative sales approach, we ensure our
customers are educated, informed and engaged with
all aspects of the design and sales process, which
allows us to create a truly adaptable service, and
touch sensor solutions that meet the needs of their
interactive application.

Partners
We have an ever-expanding network of specialists,
international representatives and resellers, all of
which are dedicated to meeting the needs of our
customers and offering local and practical support
when necessary.

Employees
With well over half a century of glass processing
and laminating experience, and over 16 years of
experience developing our own touch controllers,
our employees are experts in their fields.

From initial idea, to prototype, manufacture and
installation, our employees offer professional advice
and guidance to make sure customers’ needs are met
throughout the lifespans of their projects.

Shareholders
We continue to deliver value for our shareholders
and have returned double-digit annual growth in
our dividends over the past five years.

From “force sensing” to “object recognition” touch
control firmware, or from curved to “explosion resistant”
glass touchscreens, we constantly strive to be ahead
of the trends, and bring our customers the most
up-to-date advancements in touch technology.
We do this by continually re-investing into the
development of new technology, products
and processes.

R&D spend “expensed” (2018)

£0.4m

Patents granted

ROUTE TO MARKET

Direct presence
We have key account managers on the ground in
the locations where we see the biggest growth
opportunities. Our experienced personnel can react
quicker to customers’ needs and ensure the Zytronic
brand continues to be globally recognised.

Sales channel partnerships
We have 39 sales channel partnerships to sell our
products around the world, two of which are global
distribution agreements.

Our strategy P14–15

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOur business model continued

DESIGN

We develop and manufacture highly durable and
adaptable touchscreens in a near limitless range
of shapes and sizes.

Any shape and size
Precisely tailored to meet our
customers’ specific applications, we
help create a unique touchscreen
interface design, with a near
limitless range of shapes and sizes
to fit any display from 5” to over
85”, and incorporating features
such as curved glass, cut and
drilled holes or slots, and in
almost any colour imaginable.

Variety of materials
Our projected capacitive touch
sensors can be supplied in a wide
variety of glass types. Our patented
touch technology is also available
in rollable films for self-application.
Furthermore, with their incredibly
sensitive touch detection, our
products can also be specified in
a wide range of glass thicknesses
and strengthening treatments,
from 1mm to well over 20mm,
to meet requirements for high
impact resistance.

Flexible quantities
We understand that our customers’
projects may require one touchscreen
or thousands, and that demand
can fall and rise. For that reason,
we do not have a “minimum
order quantity” as our unique
manufacturing process is flexible
enough to support new self-service
or commercial touchscreen projects
from prototyping to mass production,
and through its life cycle.

Case study

“PICK AND FLIP”
FUNCTIONALITY

ZYTRONIC PLC

Zytronic and Istanbul-based
integrator Nerotouch have
digitised Kia’s dealership

Location:
Turkey

Industry:
Automotive
sales

Application:
Retail

Nerotouch provided Kia with the multi-touch
software installed on diagonal touch tables,
including the pick and flip functionality that
transfers content to the 2×2 video wall.
Nerotouch was able to exceed Kia’s
expectations by creating a lightweight
table that can be moved around the car
showroom, allowing management to adapt
the layout to changing needs, for example
by placing the table next to a new model.

Read more at
zytronic.co.uk/case-studies/
detail/kia/

SERVICE

Our commitment to developing innovative touch
technology is backed up by stringent quality systems
and customer service.

Leaders in touch control
electronics
We are unique in the industry –
designing our own touch controllers,
writing our own proprietary touch
detection firmware and developing
our own ASICs. This means we have
created electronics and software
specifically to meet the requirements
of our customers’ self-service
applications and our customers
can rest safe in the knowledge
that we “own” the full solution.

An experienced team
With well over half a century of
glass processing and laminating
experience, over 15 years of
developing our own touch
controllers and comprehensive
in-house manufacturing facilities
which we are constantly investing
in and improving, we are one of the
only touchscreen companies in the
world which can be trusted to help
take our customers’ vision to
reality and keep our customers
ahead of their competition.

Pushing touch to the limit
We love projected capacitive touch
sensing! In fact, we coined the phrase.
From “force sensing” to “object
recognition” touch control firmware,
or from curved to “explosion
resistant” touchscreens, we
constantly strive to be ahead of
the trends and bring our customers
the most up-to-date advancements
in touch technology.

Case study

SANTANDER
WORK CAFÉ

Zytronic touch is key to
Santander’s work/café
branch concept

Location:
Chile

Industry:
Banking/
Leisure

Application:
Work Café
Santander

The Santander Work Café, a one of a
kind type of bank branch in Chile, turns a
common branch into a community space:
half bank and half café. It has now been
implemented in 20 Santander branches,
and Santander is going forward to introduce
20 brand new offices by the end of 2018.
Zytronic touch sensors are integrated into
the sign-in kiosk and video wall that is a
central feature of each Santander Work Café.

Read more at
zytronic.co.uk/case-studies/
detail/santander-workcafe/

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOur business model continued

PERFORMANCE

Our products are proven in the toughest environments
and provide reliable performance 24 hours per day
year after year.

Durable and reliable
Our products are unaffected by the
presence of dirt, water, dust and
scratches on the surface which,
when coupled with the ability of
our touch technologies to operate
through very thick glass, plus
in-house toughening facilities,
enables us to create sensors capable
of withstanding incredible levels of
abuse. This means our customers
can rest assured that their
touchscreen systems are going to
have the highest levels of reliability.

Case study

MOSCOW
METRO

ZYTRONIC PLC

Accurate and responsive
Thanks to our state-of-the-art
custom-designed touch control
electronics, our touch sensors can
detect 100 or more simultaneous
touches a few millimetres apart,
tracking in millisecond-level
lightning-quick time, through thick
laminated glasses, gloved hands
and even other non-conductive
materials such as wood, plastic
and ceramics.

In any location
For nearly two decades our projected
capacitive touch technologies
have proven unparalleled ability
to work reliably in the most
demanding environments and
applications – from supervised
indoor to unattended outdoor
positions, and from climates
ranging from the heat of the
Saudi Arabian summer to the
cold of a Siberian winter.

Zytronic to equip more than
1,600 Moscow Metro and bus
ticket machines

Location:
Russia

Industry:
Transportation

Application:
Ticket
machine

Zytronic has supplied nearly 700 touch
sensors for self-service ticket machines
installed on the Moscow Metro and at Moscow
bus stops. The 17 and 19” sensors were supplied
by Elatec, Zytronic’s partner in Eastern Europe,
to Russian systems integrator Progressive
Self-Service Systems, JSC (“PSS”), and are
part of a phased roll-out which will eventually
extend to over 1,600 machines.

Read more at
zytronic.co.uk/case-studies/
detail/moscow-metro/

Our markets

OPERATING IN
GLOBAL MARKETS

WHERE OUR CUSTOMERS ARE LOCATED

APAC

AMERICAS

EMEA

Sales channel
partnerships

around the world 39

APAC touch
revenue

growth 14%

Our customers are located all over the globe. As noted, our strategy is to
progressively move customer facing roles closer to our clients. In recent years,
we have created a subsidiary in the USA, registered a presence in Taiwan and
operated an office in Japan – all staffed by local sales and technical support people.
Our EMEA sales team is based in the UK head office together with a customer
service team supporting our clients and sales channel partners worldwide.

Americas
Touch revenue from
invoiced sales to the
Americas was

£4.0m

UK
Touch revenue from
invoiced sales to UK
customers was

£2.1m

EMEA
Touch revenue from
invoiced sales to the
EMEA region was

£5.8m

which represented 22% of
total touch export revenue
(2017: £3.8m; 19%).

which represented 10%
of total touch revenue
(2017: £2.6m; 12%).

which represented 32% of
total touch export revenue
(2017: £7.0m; 34%).

* Non-touch revenues represent £2.2m (2017: £2.3m). Refer to note 2 for further detail.

APAC
Touch revenue from
invoiced sales to the
APAC region was

£8.2m

which represented 46% of
total touch export revenue
(2017: £7.2m; 35%). The largest
revenue generator was from
sales into the Gaming market
for ultra-large format
MPCT™ products.

WHY OUR CUSTOMERS VALUE OUR TECHNOLOGY

We focus our sales and marketing resources on targeting those customers and applications which most value the core
attributes of our unique touch technology:

1. Durability
The impact and vandal resistance
of our touch sensing products is
renowned. It is this ability to keep
working where other touchscreens
would have quickly failed that makes
Zytronic touch technology the ideal
choice for any system which is likely
to be subjected to abuse (whether
deliberate or accidental) and high
levels of “wear and tear”.

2. Reliability
With no moving parts, and a proprietary
technology capable of detecting a
touch through extremely thick glass
and plastics, our PCT™ and MPCT™
products are proven to operate
faultlessly in some of the most extreme
conditions imaginable – and over many
years. This outstanding reliability
is valued by customers across the
market sectors we serve.

3. Adaptability
Our unique manufacturing process
and technology allow us to produce
touch sensors in a near limitless range
of shapes and sizes. The process is
also highly flexible, meaning we can
respond to requests for one or two pieces,
as well as thousands. As our customers
typically operate in commercial (and not
consumer) electronics markets, their
demand for parts are often relatively
low, with demand sporadic and project
driven. We are well suited to this type
of requirement and promote
our capabilities.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOur strategy

IT IS OUR AIM TO
DELIVER VALUE TO
OUR SHAREHOLDERS

INNOVATE

We identify development projects that will enhance our technology and increase its
ease of use and functionality for customers and end-users, and we listen to existing
and potential customers and our markets for future requirements.

INVEST

We review our manufacturing methods regularly to bring through efficiencies

in production. We add new plant and equipment each year, as necessary, to add

capacity and replace old equipment. We invest in our marketing activities to

promote our business on a global level. We invest in our employees to ensure

we have the necessary calibre of people in the organisation.

What we did in 2017/2018
• The ASIC was launched during fiscal year 2018 and a new

Our priorities for 2018/2019
• We will continue to work within the H2020 Hi-Response

family of controllers was released to incorporate this.

consortium project.

• We have initiated new sensor development to consider
introducing a complementary touch sensor offering.

• We will review and scope the production or supply of

ITO glass sensors.

• We introduced a new fibre laser bonding system to assist

• We will review the Medical market to determine the scope

in the industry leading narrow border configurations.

• We had three further patents granted in the USA and China,

associated with the MPCT™ 2012 filed patents.

of R&D investment required to improve our product offerings
in this market.

What we did in 2017/2018

Our priorities for 2018/2019

• We invested in further exhibition equipment to showcase our

• We will introduce further apprentices to add value into

latest product offerings at the tradeshows at which we exhibited

the business.

over the year.

• We appointed a Japan-based SEO specialist to better manage

it continues to meet our requirements.

our microsite, and a local PR agency as we moved our Asian

focus from China to Japan.

• We will invest in new glass processing equipment

to enhance product offerings and better utilise our

• We will continue to review our ERP system to ensure

• We completed a review of our digital and social media requirements

factory space.

in the UK with the aim of improving our SEO success.

• We have initiated trial pay-per-click campaigns via Google

and LinkedIn.

Link to KPIs

Group revenue, Gross profit margin,
Administration expenses, Cash generated
from operating activities and Order
intake over the year

Link to risks

Advances in competing technologies and
Cyber security risk

Link to KPIs

Group revenue, Gross profit margin,

Administration expenses, Cash generated

from operating activities, Order intake over

the year and Recorded accidents

§ Link to risks

Reliance on key customers, Cyber

security risk, Risks associated with

timing of customer projects and price

reductions and Brexit

GROW

We continue to seek opportunities to expand our sales channels and direct
presence across the world and aim to establish representation in additional
countries, for example Indonesia and in the Middle East.

What we did in 2017/2018
• We grew our revenues in the Gaming market and have further

Our priorities for 2018/2019
• We will continue to develop our presence in the USA through

exciting opportunities in the pipeline.

further recruitment into Zytronic Inc.

• We increased our direct sales presence in the APAC region

• We will continue to identify new channel partner

through the recruitment of a sales support engineer in Japan.

representation in countries where we have less coverage.

Link to KPIs

Group revenue, Gross profit margin,
Administration expenses, Cash generated
from operating activities and Order
intake over the year

Link to risks

Downward price pressures from
competing technologies, Reliance on
key customers, Increasing costs of raw
material supplies, Cyber security risk,
Managing increases in the overhead base,
Risks associated with currency
movements, Risks associated with timing
of customer projects and price reductions
and Brexit

ZYTRONIC PLC

INNOVATE

We identify development projects that will enhance our technology and increase its

ease of use and functionality for customers and end-users, and we listen to existing

and potential customers and our markets for future requirements.

INVEST

We review our manufacturing methods regularly to bring through efficiencies
in production. We add new plant and equipment each year, as necessary, to add
capacity and replace old equipment. We invest in our marketing activities to
promote our business on a global level. We invest in our employees to ensure
we have the necessary calibre of people in the organisation.

What we did in 2017/2018

Our priorities for 2018/2019

• The ASIC was launched during fiscal year 2018 and a new

• We will continue to work within the H2020 Hi-Response

family of controllers was released to incorporate this.

consortium project.

• We have initiated new sensor development to consider

• We will review and scope the production or supply of

introducing a complementary touch sensor offering.

ITO glass sensors.

• We introduced a new fibre laser bonding system to assist

• We will review the Medical market to determine the scope

in the industry leading narrow border configurations.

of R&D investment required to improve our product offerings

• We had three further patents granted in the USA and China,

associated with the MPCT™ 2012 filed patents.

in this market.

What we did in 2017/2018
• We invested in further exhibition equipment to showcase our

Our priorities for 2018/2019
• We will introduce further apprentices to add value into

latest product offerings at the tradeshows at which we exhibited
over the year.

• We appointed a Japan-based SEO specialist to better manage
our microsite, and a local PR agency as we moved our Asian
focus from China to Japan.

• We completed a review of our digital and social media requirements

in the UK with the aim of improving our SEO success.

• We have initiated trial pay-per-click campaigns via Google

and LinkedIn.

the business.

• We will continue to review our ERP system to ensure

it continues to meet our requirements.

• We will invest in new glass processing equipment

to enhance product offerings and better utilise our
factory space.

Link to KPIs

Link to risks

Advances in competing technologies and

Link to KPIs

Cyber security risk

Group revenue, Gross profit margin,

Administration expenses, Cash generated

from operating activities and Order

intake over the year

Group revenue, Gross profit margin,
Administration expenses, Cash generated
from operating activities, Order intake over
the year and Recorded accidents

§ Link to risks

Reliance on key customers, Cyber
security risk, Risks associated with
timing of customer projects and price
reductions and Brexit

Case study

The ZXY500

Our new ZXY500 controllers
reset the standard for speed,
accuracy and performance

GROW

We continue to seek opportunities to expand our sales channels and direct

presence across the world and aim to establish representation in additional

countries, for example Indonesia and in the Middle East.

What we did in 2017/2018

Our priorities for 2018/2019

• We grew our revenues in the Gaming market and have further

• We will continue to develop our presence in the USA through

exciting opportunities in the pipeline.

further recruitment into Zytronic Inc.

• We increased our direct sales presence in the APAC region

• We will continue to identify new channel partner

through the recruitment of a sales support engineer in Japan.

representation in countries where we have less coverage.

Link to KPIs

Group revenue, Gross profit margin,

Administration expenses, Cash generated

from operating activities and Order

intake over the year

Link to risks

Downward price pressures from

competing technologies, Reliance on

key customers, Increasing costs of raw

material supplies, Cyber security risk,

Managing increases in the overhead base,

Risks associated with currency

movements, Risks associated with timing

of customer projects and price reductions

and Brexit

The ZXY500 range of controllers is based
around a unique, proprietary Zytronic ASIC
and features multi-touch functionality with
palm rejection, higher noise immunity,
faster speed of operation and the ability
to offer reduced non-active borders for
Zytronic multi-touch sensors.

“Zytronic has set a new standard for touch
performance, enabling sensors to operate
reliably in industrial environments from
which they were previously excluded. Even
in demanding conditions with high levels
of EMI and exposure to contaminants, a
ZXY500 enabled touchscreen is a rugged
and responsive user interface. It is absolutely
ideal for outdoor and unattended applications
where it can be fully protected from physical
damage and environmental factors without
compromising performance.”

Ian Crosby, Sales and Marketing Director

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSOur key performance indicators

MEASURING OUR
PERFORMANCE

Commentary on the actual performance of the Group against these KPIs is set out
in the Chairman’s statement and the Chief Executive Officer’s and Financial reviews.

• The current KPIs consist of: setting targets for and monitoring the level and growth of sales; improving the gross profit

margin; controlling the level of overheads (administration expenses); managing cashflow from operating activities;
recording the order intake over the year; and monitoring accident levels.

• In addition, the Directors review a CRM opportunities log which the sales team uses to record validated sales opportunities
and the key dates in the development of each sales prospect with the customer, volumes and values of the opportunities
and expected production commencement dates.

Group revenue (£m)

Gross profit margin (%)

Administration expenses (£m)

£22.3m -3%

37.0% -10%

£3.6m 0%

.
1
2

1
.
1
2

2
2

8
1

.
1
4

2
4

1
.
1
4

0
7
3

6
3

1
.
4

Definition
The total amount the
Group earns from the sale
of its products.

Definition
The gross amount of margin
earned from the sale of the
Group’s products.

Definition
The indirect costs incurred
in running the Group.

Our performance
Difficult market conditions have
adversely impacted sales in the
Financial market over the year.

Our performance
Additional headcount and yield
issues associated with new
product introduction have
impacted margin over the year.

Our performance
Costs are in line year on year.

Link to strategy

ZYTRONIC PLC

Link to strategy key:

Innovate

Grow

Invest

Cash generated from operating
activities (£m)

Order intake over the year (£m)

Recorded accidents

£4.8m +3%

£21.6m -8%

6
9 5

2 4

7
4

.
1
2

3
2

.
1
2

9
1

Definition
Cashflow from operating activities
adjusted for non-cash items.

Definition
Orders received during the
financial year.

11 -42%

8
2

0
2

9
1

0
1
16

1
1

Definition
Total number of accidents
recorded in the business
over the year.

Our performance
Movements in working capital
have benefited cash generated
from operations.

Our performance
Slight year-on-year decline
driven by market forces
impacting the Financial market.

Our performance
Decrease in accidents occurring
over the year, none of which
were reportable to RIDDOR.

Link to strategy

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSRisk management

CONTINUALLY ASSESSING RISKS

The Board regularly carries out a robust assessment of the principal risks facing
the Group, including those that threaten the business model, the strategy, future
performance, solvency and liquidity. Principal risks have been identified based on
the likelihood of occurrence and the severity of the impact on the Group, and have
been identified through the application of policies and processes outlined below.

MANAGING OUR RISKS

The nature of the risk is reviewed including the possible triggering events and the aggregated impacts
before setting appropriate mitigation strategies directed at the causes and consequences of each risk.

The risk is assessed in relation to the likelihood of occurrence and the potential impact of the risk
upon the business and against a matrix scoring system which is then used to escalate risks within
the Group.

Risk management structure
The responsibility for risk identification, analysis, evaluation and mitigation rests with the operational management team of
the businesses and is regularly communicated to and reviewed by the Board. The operational management team is also
responsible for reporting and monitoring key risks in accordance with established processes under the Group operational
policies. Reporting within the Group is structured so that key issues can be escalated rapidly through the management
team to the Board where appropriate.

Board of Directors

Non-executive Directors

Audit
committee

Remuneration
committee

H
G
H

T
C
A
P
M

W
O
L

Risk heat map
1. Downward price pressures

from competing technologies

2. Reliance on key customers

3. Advances in competing

technologies

4. Increasing costs of raw

material supplies

5. Cyber security risk

6. Managing increases
in the overhead base

Risks associated with
currency movements

8. Risks associated with timing

of customer projects

9. Brexit

ZYTRONIC PLC

LOW

LIKELIHOOD

HIGH

RISK DESCRIPTION

MITIGATING ACTIONS

Downward price pressures from competing technologies

POTENTIAL
FINANCIAL
IMPACT

CHANGE

This is most prevalent in the
lower valued touch sensor sector
dominated by resistive, capacitive
and surface acoustic wave
touchscreens. However, price
pressures in those markets do
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 and in developing the ZYPOS® touch sensor. This has
enabled the Group to reduce the cost of manufacture and
therefore the sales price for subsequent touch sensor
designs and has allowed the Group to enter markets
that were previously closed to it on price grounds.

During the year the Group introduced its new MPCT™
ASIC and family of controllers under the ZXY500 series
and, in conjunction, new FPC tail designs and sensor
configurations were introduced, that provided industry
leading narrow border considerations, which had been
configured based on years of customer feedback and
market desire.

The Group has subsequently taken the touch sensor
manufacturing process changes and applied them to the
re-design and manufacture of the optical display filters
which it also produces. The Group continually assesses
alternative materials in order to try to drive down costs.

Reliance on key customers

At present the Group gets 48% of its
revenue from three key customers.
The risk to the Group is the loss of
one or more of these customers
with revenues not being
replaced by others.

The nature of the business often means that when a
customer is brought into the Group they stay loyal for a
long period due to the lengthy engagement process from
initial discussion to the raising of the purchase order. It is
also difficult for a customer to design out the product
once it has been chosen to be incorporated into their
product offering. These factors help mitigate the risk
of losing key customers and should protect the Group
against any changes to trade agreements in regards to
a “no deal” Brexit outcome. The Group constantly seeks
new and increasing opportunities to replace and add to
revenue when existing projects naturally come to their
conclusion. The Group constantly strives to have a
diversified customer base with multiple projects over
different time periods occurring at any one time.

This remains a high
profile area which is why
the Group continues to
advance and develop
its product offering to
enable it to continue
to be a market leader.

Whilst still a high risk,
the Group can often have
numerous projects with
any particular customer
which helps to reduce
the overall reliance.

Advances in competing technologies

A risk to the Group’s business is
that of advances in competing
technology, whereby a new, better
touch sensor technology is created.

Management is very 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. In order to protect itself the
Group has applied for and had patents successfully granted.
Further patent applications have been initiated during the
year and three more patents have been granted, taking the
total to eight.

The Group is always
looking to develop its
product offerings and
to protect itself from
its competition through
its internally generated
intellectual property.

Impact and change key:

Unchanged

Adverse

Improved

Major

Moderate

Minor

Link to strategy key:

Innovate

Grow

Invest

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Risk management continued

RISK DESCRIPTION

MITIGATING ACTIONS

Increasing costs of raw material supplies

There are continual upward
pressures on the cost of raw
material supplies, many arising
from increases in oil prices and
energy costs. Raw materials are
also purchased in US Dollars and
Euros and movements in exchange
rates can affect the pricing.

Management continually reviews the sources and
costs of raw material supplies, the design of the Group’s
products and the operational processes that are used in
their manufacture. Where possible, it uses increases in
volume purchases to obtain price reductions, discounts
and improved specifications.

Cyber security risk

The risk to the Group is that of
unauthorised access to or external
disclosure of Group information,
including those caused by
“cyber attacks”.

Management has implemented technical and procedural
controls to minimise the occurrence of information and
financial security and data protection breaches. Access
to information is only provided on a “need-to-know”
and “least privilege” basis consistent with the user’s role
and also requires the appropriate authorisation. Where
sensitive data is made available to third parties it is done
under confidentially agreements.

Managing increases in the overhead base

With the significant time that may
occur between meeting potential
customers and receiving first
orders, management must ensure
that the capacity of its factories is
adequate for future growth in sales
and the development of the
business, while managing the
profitability of the Group.

This is not straightforward when the business is developing
new products and manufacturing processes and when the
visibility and timing of orders from customers is unclear.
Management uses a comprehensive sales pipeline model
that is supported by a CRM system to monitor potential
future sales levels. It has built in a degree of flexibility in
its two main factories by ensuring that all products can
be processed across its two buildings to continue to meet
variable demand. Management continues to consider the
space requirements in its buildings should increased raw
materials need to be held to mitigate against any possible
changes to customs clearance procedures when Brexit
occurs or new manufacturing processes are added.

Risks associated with currency movements

A large proportion of the Group’s
sales are denominated in US Dollars
and Euros, so 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 without taking the risks
of speculative positions.

Natural hedging is adopted to manage currency risk,
whereby goods and services are sometimes sourced in
Euros and US Dollars. Surplus currency is then protected
through the use of forward foreign exchange contracts
for a period of up to four months ahead in line with the
working capital cycle.

Risks associated with timing of customer projects and price reductions

One of the main risks to the
business is that of the timing
of customer projects, where as a
component supplier the Group is
wholly reactive to its customer
demands. The Group has to also
consider the impact of customer
price reduction requests.

The demands of the Group’s customers are not something
that can be controlled, so in order to mitigate this risk the
Group constantly strives to have a diversified customer
base with multiple projects over different time periods
occurring at any one time. A project log, via the CRM
system, is regularly reviewed to ensure that up-to-date
information regarding pipeline projects is captured. The
Group considers any price reduction requests from its
customers and tries to offset this with product redesigns.

ZYTRONIC PLC

POTENTIAL
FINANCIAL
IMPACT

CHANGE

No change to the risk but
management is continually
reviewing the supply
arrangement particularly
around the possible
implications of Brexit.

None as a new risk
this year.

Management does
not consider a change
to this risk but is
constantly monitoring
and reviewing the
processes it has in
place to determine
their applicability.

The Group sees this
as a moderate risk
due to the protection
mechanisms in place, but
will be impacted by any
movements in currency.

This risk remains
unchanged but
management continually
tries to identify new
customers and markets
to further mitigate
against this in the future.

RISK DESCRIPTION

MITIGATING ACTIONS

Brexit

POTENTIAL
FINANCIAL
IMPACT

CHANGE

The result of the EU referendum in 2016 increased the level of macroeconomic uncertainty for the Group and the Group has since then
continued to consider the impact of what could be a “no deal” scenario. The Directors believe that the Group’s unique positioning as a
niche player in a global market with a diverse revenue base means it is well placed to minimise any negative impacts. However, some of
the risk areas are considered as follows:

Customs delays in importing and
exporting goods into the UK,
delaying raw materials in and
finished goods out to customers.

Fluctuating exchange rates which
in turn could impact cash flows.

The Group is a big importer and exporter of goods into
and out of the country. There is a risk that goods inward
could be impacted by delays at borders, meaning raw
materials are delayed going into production. The Group
has assessed its space requirements to ensure it can hold
higher levels of raw material stock should it need to.
The Group also has sufficient cash resources to enable
it to do this.

At present, 30% of the Group’s sales go into the EU and
over 90% of these sales are made on an Ex-works basis
where the customer is responsible for the delivery. This
is a mitigating factor as our obligation to the customer in
terms of delivery is when the goods are made available
for collection.

The Group has also considered applying for the
Authorised Economic Operator (“AEO”) status but given
that the majority of its EU sales are on an Ex-works basis,
it would have no control over who its customers choose
to use as carriers and therefore could not guarantee that
AEO status for those shipments could be maintained.

The Group transacts in three currencies: Pounds, US
Dollars and Euros, and adopts natural hedging where
possible to mitigate against exchange rate movements.
A weakened Pound as a result of a “no deal” scenario
would likely have a positive impact on the Group due to
the high levels of exports. The Group also has sufficient
cash resources to protect against any short term volatility.

None as a new risk
this year.

Delayed payments from customers
subject to working capital stresses.

The Group has very good credit control policies and, while
this may impact internal working capital in the short term,
it has sufficient cash resources to mitigate against this.

None as a new risk
this year.

Impact and change key:

Unchanged

Adverse

Improved

Major

Moderate

Minor

Link to strategy key:

Innovate

Grow

Invest

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Sustainability

PEOPLE ARE AT THE HEART
OF OUR BUSINESS

We have three core values which serve as the guidelines for our conduct as an
organisation and for the behaviour of our employees.

1. INTEGRITY

2. QUALITY

Building relationships of mutual respect with colleagues, customers,
suppliers, advisers and investors, ensuring that we conduct
ourselves at all times in an open, honest and ethical manner.

Providing customer satisfaction through the continual improvement
of our products and processes and the capabilities of our
employees, through innovation, development and training.

3. PERFORMANCE

Driving towards profitable growth and increasing shareholder
value through the balance of short term demands and long
term strategies.

Environmental
At Zytronic we are committed to working towards a
cleaner and greener future for all.

We endeavour to comply with all relevant environmental
legislation and regulation. It is our goal to attain higher
standards of environmental performance where practical
and appropriate.

We are fully compliant with BSI Environmental
Management System ISO 14001:2015.

Diversity
We pride ourselves on our diversity. Varying characteristics
of our employees include, but are not limited to: religious
and political beliefs, gender, ethnicity, education,
socio-economic background, sexual orientation and
geographic location.

Training
Employee training and development is one of the key
factors to our success. Comprehensive training programmes
allow us to advance workplace safety, productivity and
satisfaction, as well as creating an informed and inspired
workforce which can contribute to the advancement of
our touch technology. We regularly review this across all
departments to ensure that we continue to meet the needs
of the Group and also to assist in succession planning.

Health and safety
We are committed to meeting the highest safety
standards for all the employees and visitors to our site.
We have a dedicated health and safety committee which
meets on a regular basis over the year and reports back
to the Board of Directors. We continue to reinforce and
develop the safety processes in the business and develop
a competent workforce with a view to achieving long term
improvement gains.

Recycling
We promote environmental awareness throughout the
Group and have introduced a number of activities which
include the recycling of paper, cardboard, plastics, cans,
bottles, metals, etc. Since introducing these recycling
activities, Zytronic has reduced pollution into the
environment by diverting 95% of its waste away from
landfill with the remaining 5% being used as RDF fuel.

Apprenticeships
We are committed to training and have embarked on
an apprenticeship scheme to train our engineers of
the future. We believe this will help to mitigate against
a possible skills gap in the future and encourage future
apprentices to join the Group.

ZYTRONIC PLC

WE ARE COMMITTED TO TRAINING
OUR ENGINEERS OF THE FUTURE

Zytronic apprenticeship scheme
At Zytronic we are not only dedicated to the advancement of our touch sensor technology, but also the talent and
knowledge of our staff.

Therefore, we are proud to be engaged with a local apprenticeship training scheme TDR Training, an approved training
provider based in North East England which provides apprenticeships in Engineering and Manufacturing at Level 3,
amongst other apprenticeships.

Zytronic currently employs two apprentices: Liam Jackson, who joined Zytronic in March 2016, to serve as a Production
Technician, assigned to the Production Technician department; and Alexander McEwen, who joined Zytronic in 2017 and
is assigned to the Quality department. Kyle Gair has recently completed his apprenticeship this year and is currently employed
as a multi-skilled Maintenance Craftsperson. Based on the success of the three apprenticeships to date we are looking at
recruiting a further two apprentices to start with us in January 2019.

In addition to this apprenticeship programme we are also looking at our first line managers completing a Level 3 Diploma
in Management apprenticeship programme over the next two years.

Mark Cambridge, Zytronic CEO, comments: “Despite not having any previous work experience, apprentices can be highly
effective in bringing new ideas and a fresh perspective into the workplace; it is our intention to continue to hire and train
apprentices to ensure that we have the correct skills and resources available to meet the needs of the business going forward.”

Employee engagement
We strive to create the right conditions for all members
of our organisation to give their best, are committed
to our goals and values, and are motivated to contribute
to the organisational success, with an enhanced sense
of wellbeing. We ensure we communicate with our
employees on a regular basis and we consider their
feedback and knowledge when making changes to our
processes. We have a good mix of long serving employees
and newer recruits which brings a good perspective when
it comes to business development.

Customer engagement
Our workstreams are project orientated and we therefore
rely heavily on customer engagement and feedback on
delivering exceptional products tailored exactly to our
customers’ requirements. We do not sell one standard
product and therefore our relationships with our
customers pre and post-sale are essential to the future
business development. We continue to advise and support
our customers following a sale in order to assist with the
integration of our sensors into their final products. We
often provide troubleshooting advice on areas that are not
related to our core business but to assist the customer.
Other than delivering exceptional quality, it is because of
this engagement and level of support that our customers
come back to us for new and innovative future projects.

Supplier engagement
We have very good relationships with our suppliers and
we work in conjunction with them to ensure our raw
materials are delivered to our exact specification in the
quantities in which we require. As a Group whose USP is
the quality and durability of its products we must ensure
the components of our product meet the requirements
of ourselves and our customers. We also liaise with our
suppliers on the development of new materials to ensure
the relationships continue to strengthen. We do not
engage with suppliers that do not abide with the Modern
Slavery Act guidance and we do not buy conflict materials.
We also prohibit the use of child labour in our supply chain.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSFinancial review

INCREASING CASH

Profit before tax
Because of the reduced levels of
revenues and the gross margin reduction
noted above, Group profit before tax
decreased to £4.2m (2017: £5.4m).
Distribution costs show a slight
year-on-year increase as we have sold
more products where the responsibility
for distribution sits with the Group.
On a year-on-year basis, administration
costs are in line with those of 2017
at £3.6m despite this year’s figure
including the £0.3m costs of the claim
litigation described below. All other
costs were well controlled, with salary
costs showing a saving over the year
due to fewer bonus provisions being
required given the performance of
the Group.

Claim litigation
Over the course of the financial year,
ZDL has been in dispute with a former
licensor, over the process used to
write micro-fine wire to a substrate.
The licensor alleged that ZDL owed
it duties of confidentiality in relation
to information alleged to have been
imparted to ZDL in 1999 and asserted
that ZDL had breached that duty in the
content of its MPCT™ patent applications
filed in 2012 and ZDL’s processes
infringed a patent filed by the licensor in
2014 in response to the alleged breach
of duty. These allegations were strongly
refuted by ZDL.

A claim was made against ZDL in
the Intellectual Properties Enterprise
Court, reference IP-2017-000218,
towards the end of Q1 2018. On ZDL’s
instigation, the claim was transferred
to the Patents Court in Q2 2018,
reference HP-2018-000016.

Whilst ZDL did not accept it was liable,
it took a commercial approach to
dealing with the claim, mindful of the
time and cost associated with High
Court litigation and in May 2018 made
an offer pursuant to Part 36 of the Civil
Procedure Rules by which ZDL agreed
to pay £72k in settlement of the claim,
which was accepted in September 2018,
plus costs which were to be subsequently
assessed, if not agreed, which have
been settled by the parties with ZDL
agreeing to pay £25k. The total costs
incurred in the year including ZDL’s
own legal expenses were £0.3m.

Tax
The Group’s tax charge of £0.5m
represents an effective tax rate of
13.0%, compared to the £0.8m and
15.0% recorded in the prior year. In
the year, the Group continued to claim
relief under the Patent Box regime
and the utilisation of R&D tax credits.
A slight overprovision recorded for
2017 has also benefited the tax charge
in the year, the impact of this being a
0.8% reduction in tax on profits.

Earnings per share
There has been no change to the
issued share capital of 16,044,041
ordinary shares of 1.0p each over the
year and the EPS recorded is 22.7p
(fully diluted: 22.7p), which is lower
than that reported for last year
(2017: 29.0p; fully diluted: 28.8p)
by 22% due to lower profits arising.

Dividend
The Directors recommend the payment
of a final dividend of 15.2p per share
for the year ended 30 September 2018
giving a total dividend for the year
of 22.8p per share (2017: 19.0p) and
an increase of 20% over last year.
Subject to approval by shareholders,
the dividend will be paid on Friday
22 February 2019 to shareholders
on the register as at the close of
business on Friday 8 February 2019.

15.2p

Recommended
payment of a
final dividend
(per share)

The Group continues to
generate cash and has
recorded an increase in
cash and cash equivalents
of £0.5m (2017: £1.3m)
at 30 September 2018.”

Group revenue
Total Group revenue for the year
decreased by £0.6m to £22.3m
(2017: £22.9m), as a result of the
underperformance of both the touch
and non-touch elements of the
Financial market compared to the
previous year. The Chief Executive
Officer’s review explains in detail the
reasons for this.

Gross margin
Gross margin for the year was 37.0%
(2017: 41.1%), and has been impacted
by several factors:

• the reduction in units supplied

into the Financial market eroded
operational efficiencies as the
manufacture of these relatively
vanilla products provides a
volume baseline albeit with
month-on-month variability;

• increased costs of raw materials,
exacerbated by new product
introductions in Q4, due to
operational yield issues where
product had to be reworked or
rebuilt to achieve the desired
customer requirements; and

• year-on-year increased labour
costs and increased numbers
of personnel and overtime in
production as a consequence
of the above.

ZYTRONIC PLC

The Group continues to be debt free
and reported cash and cash equivalents
of £14.6m at 30 September 2018
(2017: £14.1m).

Claire Smith
Group Finance Director
10 December 2018

Capital expenditure
The Group additions to capital
expenditure totalled some £0.7m
and was weighted more to intangible
assets with £0.4m of spend occurring
on the conclusion of the MPCT™ ASIC
project and subsequent controller
releases as well as new product
development. Tangible additions have
been for a number of small items of
equipment to assist in production
capabilities, as well as health and
safety improvements. Depreciation
and amortisation for the year was
the same as last year at £1.1m.

Cash and debt
The Group continues to generate cash
and has recorded an increase in cash
and cash equivalents of £0.5m (2017:
£1.3m) at 30 September 2018. Cash
generated from operations (pre-tax)
of £5.4m (2017: £5.2m) offset the net
cashflow used in financing activities
of £3.7m (2017: £2.3m), being the

payment of the final and interim
dividends, and the net cashflow used
in investing activities of £0.6m (2017:
£1.0m). Working capital is neutral in
the year (2017: £0.4m increase) but the
Group is coming under more pressure
from its customers to increase payment
terms. The Group is mindful of its cash
holdings and will continue its policy to
invest in internal R&D and capital
refurbishments to drive growth, and
also maintain its progressive dividend
policy as it has sufficient cash and
reserves to do so.

The Group maintains an overdraft
facility, which is available for use in any
of its currencies. The Group also has
an FX policy in place whereby it is
hedged in both US Dollars and Euros
for a period of four months ahead in
line with its working capital policies to
try to better manage its net GBP
inflows from its surplus currency
requirements.

Case study

NEW YORK
METROPOLITAN
TRANSPORTATION
AUTHORITY

Zytronic touch sensors bring interactivity to the
New York Metropolitan Transportation Authority’s
network of wayfinding digital information kiosks

Location:
New York

Industry:
Transportation

Application:
Subway information
kiosks

New York City’s MTA comprises the largest and most heavily used
public transit system in the Americas. To withstand the rigours of
non-stop use, Zytronic’s rugged touchscreens are now an integral
component of the complex network of interactive wayfinding digital
information kiosks used throughout the subway system. The kiosks
offer touchscreen interactivity that enables users to view train arrival
times, real-time service alerts (both planned and unplanned),
interactive wayfinding for all subway lines, and even neighborhood
maps to help orient passengers once they are above ground.

As the kiosks were gradually deployed, station by station, Zytronic
was able to manufacture small batches of the ZYBRID® touch sensors,
giving the MTA the flexibility to execute a phased roll-out to minimise
traveller disruption and keep the project on budget. In the field,
Zytronic’s projective capacitive touchscreen displays far exceed the
MTA’s durability guidelines, yet continue to deliver an interactive user
experience nearly identical to that of a smartphone.

Read more at
zytronic.co.uk/case-studies/detail/new-york-metro/

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSBoard of Directors

Tudor Griffith Davies A R
Non-executive Chairman

Experience and skills
Tudor has wide industry experience at boardroom level as Chairman, Chief Executive and Executive and Non-executive Director of several
public companies. He is currently Chairman of Assetco plc and was formerly Chairman and/or Chief Executive of Hicking Pentecost plc,
Stratagem plc, Dowding & Mills Ltd and plc and 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.

Mark Cambridge
Chief Executive

Experience and skills
Mark graduated with a BSc (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.

Claire Smith
Group Finance Director

Experience and skills
Claire graduated in 2000 in Business and Finance and attained CIMA accreditation in 2006 and a certificate in International Cash Management
in 2011. She held various positions within Procter & Gamble and the NAAFI before joining Zytronic Displays Limited in April 2007 as Group
Financial Controller. In 2012, Claire was appointed Finance Director of the trading subsidiary, Zytronic Displays Limited, and Finance Director
of Zytronic plc in January 2014. Claire is also the Group Company Secretary and advises the Group on its regulatory and legal matters.

David John Buffham A R
Independent Non-executive Director

Experience and skills
David has experience of operating in a highly regulated environment as Non-executive Director of Newcastle Building Society. He has
corporate governance experience in his roles as the Society’s Senior Independent Director and Deputy Chairman. He sits on the Society’s
board risk committee, which he chaired for eight years until 2018. He also has remuneration and nominations committee experience,
sitting on both these for the Society. He is a Director of two subsidiaries of the Society: Newcastle Systems Management Ltd and
Newcastle Strategic Solutions Ltd. He is a Director of William Leech (Investments) Ltd, where he additionally sits on the investment
committee and serves as a trustee of the William Leech Foundation. Until 2010 David worked for the Bank of England, most recently
as the Bank’s regional agent for the North East for nine years. During his time with the Bank, David covered a wide range of areas,
including risk management, macroeconomic policy and treasury operations.

All of the Directors served throughout
the financial year and up until the date
of signing these financial statements.
Sir David Chapman, Bt. served until
21 September 2018 and attended all
meetings over the year.

Board composition

Board meetings
2018 total: five meetings

50+

Executive Directors: 2

Non-executive Directors: 2

R 100+

100% attendance
by all Directors

A Member of audit committee

R Member of remuneration committee

Committee Chairman

THE
BOARD

Number of meetings
and the attendance
of Directors

ZYTRONIC PLC

50
+
R
Corporate governance

ACHIEVING HIGH
STANDARDS OF
CORPORATE GOVERNANCE

As an AIM-listed company, and in line with the London Stock Exchange’s recent
changes to the AIM rules requiring all AIM-listed companies to adopt and comply
with a recognised corporate governance code, the Board has adopted the Quoted
Companies Alliance (“QCA”) Corporate Governance Code.

Tudor Davies
Chairman

ROLE

RESPONSIBILITIES

The Chairman

• leadership of the Board and ensuring open and effective communication between the Executive and

Non-executive Directors; and

• ensuring Board meetings are effective by setting appropriate and relevant agenda items, creating an atmosphere

whereby all Directors are engaged and free to enter healthy and constructive debate.

The Chief
Executive

• day-to-day management of the Group’s business and implementation of the Board-approved strategy;

• acting as Chairman of the Executive committee and leading the senior management team in devising

and reviewing Group development for consideration by the Board;

The Non-executive
Director

The Company
Secretary

• responsibility for the operations and results of the Group; and

• promoting the Group’s culture and standards.

• constructively challenging management proposals and providing advice in line with their respective skills

and experience;

• helping develop proposals on strategy; and

• having an integral role in succession planning.

• responsible for advising the Board on all governance matters;

• ensuring that good information flows within the Board and its committees, and between senior management
and the Non-executive Director, as well as facilitating induction processes and assisting with professional
development as required.

This Corporate governance statement,
together with the information provided
below and in the audit committee report,
explains how Zytronic’s governance
framework works and how it applies
the principles of business integrity, high
ethical values and professionalism in all
its activities. As a Board, we recognise
that we are accountable to shareholders
for good corporate governance, and
we seek to promote consistently high
standards of governance throughout
the Group that are recognised and
understood by all. The Group promotes
this culture within its strategy and
management of risks and is continually
analysing this, from information provided
by the executive management team,
to ensure compliance.

The workings of the Board
and its committees
The Board
Throughout the year, Tudor Davies,
the Non-executive Chairman, Mark
Cambridge, the Chief Executive,
Claire Smith, the Group Finance
Director, and David Buffham, the
Independent Non-executive Director,
were members of the Board. Sir David
Chapman, Bt. was a Board member, the
Chairman of the remuneration committee
and the Senior Independent Non-
executive Director until he retired from
the Board on 21 September 2018. He
attended all meetings over the year.

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 is vital to the success of the Group.

The Directors’ qualifications are
listed on page 26. They keep their skills
relevant and up to date by continuous
professional development, attending
seminars and reading financial and
trade publications. Mark Cambridge
is also a Fellow of the Institute
of Directors.

The Board normally meets at least five
times per year. Its direct responsibilities
include reviewing annual and quarterly
forecasts, 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, the Chief
Executive, the Group Finance Director
and the Non-executive Director.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSCorporate governance continued

The workings of the Board
and its committees continued
The Board continued
The Chairman and the Non-executive
Director have a particular responsibility
to ensure that the strategies proposed
by the Executive Directors are
fully considered.

The Board members acknowledge that
they have a collective responsibility
and legal obligation to promote the
interests of the Group and are collectively
responsible for defining corporate
governance arrangements. However,
the Chairman acknowledges that the
ultimate responsibility for the quality
of, and approach to, corporate
governance lies with him.

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 Group’s expense. This has not
been requested during the year.

The standing committees established
by the Board are the remuneration
committee and the 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 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, is
shown on page 26.

Remuneration committee
The remuneration committee is chaired
by David Buffham, the Independent
Non-executive Director.

The other member is Tudor Davies,
the Non-executive 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 the
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 Board determines the
remuneration of the Chairman and
the Non-executive Director.

The number of meetings of the
committee, and the attendance
of members, is shown below.

Audit committee
The audit committee is chaired by
David Buffham. The other member is
Tudor Davies, the Non-executive
Chairman. The audit committee
meetings are also attended, by invitation,
by the other Directors. The committee
normally meets once a year.

The committee provides a forum
for reporting by the Group’s
external auditor.

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 the external auditor and on its
remuneration both for audit and
non-audit work and discusses the nature,
scope and results of the audit with
the auditor.

The audit committee keeps under
review the cost effectiveness of the
auditor. It also reviews the extent of
the non-audit services provided by
the auditor and reviews with it its
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
audit committee report is presented
on pages 30 and 31.

The number of meetings of the
committee, and the attendance
of members, is shown below.

The Board does not have a formal
Board effectiveness process but the
Chairman believes the Board has
performed effectively over the year.
The key strategic issues and risks have
been discussed in an open and honest
forum with decisions being made
based on the factual data presented.
Each Board member has a particular
area of expertise and has utilised this
to provide insightful comment and
contribution to the business demands
of the Company. The Company is
mindful of succession planning and has
discussions on this matter. The Board
feels it has a good balance of skills and
expertise; however, all members are
regularly challenged and assessed at
the Board meetings.

100%

Attendance of
Directors at our
remuneration and
audit committee
meetings

ZYTRONIC PLC

Remuneration committee
2018 total: one meeting

Audit committee
2018 total: one meeting

R100+
100+

100% attendance
by all Directors

R
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 financial
information relating to the Group are
also available on the Group’s website,
www.zytronicplc.com.

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 Nomad produces 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 Chairman of the
audit and remuneration committees
is available at the Annual General
Meeting to answer questions.

Details of resolutions to be proposed
at the Annual General Meeting on
Wednesday 6 February 2019 can be
found in the Notice of Annual General
Meeting on pages 73 to 75.

In addition, the Independent
Non-executive Director is available to
shareholders if they have any concerns
which contact through the normal
channels of the Chairman, the Chief
Executive or the Group Finance
Director has failed to resolve or for
which such contact is inappropriate.

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
has adopted the QCA code and follows
its guidance. The Directors set out below
and overleaf 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 it, 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 quarterly
rolling forecasts are prepared to
capture more accurate and up-to-date
information. The reports reviewed by
the Board include reports on operational
as well as financial matters.

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 concern 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 Strategic
report. The financial position of the
Group, its cashflows, liquidity position
and borrowing facilities are also
described within the Financial review
section of the Strategic report. In
addition, note 20 to the financial
statements includes the Group’s
objectives and policies of its financial
risk management and 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.

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.

The Directors have a
reasonable expectation
that the Company and the
Group have adequate
resources to continue in
operational existence for
the foreseeable future.”

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSThe number of meetings of the
committee, and the attendance
of members, is shown below.

David Buffham

Tudor Davies

The following key areas of risk and
judgement have been identified and
considered in relation to the business
activities and financial statements of
the Group:

Risk of fraud in revenue
recognition and cut-off
Under ISA (UK and Ireland) 240 there
is a presumed risk that revenue may be
misstated due to improper recognition
of revenue. The Group has varying
incoterms (e.g. EXW, DAP, CPT and
DDP) and supplier and vendor managed
inventory arrangements in place for
key customers which management
considers increases the risk around
performance conditions being
incorrectly applied, resulting in the
incorrect cut-off of revenue at the
year end. The audit focus was around
the overstatement of revenue through
incorrect cut-off, and management
override, where there are manual
adjustments posted to revenue.
The committee concurred with
the management and auditor’s
assessment that revenue has been
recognised in accordance with the
requirements of the accounting
standard IAS 18 and that there are
no cut-off errors or indicators of
fraudulent reporting.

Risk of management override
of controls – expense accruals
and provisions
As identified in ISA (UK and Ireland)
240, management is in a unique position
to perpetrate fraud because of its ability
to manipulate accounting records
directly or indirectly and prepare
fraudulent financial statements by
overriding controls that otherwise
appear to be operating effectively.

Management has internal controls
in place to ensure that there are
no fraudulent errors in its financial
statements. The financial statements
are prepared by the financial controller
on a monthly basis and are then
subsequently checked for errors
by the Finance Director. The Chief
Executive Officer then reviews before
the statements are issued to the Board.
There are controls and policies in place
to ensure the Group collectively
understands its responsibilities in
preventing and detecting fraud.

The committee has assessed the
audit findings presented by EY and
management and concurred that there
were no material misstatements in the
annual report and financial statements.

Capitalisation of development
expenditure and impairment
of intangible assets
Product development is critical to
the Group to maintain and advance
its product offering to its customers.
The Group capitalises development
expenditure on ongoing and new
projects in the year, which can be
of considerable expense and open to
management judgement. The audit
findings have concluded that the
costs of development have been
appropriately considered under the
accounting standard IAS 38. The
committee has concurred with this
outcome following its own review
of the papers presented.

The Group’s management and auditor
confirmed to the audit committee that
they were not aware of any material
misstatements in the reported financial
statements. Having reviewed the
reports received from management
and the auditor, the committee is
satisfied that the key areas of risk and
judgement have been appropriately
addressed in the financial statements
and that the significant assumptions
used in determining the value of assets
and liabilities have been properly
appraised and are sufficiently robust.

Audit committee report

The audit committee comprises
two Non-executive Directors, David
Buffham (Chairman) and Tudor Davies.
David Buffham was appointed Chairman
of the audit committee on 21 September
2018 following the resignation from the
Board of Sir David Chapman, Bt. Tudor
Davies, who was the previous audit
committee Chairman and is the
Group’s Chairman, and who has an
accountancy background, remains on
the committee. The Board considers
that the members collectively have the
balance of skills and experience required
to discharge their duties effectively.

The audit committee is responsible
for reviewing a wide range of matters,
including the half-year and annual
financial statements, 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 the external
auditor and on its remuneration both
for audit and non-audit work and
discusses the nature, scope and
results of the audit with the auditor.

The audit committee keeps under
review the cost effectiveness of the
auditor. It also reviews the extent of
the non-audit services provided by
the auditor and reviews with it its
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 committee meets officially once
a year to review the annual financial
statements and has direct access
to Ernst & Young LLP (“EY”), the
Group’s external auditor, at any point
during the year. The committee
extends its invitation to attend the
audit committee meeting to the
Executive Directors, once the review
of the annual audit process has been
concluded. The committee also
considers the audit planning
documents during the Board meeting
in which they are presented. Any
issues arising from these papers can
be communicated to the Group’s
auditor either by the audit committee
Chairman or the Group Finance Director.

ZYTRONIC PLC

• held private meetings with the auditor
that provided the opportunity for open
dialogue and feedback between the
committee and the auditor without
management being present.

In addition, the Chairman of the
committee has the ability to discuss
by telephone and in person with the
audit lead partner outside the formal
committee process throughout the year.

Having completed its review, the audit
committee is satisfied that EY remained
effective and independent in carrying
out its responsibilities up to the date
of signing this report.

After careful consideration of the
advice of the audit committee, the
Board has concluded that the 2018
annual report is fair, balanced and
understandable and provides the
necessary information for the Group’s
shareholders to assess the Group’s
risks, performance, business model
and strategy.

Response to key audit matters
The inventory valuation is impacted
by the absorption of labour and
overheads into inventory at the
year end which relies on a calculation
of the allowable direct costs which can
be absorbed and is therefore open to
judgement. This calculation should be
based on standard levels of production
and only include costs that are
attributable to inventory production.
There is a risk that costs are incorrectly
included (or excluded) from the
overhead absorption calculation and
that forecast figures used in the
calculation do not accurately reflect
“standard” levels of production. As a
result, the valuation of finished goods
and WIP held at the year end may be
materially misstated.

In previous years this was a key area
of audit risk due to management’s
judgement that amortisation of
intangibles should be included in
this calculation. Management has now
reassessed this decision and removed
this from the calculation. EY concurs with
this decision and has now downgraded
this risk from a key audit matter.

The committee considers that EY has
carried out its duties as the auditor
in a diligent and professional manner.
As part of the review of auditor
independence, EY has confirmed that
it is independent of the Group and has
complied with applicable auditing
standards. EY has held office as the
auditor for 18 years; in accordance
with professional guidelines, the
engagement partner is rotated after
five years at most and the current
partner is in their second year of the
engagement. In assessing the auditor’s
effectiveness, the committee:

• challenged the work done by the
auditor to test management’s
assumptions and estimates in the
key risk areas;

• reviewed reports received from the
auditor on these and other matters;

• received and considered feedback

from management; and

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSRemuneration 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 Section 420(1) 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 the
Directors of its trading subsidiary,
Zytronic Displays Limited. The
committee is composed of the
Independent Non-executive Director,
as its Chairman, and the Group’s
Chairman. In determining remuneration
for the year, the committee has given
full consideration to the requirements
of the UK Corporate Governance Code.

Remuneration policy
The remuneration of Executive
Directors is determined by the
committee and the remuneration of
the Chairman and the Non-executive
Director is approved by the full Board
of 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 health insurance and
contributions to a group personal
pension scheme. Details of
emoluments for the Directors of
Zytronic plc are set out on page 33.

Annual bonus
In 2018, the remuneration committee
implemented an annual bonus plan
linked to corporate performance targets,
being the achievement of certain profit
before tax (“PBT”) measures.

A maximum bonus of 25% of base
salary for both the Chief Executive
and the Group Finance Director will
be payable if these targets are met.

For the financial year 2018 there are
no bonus payments payable. The
remuneration committee believes that
this is a reasonable situation given the
financial performance of the Group.

The remuneration committee also
retains its right to provide special
discretionary bonuses where
deemed appropriate.

Share options and
incentive schemes (audited)
The Company had executive share
option and incentive schemes, which
were 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. There are currently

no share options or incentive schemes
in place as at 30 September 2018.

Service contracts
Mark Cambridge and Claire Smith each
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.

Directors’ emoluments (audited)
Emoluments of the Directors for the
year ended 30 September 2018 are
shown in the table overleaf.

Pension contributions (audited)
During the year, the Group made
annual pension contributions for Mark
Cambridge and Claire Smith, Executive
Directors, to a group 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

Claire Smith

Total

2018
£’000

2017
£’000

Directors’ shareholdings (audited)
Beneficial interests of the Directors in the shares of the Company, including those of their immediate families, are shown below:

Mark Cambridge

Tudor Davies

Claire Smith

David Buffham

30 September 2018

30 September 2017

Number

92,458

90,909

42,381

18,500

0.58

0.57

0.26

0.12

Number

92,458

90,909

42,381

18,500

0.58

0.57

0.26

0.12

There has been no change in Directors’ shareholdings since 30 September 2018.

ZYTRONIC PLC

Directors’ shareholdings (audited) continued
Directors’ emoluments for the year ended 30 September 2018 (audited)

Salary
£’000

Fees
£’000

Benefits
£’000

Bonuses
£’000

Total
emoluments*
2018
£’000

Total
emoluments*
2017
£’000

Non-executive Chairman

Tudor Davies

Executive

Mark Cambridge

Claire Smith

Non-executive

Sir David Chapman, Bt.**

David Buffham

—

150

—

246

—

155

—

152

404

162

114

412

* Excluding pension contributions.

** Sir David Chapman, Bt. retired from the Board on 21 September 2018. Included in his fees is his notice payment.

Share price during the year
During the year to 30 September 2018, the highest share price was 615.0p and the lowest share price was 390.0p.
The market price of the shares at 30 September 2018 was 462.5p.

Directors’ interests in material contracts
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.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSDirectors’ report

The Directors present their annual
report and financial statements for
the year ended 30 September 2018.

The Group has chosen to, in
accordance with Section 414c(ii) of
the Companies Act 2006, set out in
the Strategic report the following,
which the Directors believe to be
of strategic importance:

• review of the business; and

• financial risk management policy/
principal risks and uncertainties.

Principal activities
Zytronic is the developer and
manufacturer of a unique range of
internationally award-winning touch
sensor products. Zytronic’s products
incorporate an embedded array of
metallic micro-sensing electrodes
which offer significant durability,
environmental stability and optical
enhancement benefits to designers
of system-integrated interactive
displays for public access and
industrial-type applications.

Likely future development
Our priorities for 2018/19 are disclosed in
the Strategic report on pages 14 and 15.

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 88% of all
products are directly exported from the
UK, with a large proportion of UK sales
eventually being exported as well.

The Group draws strength from the
diverse spread of its worldwide selling
operations, particularly given the current
uncertain economic conditions affecting
different countries. The incorporation of
Zytronic Inc. has further strengthened
the Group’s presence in the USA and the
employment of a Taiwanese national in
the APAC region has increased its
presence there. The Group has over the
year added further appointees into the
APAC region and will pursue this in the
USA in the coming year. Management
continues to look for and engage with
suitable appointees to expand the
Group’s presence of value-added
resellers (“VARs”) worldwide.

ZYTRONIC PLC

Statement of Directors’
responsibilities in relation
to the Group and Parent
Company financial statements
and annual report
The Directors are responsible for
preparing the annual report and the
Group and Parent Company 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 and Parent
Company financial statements unless
they are satisfied that they give a true
and fair view of the state of affairs of
the Group and Parent Company and
of the profit or loss of the Group and
Parent Company for that period. In
preparing those financial statements
the Directors are required to:

• present fairly the financial position,

financial performance and cashflows
of the Group and Parent Company;

• 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;

• make judgements that are reasonable;

• provide additional disclosures

when compliance with the specific
requirements of IFRS, as adopted in
the European Union, is insufficient
to enable users to understand the
impact of particular transactions,
other events and conditions on the
Group’s and Parent Company’s
financial position and financial
performance; and

• state whether the Group and Parent
Company financial statements have
been prepared in accordance with
IFRS, as adopted by the European
Union, subject to any material
departures disclosed and explained
in the financial statements.

Capital management
Capital management is intended to
ensure and maintain strong credit
ratings and healthy capital ratios in
order to support the Group’s business
and maximise shareholder value.
It includes the monitoring of cash
balances, available bank facilities,
cashflows, dividend policy and
retained reserves and gearing levels
(borrowings net of cash balances
divided by shareholders’ equity).

Management ensures that the Group
has sufficient facilities to provide the
Directors with comfort on the Group’s
foreseeable needs and its liquidity
position and to consider any acquisition
possibilities. The Financial review
includes a paragraph referring to
the continuing strength of cashflows
which occurred in the year ended
30 September 2018 and the overall
net funds position.

No changes were made to these
objectives, policies or processes during
the years ended 30 September 2017
and 2018.

Research and development
During the year the Group concluded
its development on the MPCT™ ASIC,
and the subsequent new controllers
associated which will reduce the
footprint and cost of the Group’s
multi-touch controllers. Further
details on the Group’s R&D activities
are included in the Chief Executive
Officer’s review section of the
Strategic report.

Results and dividends
The consolidated statement of
comprehensive income is set out on
page 43. The Group profit after tax
amounted to £3.6m (2017: £4.6m).
The Directors propose the payment
of a final dividend of 15.2p per share
(2017: 15.2p). Following the dividend
of 7.6p per share paid in July 2018,
this will bring the total dividend for the
year to 22.8p per share (2017: 19.0p),
an increase of 20%.

Directors
The Directors of the Company are
shown on page 26. All of the Directors
were Directors for the whole of the
year. The emoluments and interests
of the Directors in the shares of the
Company are set out in the
Remuneration report.

Annual General Meeting (“AGM”)
The AGM will be held at the office
of Zytronic plc on 6 February 2019
at 9.30 am. The Notice of Meeting
accompanies this annual report and is
also available on the Group’s website at
www.zytronicplc.com. Four resolutions
will be proposed as special business.

The Directors consider that all the
resolutions to be proposed at the AGM
are in the best interests of the Group
and it is their recommendation that
shareholders support these proposals
as they intend to do so in respect of
their own holdings.

Auditor
A resolution to re-appoint Ernst & Young
LLP as the Company’s auditor will be put
to the shareholders at the forthcoming
Annual General Meeting.

On behalf of the Board

Claire Smith
Company Secretary
10 December 2018

Registration number
03881244

Statement of Directors’
responsibilities in relation
to the Group and Parent
Company financial statements
and annual report continued
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Group’s and Parent Company’s
transactions and disclose with
reasonable accuracy at any time the
financial position of the Group and
Parent Company and enable them
to ensure that the Group and Parent
Company financial statements comply
with the Companies Act 2006. They
are also responsible for safeguarding
the assets of the Group and Parent
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.

Disclosure of information
to the auditor
The Directors who were members
of the Board at the time of approving
the Directors’ report are listed on
page 26. Having made enquiries
of fellow Directors and of the
Company’s auditor, 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 auditor
in connection with preparing its
report) of which the Company’s
auditor is 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
auditor is aware of that information.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSIndependent auditor’s report
To the members of Zytronic plc

Opinion
In our opinion:

• Zytronic plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give
a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 September 2018 and of
the Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of Zytronic plc which comprise:

Group

Parent Company

Consolidated statement of financial position as at
30 September 2018

Statement of financial position as at
30 September 2018

Consolidated statement of comprehensive income for the year
then ended

Consolidated statement of changes in equity for the year
then ended

Statement of changes in equity for the year
then ended

Consolidated cashflow statement for the year then ended

Related notes 1 to 26 to the financial statements, including
a summary of significant accounting policies

Related notes 1 to 9 to the financial statements
including a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the Parent Company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 Reduced Disclosure Framework (United Kingdom Generally
Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs” (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report below. We are independent of the Group and Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

ZYTRONIC PLC

Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not

appropriate; or

• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the financial statements are authorised for issue.

Overview of our audit approach
Key audit matters

We have identified the following key audit matters, which were of most significance to our audit

Significant risks:

• Improper revenue recognition

• Risk of management override of controls – manual adjustments to revenue, expense accruals

and provisions

• Capitalisation of development expenditure and impairment of intangible assets

Audit scope

• We performed an audit of the complete financial information of Zytronic plc, Zytronic Displays

Limited and Zytronic Inc.

• Zytronic Displays Limited and Zytronic Inc. contributed 98% (2017: 99%) of the Group’s profit
before tax, 100% (2017: 100%) of the Group’s revenue and 99% (2017: 99%) of the Group’s
total assets

Materiality

• Overall Group materiality of £225,000 (2017: £250,000) which represents 5% (2017: 5%)

of profit before tax

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSIndependent auditor’s report continued
To the members of Zytronic plc

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not
provide a separate opinion on these matters.

Key observations communicated
to the audit committee

Based on the procedures performed, we
did not identify any evidence of material
misstatement in the revenue recognised
in the year ended 30 September 2018.

We conclude that revenue has been
recognised in accordance with the
requirements of IAS 18 Revenue and
there are no cut-off errors or indicators
of fraudulent reporting.

Risk

Our response to the risk

Improper revenue recognition

(Revenue – 2018: £22.3m,
2017: £22.9m)

Refer to the audit committee report
(page 30); accounting policies (page
51); and note 2 of the consolidated
financial statements (page 52)

IAS 18 Revenue states that revenue from
the sale of goods shall be recognised
when there has been a transfer to
the buyer of the significant risks and
rewards of ownership of the goods.

The timing of when revenue is
recognised is relevant to the Group
performance. There are a variety
of customer arrangements in place
at 30 September 2018, which have
different points when the risks and
rewards of ownership are transferred
to the customer.

There is opportunity through
management override or error to
overstate revenue by recognising
revenue ahead of transfer of risks and
rewards of the goods to the customer
and/or misstate allocation of revenue
between periods. The timing of revenue
recognition, including around year end,
is a significant focus for the audit.

We performed a walkthrough of
the revenue transactions and assessed
the design effectiveness of key controls.

We have gained an understanding
of trading terms and conditions with
key customers. We have tested the
application of these terms through
our sample testing.

We have performed analytical
procedures on significant income
accounts, by comparing revenue
balances for the year against
expectation, and corroborated
significant variances. In addition
we compared revenue by customer
to activity in the prior year to
understand revenue trends
and movements.

We tested material revenue streams
using data analytic techniques
focusing our detailed testing on
unexpected trends and outliers.
Our testing identified a correlation
between revenue, trade receivables
and cash. We substantively tested
this correlation through a sample
of 25 transactions, which were
agreed to invoice and cash recovery.
Where there were exceptions in the
correlation, these were explained as
exchange rate differences, which we
corroborated through our testing.

To address the risk of management
override in revenue, we examined
a sample of manual journal entries
that were posted to revenue accounts.
These manual adjustments which
impact revenue, including the
credit note provisions, were
substantively tested.

We performed tests on sales
transactions posted near to the
year end to ensure that cut off
is correctly applied.

ZYTRONIC PLC

Key observations communicated
to the audit committee

We have assessed the control environment
through our walkthroughs and conclude
that the controls are operating as designed.

Accruals and provisions are routine
in nature and we have corroborated
balances at the year end to underlying
support, with no material variances.

Our review of journal entries has
not identified any indicators of
management override.

We did not identify any evidence of
material misstatement in the revenue
recognised in the year, or in expense
accruals and provisions recognised as
at 30 September 2018.

Key audit matters continued

Risk

Our response to the risk

Risk of management override of
controls – manual adjustments to
expense accruals and provisions

(Accruals and provisions – 2018:
£767k; 2017: 862k)

Refer to the audit committee report
(page 30)

Management is in a unique position to
perpetrate fraud because of its ability to
manipulate accounting records directly
or indirectly and prepare fraudulent
financial statements by overriding
controls that otherwise appear to be
operating effectively. The risk of
management override is greater in areas
where there are manual adjustments
and judgement and we identified that
postings to expense accruals and
provisions as the areas most susceptible
to this risk.

Management has the primary
responsibility to prevent and detect
fraud. It is important that management,
with the oversight of those charged with
governance, has put in place a culture of
ethical behaviour and a strong control
environment that both deters and
prevents fraud.

We performed a fully substantive
audit. We do not place reliance on
internal controls and processes.
However, we perform walkthrough
procedures for significant classes
of transactions to understand the
controls in place to address the
significant risks identified above.
We evidence that controls are
operating as designed.

We have identified areas of the
accounts which are most susceptible
to fraud, either in error or through
management override. We have
tailored our audit strategy to address
these risks, by lowering the testing
threshold applied in these areas.

We have substantively tested
material expense accruals and
provisions, including GRNI, holiday
pay accrual, payroll accruals and
legal provisions, to supporting
calculations and source documentation.
We have assessed accounting estimates
for evidence of management bias,
through sensitivity analysis and
comparison of methodology with
the prior year.

To address the risk of management
override, we examined a sample of
journal entries recorded in the
general ledger and other adjustments
made in the preparation of the
financial statements, and obtained
source documentation to ensure that
these were appropriately recorded in
the general ledger.

We have evaluated the business
rationale for significant unusual
transactions and corroborated such
transactions to supporting third
party documentation.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSKey observations communicated
to the audit committee

Based on our procedures, the accounting
for research and development costs is
in accordance with the requirements
of IAS 38 Intangible Assets.

Independent auditor’s report continued
To the members of Zytronic plc

Key audit matters continued

Risk

Our response to the risk

Capitalisation of development
expenditure and impairment of
intangible assets

(NBV of development expenditure
– 2018: £1.1m; 2017: £1.1m)

Refer to the audit committee report
(page 30); accounting policies (page
49); and note 9 of the consolidated
financial statements (page 56)

Zytronic capitalises development
expenditure on certain ongoing and
new projects in the year. These costs
predominantly relate to internal labour
incurred on projects which either are
currently income generating or will
become so in the future.

Under IAS 38 Intangible Assets, labour
costs can only be capitalised when the
product is viable and the associated
costs are developmental in nature,
rather than research. There is a risk
that costs are capitalised during the
research phase, rather than expensed
to the income statement, resulting in
overstatement of profit and the amounts
capitalised within the statement of
financial position.

In addition, as new products enter
production, there is a risk that legacy
products become redundant and no
longer have an active market for sale
and therefore no longer meet the
criteria for recognition. If these assets
are not appropriately impaired, these
would result in an overstatement of
amounts capitalised within the
statement of financial position.

We have assessed the appropriateness
of development cost capitalisation
during our audit to ensure that costs
are being capitalised in accordance
with IAS 38 Intangible Assets.

Development costs capitalised in the
year amount to £317,000, including
internal salary costs of £210,000.
We substantively tested significant
projects agreeing external costs to
supporting invoices, and agreed
amounts recorded in respect of
internal time, to supporting payroll
records to ensure that capitalised
costs meet the requirements of
IAS 38 Intangible Assets.

We have corroborated management’s
assessment of the appropriateness
of development costs capitalised on
significant projects by reviewing the
status of key projects, understanding
where the technology is being used
within the production process and
confirming that there is customer
demand and sales for the product.
We have corroborated this to our
substantive testing of revenue
and inventory.

We obtained management’s paper
on impairment and corroborated the
status of significant projects which
are assessed for impairment. We did
this through independent discussion
with the Research and Development
Director, and through our substantive
testing on revenue and inventory. We
reviewed management’s assessment
against the requirements of IAS 38
to ensure that the assessment
was complete and considered all
relevant factors. We have reviewed
development expenditure capitalised
from previous years to confirm that
costs previously capitalised related to
products which remain in production
and are economically viable based
on sales orders and forecasts. We
did not identify any indicators
of impairment.

ZYTRONIC PLC

Key audit matters continued
In the prior year, our Auditor’s report
included a key audit matter in relation
to the appropriateness of amounts
included within inventory relating to
labour and overhead costs. The labour
and overhead absorption calculation
should be based on “standard” levels
of production and only include costs
that are directly attributable to
inventory production. If inappropriate
costs are absorbed, this would result in
a risk of material misstatement within
inventory. In the prior year, we
identified a number of non-direct
costs which were included in the
labour and overhead calculation
which heightened the risk of material
misstatement. In the current year,
management has revised the costs
included in the calculation which
has mitigated the risk of material
misstatement. We therefore do not
include this as a key audit matter.

An overview of the scope
of our audit
Tailoring the scope
Our assessment of audit risk, our
evaluation of materiality and our
allocation of performance materiality
determine our audit scope for each
entity within the Group. Taken
together, this enables us to form an
opinion on the consolidated financial
statements. We take into account size,
risk profile, the organisation of the
Group and effectiveness of Group-
wide controls, changes in the business
environment and other factors such as
recent internal audit results when
assessing the level of work to be
performed at each entity.

We performed an audit of the complete
financial information of Zytronic plc
and the two components Zytronic
Displays Limited and Zytronic Inc.

For the current year, Zytronic Displays
Limited and Zytronic Inc. contributed
98% (2017: 99%) of the Group’s profit
before tax, 100% (2017: 100%) of the
Group’s revenue and 99% (2017: 99%)
of the Group’s total assets. We have
performed a full scope audit on
Zytronic Displays Limited, testing
significant balances to an assigned
performance materiality of £168,000,
which is lower than the statutory
materiality. We have performed review
procedures on Zytronic Inc,
in accordance with an assigned
performance materiality of £16,000.

All audit work performed for the
purposes of the audit of Zytronic plc,
Zytronic Displays Limited and Zytronic
Inc. was undertaken by the Group
audit team.

Our application of materiality
We apply the concept of materiality
in planning and performing the audit,
in evaluating the effect of identified
misstatements on the audit and in
forming our audit opinion.

Materiality
Materiality is the magnitude of
an omission or misstatement that,
individually or in the aggregate, could
reasonably be expected to influence the
economic decisions of the users of the
financial statements. Materiality provides
a basis for determining the nature and
extent of our audit procedures.

We determined materiality for the
Group to be £225,000 (2017: £250,000),
which is 5% (2017: 5%) of profit before
tax, excluding £310,000 (2017: Nil) of
one-off legal fees incurred in the year
ended 30 September 2018 as this
does not reflect underlying trading
performance. We believe that this
adjusted figure provides us with a
consistent year-on-year basis for
determining materiality and is the
most relevant performance measure
to the stakeholders of the Group.

We determined materiality for the
Parent Company to be £483,000
(2017: £482,000) which is 2%
(2017: 2%) of equity.

During the course of our audit,
we reassessed initial materiality.
No change has been identified in
the final materiality from the original
assessment at planning.

Performance materiality
Performance materiality is the
application of materiality at the
individual account or balance level.
It is set at an amount to reduce to an
appropriately low level the probability
that the aggregate of uncorrected
and undetected misstatements
exceeds materiality.

On the basis of our risk assessments,
together with our assessment of the
Group’s overall control environment,
our judgement was that performance
materiality was 75% (2017: 75%) of our
planning materiality, namely £168,000
(2017: £190,000). We have set
performance materiality at this
percentage which reflects our
expectation of the level of audit
differences based on the prior year.

Audit work at components for the
purpose of obtaining audit coverage
over significant financial statement
accounts is undertaken based on a
percentage of total performance
materiality. The performance
materiality set for each component is
based on the relative scale and risk
of the component to the Group as a
whole and our assessment of the risk
of misstatement at that component.
In the current year, the performance
materiality allocated to Zytronic
Displays Limited was £168,000
(2017: £190,000) and represents 100%
of Group performance materiality due
to this component being the trading
entity of the Group. The performance
materiality allocated to Zytronic Inc.
was a review threshold of £16,000
(2017: £20,000) due to the limited
transactions within this company.

Reporting threshold
Reporting threshold is an amount
below which identified misstatements
are considered as being clearly trivial.

We agreed with the audit committee
that we would report to them all
uncorrected audit differences in
excess of £11,000 (2017: £12,000),
which is set at 5% of planning
materiality, as well as differences
below that threshold that, in our
view, warranted reporting on
qualitative grounds.

We evaluate any uncorrected
misstatements against both the
quantitative measures of materiality
discussed above and in light of other
relevant qualitative considerations in
forming our opinion.

Other information
The other information comprises the
information included in the annual
report, other than the financial
statements and our Auditor’s report
thereon. The Directors are responsible
for the other information.

Our opinion on the financial
statements does not cover the other
information and, except to the extent
otherwise explicitly stated in this
report, we do not express any form
of assurance conclusion thereon.

In connection with our audit of the
financial statements, our responsibility
is to read the other information and, in
doing so, consider whether the other
information is materially inconsistent
with the financial statements or our
knowledge obtained in the audit
or otherwise appears to be
materially misstated.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSIndependent auditor’s report continued
To the members of Zytronic plc

Use of our report
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 Auditor’s 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.

Sandra Thompson
(Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP
Statutory Auditor
Newcastle-upon-Tyne
11 December 2018

Notes:

1. The maintenance and integrity of the

Zytronic plc website is the responsibility
of the Directors; the work carried out by
the auditor does not involve consideration
of these matters and, accordingly, the
auditor accepts 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.

Responsibilities of Directors
As explained more fully in the
Directors’ responsibilities statement
set out on pages 34 and 35, the
Directors are responsible for the
preparation of the financial statements
and for being satisfied that they give a
true and fair view, and for such internal
control as the Directors determine is
necessary to enable the preparation
of financial statements that are free
from material misstatement, whether
due to fraud or error.

In preparing the financial statements,
the Directors are responsible for
assessing the Group and Parent
Company’s ability to continue as
a going concern, disclosing, as
applicable, matters related to going
concern and using the going concern
basis of accounting unless the Directors
either intend to liquidate the Group
or the Parent Company or to cease
operations, or have no realistic
alternative but to do so.

Auditor’s responsibilities
for the audit of the
financial statements
Our objectives are to obtain
reasonable assurance about whether
the financial statements as a whole
are free from material misstatement,
whether due to fraud or error, and to
issue an Auditor’s report that includes
our opinion. Reasonable assurance is
a high level of assurance, but is not a
guarantee that an audit conducted in
accordance with ISAs (UK) will always
detect a material misstatement when
it exists. Misstatements can arise from
fraud or error and are considered
material if, individually or in the
aggregate, they could reasonably be
expected to influence the economic
decisions of users taken on the basis
of these financial statements.

A further description of our
responsibilities for the audit of the
financial statements is located on the
Financial Reporting Council’s website at
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
Auditor’s report.

Other information continued
If we identify such material
inconsistencies or apparent material
misstatements, we are required to
determine whether there is a material
misstatement in the financial statements
or a material misstatement of the other
information. If, based on the work we
have performed, we conclude that there
is a material misstatement of the other
information, we are required to report
that fact.

We have nothing to report in this regard.

Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion, based on the work
undertaken in the course of the audit:

• the information given in the

Strategic report and the Directors’
report for the financial year for
which the financial statements
are prepared is consistent with
the financial statements; and

• the Strategic report and Directors’

report have been prepared in
accordance with applicable
legal requirements.

Matters on which we are
required to report by exception
In light of the knowledge and
understanding of the Group and the
Parent Company and its environment
obtained in the course of the audit,
we have not identified material
misstatements in the Strategic
report or the Directors’ report.

We have nothing to report in respect
of the following matters in relation to
which the Companies Act 2006 requires
us to report to you if, in our opinion:

• adequate accounting records

have not been kept by the Parent
Company, 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.

ZYTRONIC PLC

Consolidated statement of comprehensive income
For the year ended 30 September 2018

Group revenue

Cost of sales

Gross profit

Distribution costs

Administration expenses

Group trading profit

Finance costs

Finance revenue

Profit before tax

Tax expense

Profit for the year

Earnings per share

Basic

Diluted

All activities are from continuing operations.

Notes

5(a)

5(b)

2018
£’000

2017
£’000

22,288

22,892

(14,047)

(13,481)

8,241

(461)

9,411

(393)

(3,639)

(3,591)

4,141

5,427

(21)

4,188

(541)

(24)

5,413

(825)

3,647

4,588

22.7p

29.0p

28.8p

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSConsolidated statement of changes in equity
For the year ended 30 September 2018

At 1 October 2016

Profit for the year

Tax recognised directly in equity

Exercise of share options

Issue of capital reduction shares*

Cancellation of capital reduction shares*

Dividends

At 1 October 2017

Profit for the year

Dividends

At 30 September 2018

* Refer to note 22.

Called
up share
capital
£’000

154

—

8,919

(8,919)

—

160

—

Share
premium
£’000

7,766

—

1,228

—

8,994

—

Retained
earnings
£’000

15,316

4,588

—

(8,919)

8,919

Total
£’000

23,236

4,588

1,234

—

(2,354)

17,622

3,647

26,776

3,647

(3,658)

160

8,994

17,611

26,765

ZYTRONIC PLC

Consolidated statement of financial position
At 30 September 2018

Assets

Non-current assets

Intangible assets

Property, plant and equipment

Current assets

Inventories

Trade and other receivables

Derivative financial assets

Cash and short term deposits

Total assets

Equity and liabilities

Current liabilities

Trade and other payables

Derivative financial liabilities

Accruals

Tax liabilities

Non-current liabilities

Government grants

Deferred tax liabilities (net)

Total liabilities

Net assets

Capital and reserves

Equity share capital

Share premium

Revenue reserve

Total equity

Notes

2018
£’000

2017
£’000

1,585

6,605

8,190

3,021

3,738

—

1,633

7,030

8,663

2,996

3,506

14,626

14,099

21,385

20,655

29,575

29,318

1,446

1,042

767

—

862

2,233

1,907

562

577

610

635

2,810

2,542

26,765

26,776

160

8,994

17,611

160

8,994

17,622

26,765

26,776

These financial statements have been approved by the Board of Directors and signed on its behalf by:

Mark Cambridge
Chief Executive
10 December 2018

Claire Smith
Group Finance Director

Zytronic Group plc: Registered number 03881244

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Consolidated cashflow statement
For the year ended 30 September 2018

Operating activities

Profit before tax

Net finance (income)/costs

Depreciation and impairment of property, plant and equipment

Amortisation, impairment and write-off of intangible assets

Amortisation of government grant

Fair value movement on foreign exchange forward contracts

Working capital adjustments

Increase in inventories

(Increase)/decrease in trade and other receivables

Increase/(decrease) in trade and other payables and provisions

Cash generated from operations

Tax paid

Net cashflow from operating activities

Investing activities

Interest received

Receipt of government grant

Payments to acquire property, plant and equipment

Payments to acquire intangible assets

Net cashflow used in investing activities

Financing activities

Interest paid

Dividends paid to equity shareholders of the Parent

Proceeds from share issues relating to options

Repayment of borrowings

Net cashflow used in financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the year end

Notes

2018
£’000

2017
£’000

4,188

5,413

(47)

709

438

(10)

(25)

(232)

295

5,377

(573)

4,804

—

(273)

(390)

(598)

749

424

(42)

(1,013)

(236)

239

(356)

5,192

(521)

4,671

(472)

(600)

(1,043)

(21)

(24)

(3,658)

(2,354)

—

1,234

(1,148)

(3,679)

(2,292)

527

14,099

14,626

1,336

12,763

14,099

ZYTRONIC PLC

Notes to the consolidated financial statements
For the year ended 30 September 2018

1. Accounting policies
(a) Authorisation of financial statements and statement of compliance
The financial statements of Zytronic plc and its subsidiaries (the “Group”) for the year ended 30 September 2018
were authorised for issue by the Board of Directors on 10 December 2018 and the statement of financial position was signed
on behalf of the Board by Mark Cambridge and Claire Smith. Zytronic plc is a public limited company, limited by shares,
incorporated, domiciled and registered in England and Wales (company registration number 03881244). The Company’s
ordinary shares are traded on AIM. The address of the registered office is Whiteley Road, Blaydon-on-Tyne NE21 5NJ.

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) New standards and interpretations not yet effective
The Directors are currently considering the impact on the financial statements of the standards below that are issued
but not yet effective.

IFRS 9 Financial Instruments (effective for accounting periods commencing on or after 1 January 2018). This new standard
introduces new requirements of classification and measurement of financial assets and financial liabilities, impairment and
hedge accounting. It replaces IAS 39 Financial Instruments: Recognition and Measurement. Zytronic has measured its financial
instruments, of which there are only forward currency contracts, in its statement of financial position and concluded at present
that there is minimal impact of this new standard. Management believe that the implementation of IFRS 9 will not have
any impact on trade receivables, trade payables and cash.

IFRS 15 Revenue from Contracts with Customers (effective for accounting periods commencing on or after 1 January 2018).
The impact of this new standard on Zytronic’s revenue recognition policies and processes has been reviewed. The Directors
have followed the five-step revenue recognition considerations under this standard for each of its different revenue streams
and concluded that revenue is recognised in accordance with the standard.

IFRS 16 Leases (effective for accounting periods commencing on or after 1 January 2019). For lessees, the standard eliminates
the classification of leases as either operating or finance leases and introduces a single accounting model. Lessees will
be required to recognise assets and liabilities in respect of the minimum lease payment for all leases with a term of more
than twelve months, and show depreciation of leased assets and interest on leased liabilities separately in the statement
of comprehensive income. Given the insignificance of the Group leasing arrangements being a car, photocopier and a
rental unit for storage, the Group has concluded through its analysis that adoption of this standard is unlikely to have
a material impact on the financial statements.

IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective for accounting periods commencing on
or after 1 January 2018). This amendment clarifies the accounting for transactions that include the receipt or payment of
advance consideration in a foreign currency. Zytronic has noted the requirements of this new amendment and confirms
that all foreign currency transactions or parts of transactions which are received in advance will be recorded at the date
of the transaction. For the purpose of determining the exchange rate, this will be the date of initial recognition of the
non-monetary prepayment asset or deferred income liability. If there are a number of payments or receipts in advance,
a date of transaction will be established for each payment or receipt.

(c) Judgements and key sources of estimation uncertainty
The preparation of the Group’s consolidated financial statements requires the Directors to make judgements, estimates
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 amounts, 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 concerning
the future and other key sources of estimation uncertainty at the statement of financial position date which have the most
significant effect on the amounts recognised in the financial statements.

Development costs
Development costs are capitalised in accordance with the accounting policy given overleaf. 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 and there is commercial interest in the product. Management applies
judgement in determining that its development costs are development but as the nature of its development is progression from
existing products it is comfortable in this judgement. The Group does not undertake “blue sky” research. Management applies
judgement in the review of costs capitalised to determine whether any impairment should be recognised. Management also
applies judgement in its impairment of its development costs and assesses this on a regular basis to ensure that any costs
still capitalised continue to be commercially viable. As the development of products is progressive and there are still sales
of legacy products, management is comfortable with this judgement.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

1. Accounting policies continued
(d) Key sources of estimation uncertainty
There are no key sources of estimation uncertainty at the statement of financial position date.

(e) 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 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.

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 the statement of
comprehensive income.

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.

(f) Exceptional items
The Group presents as exceptional items on the face of the statement of comprehensive income those material items
of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit
separate presentation to allow shareholders to better understand the elements of financial performance in the year, so
as to facilitate comparison with prior periods and to better assess trends in financial performance.

(g) Foreign currencies
The consolidated financial statements are presented in Sterling, which is the Group’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 statement of financial position date. All differences are taken to the statement of comprehensive income.
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. The Group enters into forward exchange contracts for up to four months ahead to
manage its foreign exchange risk. Refer to note 20.

(h) 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

Short leasehold property

Plant and machinery

–

nil

50 years

30–50 years

10–15 years

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 statement of comprehensive income 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 statement of comprehensive income in those expense categories consistent
with the function of the impaired asset.

ZYTRONIC PLC

1. Accounting policies continued
(i) 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 statement of comprehensive income
in the expense category consistent with the function of the intangible asset. The estimated useful lives are as follows:

Patents

Licences

Capitalised development expenditure

Software

–

20 years

period of licensing agreements (between ten and 17 years)

three to ten years

four years

Capitalised development expenditure in relation to electronics and software is usually amortised over a period of up to
five years as the shelf life of such technology is shorter. Hardware development is usually amortised over a period of up
to ten years.

Intangible assets with indefinite useful lives, such as goodwill, are tested for impairment annually and are not amortised.
The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment
continues to be supportable.

Patent applications
The costs associated with the drafting and filing of patent applications are capitalised as incurred.

Those costs are not amortised until the patent has been granted, after which they will be amortised over its useful
economic life of 20 years. If the application fails, the capitalised costs will then be impaired and written off.

(j) 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.

(k) 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

Finished goods and work in progress

–

purchase cost on a first-in, first-out basis

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.

(l) Trade and other receivables
Trade receivables are recognised and carried at their 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.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

Notes to the consolidated financial statements continued
For the year ended 30 September 2018

1. Accounting policies continued
(m) Cash and cash equivalents
Cash and short term deposits in the statement of financial position comprise cash at bank and in hand and short term
deposits with an initial maturity of three months or less or for a longer period but with the ability to break the deposit with a
similar notice period. Bank overdrafts are shown within financial assets on the statement of financial position as the Group
has a set-off arrangement in place. For the purpose of the cashflow statement, cash and cash equivalents comprise these
balances, net of outstanding bank overdrafts.

(n) 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 statement of comprehensive income 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.

(o) 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 or 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 statement of comprehensive income.

(p) Financial instruments
Fair value measurement of financial instruments
The Group remeasures its derivatives at fair value at each statement of financial position date and for disclosure purposes
estimates the fair value of its remaining financial instruments. Fair value is the price that would be received to sell an asset,
or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
as a whole:

Level 1: quoted (unadjusted) market prices in active markets for identical assets or liabilities;

Level 2: valuation techniques for which the lowest level input that is significant to the fair value measurement is

directly or indirectly observable; and

Level 3: valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

(q) Pension scheme
The Group operates a group personal pension scheme, which is a defined contribution scheme, for its employees.
Contributions are recognised in the statement of comprehensive income as they become payable in accordance with
the rules of the scheme.

ZYTRONIC PLC

1. Accounting policies continued
(r) 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). Any other conditions which
are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting
conditions. Like market performance conditions, non-vesting conditions are taken into account in determining the grant
date fair value.

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 statement of financial position 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 statement of financial position date is recognised in the statement of comprehensive income, 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 (including when a non-vesting condition within the control of the entity or
employee is not met), it is treated as if it had vested on the date of cancellation and any cost not yet recognised in the
statement of comprehensive income 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 statement of comprehensive income.

(s) Revenue recognition
Revenue from the sale of goods is recognised when the transfer of control 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.

(t) Government grants and subsidies
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
statement of comprehensive income over the life of the projects to which they relate.

(u) 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 tax 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 statement
of financial position date.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

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.

For management purposes, the Chief Operating Decision Maker 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.

The Board 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:

30 September 2018

30 September 2017

Sale of goods – Americas (excluding USA)

– USA

– EMEA (excluding UK and Hungary)

– Hungary

– UK

– APAC (excluding South Korea)

– South Korea

Total revenue

Touch

£’000

541

3,449

4,224

1,602

2,119

2,652

5,531

Non-touch

£’000

302

396

473

667

239

Touch

£’000

325

3,503

4,186

2,778

2,564

2,409

4,801

Non-touch

£’000

276

159

704

482

623

20,118

2,170

20,566

2,326

22,288

22,892

Individual revenues from three major customers exceeded 10% of total revenue for the year. The total amount of revenue
was £10.8m (2017: £11.5m).

The individual revenues from each of these three customers were: £5.0m (2017: £4.5m); £3.0m (2017: £4.7m); and £2.8m
(2017: £2.3m).

3. Group trading profit
This is stated after charging/(crediting):

R&D costs

Amortisation and impairment of development expenditure

Auditor’s remuneration – in respect of audit services*

– in respect of taxation compliance services

– in respect of taxation advisory services

Depreciation of owned assets

Amortisation of software

Amortisation, impairment and write-off of licences

Cost of inventories recognised as an expense including:

– write-down of inventories to net realisable value

– the net movement in the stock provision

Operating lease rentals – minimum lease payments

Amortisation of capital grants

Net foreign currency contract differences

Net foreign currency revaluation differences

* £13,000 of this relates to the Company (2017: £16,000).

ZYTRONIC PLC

30 September
2018
£’000

30 September
2017
£’000

359

348

707

709

432

256

688

749

135

7,835

7,418

—

(10)

(79)

(12)

(37)

(42)

(1,013)

1,045

4. Staff costs and Directors’ emoluments

Wages and salaries

Social security costs

Other pension costs

30 September
2018
£’000

30 September
2017
£’000

5,408

5,356

493

174

471

166

6,075

5,993

There are no charges for share-based payments included in wages and salaries.

The total of Directors’ emoluments is £404,000 (2017: £986,000*). The aggregate value of contributions paid to money
purchase pension schemes includes £20,000 (2017: £59,000) in respect of two Directors (2017: two).

* Included in the £986,000 are gains made on share options.

Amounts paid to the highest paid Director are £152,000 (2017: £440,000) plus a contribution paid to the money
purchase pension scheme of £12,000 (2017: £48,000).

The average number of employees during the year was made up as follows:

Production

Administration and sales

30 September
2018
Number

30 September
2017
Number

149

195

146

191

The information required by AIM rule Schedule 5 of the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2009 is contained in the Remuneration report under Directors’ emoluments, pension contributions,
Directors’ shareholdings and Directors’ share options.

5. Finance costs payable and revenue receivable
(a) Finance costs

Interest payable

Bank loans and overdrafts

(b) Finance revenue

Interest receivable

Bank interest receivable

30 September
2018
£’000

30 September
2017
£’000

30 September
2018
£’000

30 September
2017
£’000

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

6. Tax

Current tax

UK corporation tax

Corporation tax over-provided in prior years

Total current tax charge

Deferred tax

Origination and reversal of temporary differences

Total deferred tax (credit)/charge*

Tax charge in the statement of comprehensive income

* Note 19.

Tax relating to items debited to equity

Deferred tax

Tax on share-based payments

Total deferred tax debit

Tax charge in the statement of changes in equity

30 September
2018
£’000

30 September
2017
£’000

621

(35)

586

(45)

541

576

—

576

249

825

30 September
2018
£’000

30 September
2017
£’000

—

(72)

Reconciliation of the total tax charge
The effective tax rate of the tax expense in the statement of comprehensive income for the year is 13.0% (2017: 15%)
compared with the average rate of corporation tax in the UK of 19% (2017: 19.5%). The differences are reconciled below:

Accounting profit before tax

Accounting profit multiplied by the average UK rate of corporation tax of 19% (2017: 19.5%)

Effects of:

Expenses not deductible for tax purposes

Depreciation in respect of non-qualifying items

Enhanced tax reliefs – R&D

Enhanced tax reliefs – Patent Box

Effect of deferred tax rate reduction and difference in tax rates

Tax over-provided in prior years

Total tax expense reported in the statement of comprehensive income

30 September
2018
£’000

30 September
2017
£’000

4,188

796

5,413

1,056

(169)

(79)

(4)

(35)

541

(229)

(31)

(36)

—

825

ZYTRONIC PLC

6. Tax continued
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.

There are no tax losses to carry forward at 30 September 2018 (2017: £Nil).

The main rate of corporation tax in the UK reduced to 19% with effect from 1 April 2017. The rate will be reduced to 17%
from 1 April 2020. Both of these lower rates have been substantively enacted by the statement of financial position date.
As the majority of the temporary differences will reverse when the rate is 17%, this rate has been applied to the deferred
tax assets and liabilities arising at the statement of financial position date.

The Patent Box regime allows companies to apply a rate of corporation tax of 10% to profits earned from patented
inventions and similar intellectual property. Zytronic generates such profits from the sale of products incorporating
patented components. The Group has determined that all relevant criteria have been satisfied for bringing income within
the regime. Consequently, Patent Box claims have been made for the 2014 to 2017 accounting periods, and the 2018
benefit has been estimated.

7. Dividends
The Directors propose the payment of a final dividend of 15.2p per share (2017: 15.2p), payable on 22 February 2019
to shareholders on the Register of Members on 8 February 2019. This dividend has not been accrued in these financial
statements. The dividend payment will amount to some £2.4m.

Ordinary dividends on equity shares

Final dividend of 10.96p per ordinary share paid on 3 March 2017

Interim dividend of 3.80p per ordinary share paid on 21 July 2017

Final dividend of 15.20p per ordinary share paid on 9 March 2018

Interim dividend of 7.60p per ordinary share paid on 20 July 2018

30 September
2018
£’000

30 September
2017
£’000

—

2,439

1,219

3,658

1,744

610

—

2,354

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
2018
Thousands

Earnings
30 September
2018
£’000

EPS
30 September
2018
Pence

Earnings
30 September
2017
£’000

Weighted
average
number
of shares
30 September
2017
Thousands

EPS
30 September
2017
Pence

Profit on ordinary activities after tax

3,647

16,044

Basic EPS

3,647

16,044

22.7

4,588

15,819

29.0

The weighted average number of shares for diluted EPS is calculated by including the weighted average number of potentially
dilutive shares under option.

Weighted
average
number
of shares
30 September
2018
Thousands

Earnings
30 September
2018
£’000

EPS
30 September
2018
Pence

Earnings
30 September
2017
£’000

Weighted
average
number
of shares
30 September
2017
Thousands

EPS
30 September
2017
Pence

Profit on ordinary activities after tax

3,647

16,044

22.7

4,588

15,819

29.0

Weighted average number of shares
under option

Diluted EPS

—

3,647

16,044

—

22.7

—

131

4,588

15,950

(0.2)

28.8

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

9. Intangible assets

Cost

At 1 October 2016

Additions

Disposals

At 1 October 2017

Additions

Disposals

At 30 September 2018

Amortisation and impairment

At 1 October 2016

Provided during the year

Disposals during the year

At 1 October 2017

Provided during the year

Disposals during the year

At 30 September 2018

Net book value at 30 September 2018

Net book value at 1 October 2017

Net book value at 1 October 2016

Software
£’000

Goodwill
£’000

Patents and
licences
£’000

Development
expenditure
£’000

Total
£’000

598

—

598

—

598

542

—

575

—

592

235

2,017

2,790

5,640

—

(48)

537

—

235

2,032

3,327

—

(91)

313

—

600

(48)

6,192

390

(91)

235

2,018

3,640

6,491

—

235

1,718

106

(19)

1,805

(39)

1,923

256

—

2,179

348

—

4,183

395

(19)

4,559

386

(39)

1,787

2,527

4,906

231

227

299

1,113

1,148

867

1,585

1,633

1,457

Included within cost is £0.5m (2017: £0.5m) relating to capitalised development costs which have been fully amortised but
continue to be utilised in the business.

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 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 the cash-generating unit have been discounted using a discount rate of 10%, derived from 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 around revenue and costs 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.

ZYTRONIC PLC

10. Property, plant and equipment
The amounts carried in the statement of financial position comprise:

Cost

At 1 October 2016

Additions

Disposals

At 1 October 2017

Additions

Disposals

At 30 September 2018

Depreciation and impairment

At 1 October 2016

Provided during the year

Disposals

At 1 October 2017

Provided during the year

Disposals

At 30 September 2018

Net book value at 30 September 2018

Net book value at 1 October 2017

Net book value at 1 October 2016

11. Inventories

Raw materials and consumables

Work in progress

Finished goods

Land
£’000

Freehold
property
£’000

Long
leasehold
property
£’000

Plant and
machinery
£’000

Total
£’000

207

3,070

2,451

10,076

15,804

—

378

(27)

390

(27)

207

3,070

2,463

10,427

16,167

—

287

(111)

287

(111)

207

3,070

2,463

10,603

16,343

—

207

523

—

584

—

645

2,425

2,486

2,547

531

—

613

—

695

1,768

1,850

1,920

7,361

606

(27)

7,940

566

(108)

8,398

2,205

2,487

2,715

8,415

749

(27)

9,137

709

(108)

9,738

6,605

7,030

7,389

30 September
2018
£’000

30 September
2017
£’000

2,026

427

568

3,021

1,695

449

852

2,996

The difference between purchase price or production cost of stocks and their replacement cost is not material.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS
Notes to the consolidated financial statements continued
For the year ended 30 September 2018

12. Trade and other receivables
Current assets

Trade receivables

VAT recoverable

Prepayments

Trade receivables are denominated in the following currencies:

Sterling

US Dollar

Euro

30 September
2018
£’000

30 September
2017
£’000

3,420

3,232

109

209

215

3,738

3,506

30 September
2018
£’000

30 September
2017
£’000

784

1,647

989

3,420

980

1,480

772

3,232

Out of the carrying amount of trade receivables of £3.4m (2017: £3.2m), £2.1m (2017: £1.6m) is the amount of debts owed
by three major customers (2017: four 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-day terms. Some customers, with whom
there is a long standing relationship, are on 90-day terms. They are shown net of a provision for impairment.

As at 30 September 2018, trade receivables at a nominal value of £1,000 (2017: £6,000) were impaired due to poor
payment history. Movements in the provision for impairment of trade receivables were as follows:

At 1 October 2016

Charge for the year

Utilised

At 1 October 2017

Charge for the year

Utilised

At 30 September 2018

At 30 September, the ageing analysis of trade receivables overdue but not impaired was as follows:

2018

2017

Neither past
due nor
impaired

2,941

2,638

Past due but not impaired

<3 months
£’000

>3 months
£’000

464

577

£’000

(35)

—

(5)

Total
£’000

3,420

3,232

Credit limits are set for each customer, using Dun & Bradstreet credit reports as appropriate, or pro-forma invoices are raised,
or cash upfront 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. The credit quality of trade receivables that are neither past due
nor impaired is assessed by reference to external credit ratings where available; otherwise, historical information relating
to counterparty default rates is used.

ZYTRONIC PLC

13. Financial assets

Foreign exchange forward contracts

Total current

Total non-current

30 September
2018
£’000

30 September
2017
£’000

—

The foreign exchange forward contract liabilities above are measured at fair value through the statement of comprehensive
income as they are not in designated hedge relationships. They are, nevertheless, intended to reduce the level of foreign
currency risk for expected sales and purchases. Refer to note 16 for determination of fair value.

14. Cash and short term deposits

Cash at bank and in hand

Short term deposits

Bank overdrafts

30 September
2018
£’000

30 September
2017
£’000

8,580

6,046

—

11,679

3,089

(669)

14,626

14,099

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for variable
lengths, being overnight or three months (sometimes with break conditions), depending on the immediate cash
requirements of the Group, and earn interest at variable rates.

At 30 September 2018, the Group had available a net £1.0m (total cash less overdrawn accounts) overdraft facility from
Barclays Bank plc which will fall for review in September 2019.

The fair value of cash and cash equivalents is £14.6m (2017: £14.1m).

15. Trade and other payables

Trade payables*

Other taxes and social security costs

Accruals

* Terms and conditions of the above financial liabilities are as follows:

• trade payables are non-interest bearing and are normally settled on 30-day terms.

30 September
2018
£’000

30 September
2017
£’000

1,322

124

1,446

767

2,213

914

128

1,042

862

1,904

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

16. Financial liabilities

Loans

Foreign exchange forward contracts

Total

Total current

Total non-current

30 September
2018
£’000

30 September
2017
£’000

—

The fair value of the financial liabilities is included at the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.

Management asserts that the fair values of cash, trade receivables and trade payables approximate to their carrying
amounts largely due to the short term maturities of these instruments.

At 30 September 2018, the Group has used a Level 2 valuation technique to determine the fair value of all forward
exchange contracts and loans.

Derivative financial instruments
The Group enters into derivative financial instruments with financial institutions. Derivatives valued using valuation techniques
with market observable inputs are foreign exchange forward contracts. The most frequently applied valuation techniques
include forward pricing and swap models, using present value calculations prepared by the financial institutions. The models
incorporate foreign exchange spot and forward rates, and interest rate curves. These derivatives are valued externally by
the financial institutions using both intrinsic value and time value, which is standard market practice.

17. Government grants

At 1 October

Received during the year

Released to the statement of comprehensive income

At 30 September

Non-current

30 September
2018
£’000

30 September
2017
£’000

—

(10)

(42)

The government grant was received as part of R&D work on a European Commission (“EC”) consortium project.

There are no unfulfilled obligations or contingencies attached to this grant.

18. Obligations under 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

There are no non-cancellable property leases in place.

30 September
2018
£’000

30 September
2017
£’000

ZYTRONIC PLC

19. Deferred tax liability/(asset)
The deferred tax included in the statement of financial position is as follows:

Deferred tax liability

Accelerated capital allowances

Capitalised R&D

Other

Deferred tax asset

Fair value movement on currency contracts

Pension asset

30 September
2018
£’000

30 September
2017
£’000

360

193

562

(3)

—

403

200

(1)

602

(1)

Disclosed on the statement of financial position

562

610

The deferred tax included in the Group statement of comprehensive income is as follows:

Deferred tax in the statement of comprehensive income

Fair value movement on currency contracts

Accelerated capital allowances

R&D tax credits

Share-based payments

Other

Deferred income tax (credit)/expense

30 September
2018
£’000

30 September
2017
£’000

(6)

(43)

(7)

—

(45)

172

(28)

(11)

249

20. Financial risk management policy and financial instruments
The Group’s principal financial instruments comprise an overdraft facility, cash and forward foreign exchange contract derivatives.
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.

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 creditworthiness 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 the carrying
value as at the statement of financial position date.

Liquidity risk
The Group 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 net overdraft facility of £1.0m arranged with its principal banker, Barclays Bank plc.
This facility extends until September 2019 and is to provide funding for working capital.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the consolidated financial statements continued
For the year ended 30 September 2018

20. Financial risk management policy and financial instruments continued
Maturity profile of financial liabilities
Year ended 30 September 2018

Trade and other payables

Foreign exchange forward contracts – outflows

On
demand
£’000

1,391

—

Total

1,391

2,068

<3 months
£’000

3–12 months
£’000

1–5 years
£’000

698

1,370

—

635

—

Year ended 30 September 2017

Trade and other payables

Foreign exchange forward contracts – outflows

Total

On
demand
£’000

1,319

—

1,319

<3 months
£’000

3–12 months
£’000

1–5 years
£’000

457

1,929

2,386

—

620

—

Total
£’000

2,089

2,005

4,094

Total
£’000

1,776

2,549

4,325

Derivatives comprise both cashflows from derivative financial instruments with negative fair values and cashflows from
derivatives with positive fair values for which gross settlement has been agreed. The cash outflows from derivatives for
which gross settlement has been agreed are matched in part by cash inflows. These cash inflows are not reported in the
maturity analysis above. If these cash inflows were recognised, the cashflows presented would be substantially lower.

Foreign exchange risk
Foreign currency risk is the risk that the fair value of future cashflows 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 Group has a policy in that forward contracts are used to sell surplus US Dollars and Euros, generated from sales less
purchases in those currencies. Contracts are in place at 30 September 2018 for a period of four months ahead in line with
working capital requirements. Any additional surplus currency at the end of each month is dealt with at spot rates.

The Group entered into forward vanilla contracts during the year in both US Dollars and Euros. The US Dollar forward
vanilla contracts are fixed over a series of four one-monthly contracts at rates between $1.2956 and $1.3292 and are in
place until January 2019. The Euro forward vanilla contract is fixed at €1.1216, and is also in place until January 2019.

The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar and Euro exchange rates,
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).

2018

Sterling

2017

Sterling

Change in
US Dollar rate

Effect on profit
before tax
£’000

Change in
Euro rate

Effect on profit
before tax
£’000

+10%

-10%

+10%

-10%

(150)

183

(90)

110

+10%

-10%

+10%

-10%

(76)

(50)

Capital management
The Group’s policies on capital management are included in the Directors’ report on page 34.

ZYTRONIC PLC

2018
Number
Thousands

2017
Number
Thousands

2018
£’000

2017
£’000

16,044

160

21. Share capital and share-based payments
(a) Share capital

Allotted, called up and fully paid

Ordinary shares of 1p each

(b) Share premium

At 1 October 2017

Increase in cash on exercise of share options

At 30 September 2018

£’000

8,994

—

8,994

2017
WAEP
Pence

200.8

—

During the year the Group had no share option schemes in place and accordingly no expense was recognised in the
statement of comprehensive income.

The following table illustrates the number and weighted average exercise prices (“WAEP”) of, and movements in,
share options during the year:

Outstanding at 1 October

Exercised during the year

Outstanding at 30 September

Exercisable at 30 September

2018
Number

—

2018
WAEP
Pence

—

2017
Number

614,513

(614,513)

—

22. Revenue reserve
On 22 March 2017, the Group carried out a capital reduction exercise whereby £8.9m of the Group’s undistributable profits
(within the retained earnings reserve) were capitalised by way of a bonus issue of newly created capital reduction shares.
These shares were subsequently cancelled and the £8.9m credited to the retained earnings reserve as distributable profits.

23. Capital commitments
Amounts contracted for at 30 September 2018 but not provided in the financial statements amounted to £238,000
(2017: £113,000) for the Group.

24. Pension scheme commitments
Contributions for the year ended 30 September 2018 amounted to £174,000 (2017: £166,000) and the outstanding contributions
at the statement of financial position date were £15,000 (2017: £14,000). The Group is a member of a group personal pension
scheme which is a defined contribution scheme. Contributions are charged to the statement of comprehensive income as they
become payable in accordance with the rules of the scheme. There has previously been the option for employees of the Group
to opt to pay part of their bonus into their pension.

25. Related party transactions
There are no 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 which is recorded in the statement of comprehensive income to the Directors:

Salaries/fees

Bonuses

Pension contributions

2018
£’000

459

—

482

2017
£’000

439

491

26. Guarantees
Zytronic plc has given a guarantee to Barclays Bank plc in connection with the overdraft facility detailed in note 14.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSFive-year summaries

Consolidated statement of comprehensive income
For the five years ended 30 September 2018

Group revenue

Cost of sales

Gross profit

Distribution costs

Administration expenses

Group trading profit

Finance costs

Finance revenue

Profit before tax

Tax expense

Profit for the year

Earnings per share

Basic

Diluted

Dividends per share

2018
£’000

22,288

(14,047)

8,241

(461)

(3,639)

4,141

(21)

4,188

(541)

3,647

2017
£’000

2016
£’000

2015
£’000

2014
£’000

22,892

21,087

21,267

18,886

(13,481)

(12,071)

(12,366)

(11,979)

9,411

(393)

9,016

(378)

8,901

(278)

6,907

(156)

(3,591)

(4,365)

(4,073)

(3,488)

5,427

4,273

4,550

3,263

(24)

5,413

(825)

(23)

(29)

4,270

4,544

(183)

(775)

(35)

3,261

(301)

4,588

4,087

3,769

2,960

22.7p

22.8p

29.0p

28.8p

14.7p

26.6p

26.1p

12.3p

24.7p

24.3p

10.3p

19.6p

19.5p

9.1p

All activities are from continuing operations.

Dividends are shown in the accounts in the year in which they are paid.

ZYTRONIC PLC

Consolidated statement of financial position
At 30 September 2014 to 2018

Assets

Non-current assets

Intangible assets

Property, plant and equipment

Current assets

Inventories

Trade and other receivables

Derivative financial assets

Cash and short term deposits

Total assets

Equity and liabilities

Current liabilities

Trade and other payables

Financial liabilities

Derivative financial liabilities

Provisions

Accruals

Tax liabilities

Non-current liabilities

Financial liabilities

Provisions

Government grants

Deferred tax liabilities (net)

Total liabilities

Net assets

Capital and reserves

Equity share capital

Share premium

Revenue reserve

Total equity

2018
£’000

2017
£’000

2016
£’000

2015
£’000

2014
£’000

1,585

6,605

8,190

3,021

3,738

—

14,626

21,385

29,575

1,633

7,030

8,663

2,996

3,506

1,457

7,389

8,846

2,760

3,745

—

1,427

7,807

9,234

3,214

3,055

—

14,099

12,763

9,833

1,413

7,443

8,856

3,126

3,068

7,806

20,655

19,268

16,102

14,048

29,318

28,114

25,336

22,904

—

562

577

2,810

26,765

160

8,994

17,611

1,446

1,042

—

767

—

862

1,302

1,148

959

205

834

122

2,233

1,907

4,570

—

610

635

—

260

308

2,542

4,878

971

200

—

1,201

255

2,716

1,144

136

590

1,929

4,645

1,057

200

224

—

1,264

2,775

1,341

139

—

596

2,076

4,851

26,776

23,236

20,691

18,053

160

8,994

17,622

154

7,766

15,316

153

7,552

12,986

152

7,290

10,611

26,765

26,776

23,236

20,691

18,053

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSParent Company statement of financial position
At 30 September 2018

Assets

Non-current assets

Property, plant and equipment

Investments

Current assets

Trade and other receivables

– amounts falling due within one year

– amounts falling due after one year

Cash and short term deposits

Total assets

Equity and liabilities

Current liabilities

Trade and other payables

Non-current liabilities

Deferred tax liabilities (net)

Total liabilities

Net assets

Capital and reserves

Equity share capital

Share premium

Revenue reserve

Total equity

Notes

2018
£’000

2017
£’000

4,287

10,106

14,393

135

9,847

9,994

24,387

220

170

390

4,400

10,106

14,506

135

10,311

10,455

24,961

675

177

852

23,997

24,109

160

8,994

14,843

23,997

160

8,994

14,955

24,109

The Company’s profit for the year was £3,546,000 (2017: £2,990,000).

These financial statements have been approved by the Board of Directors and signed on its behalf by:

Mark Cambridge
Chief Executive
10 December 2018

Claire Smith
Group Finance Director

Zytronic Group plc: Registered number 03881244

ZYTRONIC PLC

Parent Company statement of changes in equity
For the year ended 30 September 2018

At 1 October 2016

Profit for the year

Exercise of share options

Dividends

At 1 October 2017

Profit for the year

Dividends

At 30 September 2018

Called
up share
capital
£’000

154

—

Share
premium
£’000

7,766

—

1,228

Retained
earnings
£’000

14,319

2,990

—

Total
£’000

22,239

2,990

1,234

—

(2,354)

160

8,994

—

14,955

3,546

24,109

3,546

(3,658)

160

8,994

14,843

23,997

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the Parent Company financial statements
For the year ended 30 September 2018

1. Accounting policies
The preparation of the Company’s financial statements requires the Directors to make judgements, estimates 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 amounts, events or actions, actual results may differ from those estimates.

(a) Judgements and key sources of estimation
In the process of applying the Company’s accounting policies, the Directors have considered that there are no judgements
or other key sources of estimation uncertainty at the statement of financial position date which have a significant effect on
the amounts recognised in the financial statements.

(b) Basis of preparation
The financial statements of Zytronic plc were approved for issue by the Board of Directors on 10 December 2018.
The financial statements are prepared in accordance with FRS 101 Reduced Disclosure Framework.

A statement of comprehensive income is not presented for the Company as permitted by Section 408 of the
Companies Act 2006.

The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£’000)
except where otherwise indicated.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year
ended 30 September 2018.

In these financial statements, the Company has taken advantage of the following disclosure exemptions available under
FRS 101:

• the requirements of IFRS 7 Financial Instruments. The disclosures are available in the Group financial statements

of Zytronic plc;

• the requirements in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information

in respect of:

• paragraph 73(e) of IAS 16 Property, Plant and Equipment; and

• paragraph 79(a)(iv) of IAS 1 Presentation of Financial Statements;

• the requirements of paragraphs 10(d), 16, 111 and 134–136 of IAS 1 Presentation of Financial Statements;

• the requirements of IAS 7 Statement of Cash Flows;

• the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;

• the requirement of paragraph 17 of IAS 24 Related Party Transactions;

• the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more
members of a group, provided that any subsidiary which is party to the transaction is wholly owned by such a member;

• the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards paragraphs 6–21 to present

an opening statement of financial position at transition; and

• the requirements of paragraphs 91–99 of IFRS 13 Fair Value Measurement.

ZYTRONIC PLC

1. Accounting policies continued
(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, 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). Any other conditions which
are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting
conditions. Like market performance conditions, non-vesting conditions are taken into account in determining the grant
date fair value.

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 statement of financial position 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
statement of financial position date is recognised in the statement of comprehensive income, 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 (including when a non-vesting condition within the control of the entity or
employee is not met), it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the
statement of comprehensive income 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 statement of comprehensive income.

(d) 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

30–50 years

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted,
if appropriate. The Company assesses at each reporting date whether there is an indication that an asset may be impaired.
If any such indication exists the Company 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 statement of comprehensive income in those expense categories consistent
with the function of the impaired asset.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

Notes to the Parent Company financial statements continued
For the year ended 30 September 2018

1. Accounting policies continued
(e) Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment.

(f) Deferred taxation
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;

• 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 statement of
financial position date.

(g) 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 statement of comprehensive income 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 in which they occur. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing of funds.

2. Auditor’s remuneration
Auditor’s remuneration for the year ended 30 September 2018 was £13,000 (2017: £16,000).

3. Property, plant and equipment

Land
£’000

Freehold
property
£’000

Long
leasehold
property
£’000

Total
£’000

Cost

At 1 October 2017 and 30 September 2018

207

3,070

2,097

5,374

Depreciation

At 1 October 2017

Provided during the year

At 30 September 2018

Net book value at 30 September 2018

Net book value at 1 October 2017

—

207

584

645

2,425

2,486

390

442

1,655

1,707

974

113

1,087

4,287

4,400

ZYTRONIC PLC

4. Investments
Investments in subsidiary companies

Shares in subsidiary companies

At beginning of year

At end of year

2018
£’000

2017
£’000

10,106

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:

Name of company

Incorporated in

Holding

Zytronic Displays Limited

Ordinary shares

Proportion
of voting rights
and shares held

Nature of business

100% Manufacture of transparent composites,
including touch sensors

Zytronic Inc.

Intasolve Limited

Zytronic Glass Products Limited

USA

Ordinary shares

100%

Technical sales support

Dormant

Zytronic Inc. is a wholly owned subsidiary of Zytronic Displays Limited. The registered office address for all of the subsidiaries
is Whiteley Road, Blaydon-on-Tyne NE21 5NJ.

5. Trade and other receivables

Prepayments and accrued income

Amounts falling due after more than one year are:

Amounts owed by Group undertakings

6. Trade and other payables

Trade creditors

Other creditors and accruals

Other amounts owed to subsidiary undertakings

Corporation tax

2018
£’000

135

2018
£’000

117

220

2017
£’000

135

2017
£’000

560

675

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSNotes to the Parent Company financial statements continued
For the year ended 30 September 2018

7. Deferred tax liability
The deferred tax included in the statement of financial position is as follows:

Accelerated capital allowances

At 1 October

Credit in the statement of comprehensive income

At 30 September

8. Equity share capital
(a) Share capital

Allotted, called up and fully paid

Ordinary shares of 1p each

(b) Share premium

At 1 October 2017

At 30 September 2018

2018
£’000

170

177

(7)

170

2017
£’000

177

184

(7)

177

2018
Number
Thousands

2017
Number
Thousands

2018
£’000

2017
£’000

16,044

160

£’000

8,994

9. Guarantees
Zytronic plc has given guarantees regarding funding advanced to Zytronic Displays Limited by Barclays Bank plc in
connection with an overdraft facility detailed in note (a) below.

(a) Borrowing facilities
The Group has an unsecured overdraft facility of £1.0m arranged with its principal banker, Barclays Bank plc. This facility
extends until September 2019. This facility is to provide funding for working capital.

ZYTRONIC PLC

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of Zytronic plc (the “Company”) will be held at the Company’s
registered office at Whiteley Road, Blaydon-on-Tyne, Tyne and Wear NE21 5NJ, at 9.30 am on 6 February 2019 to consider
and, if thought fit, pass the following resolutions:

Ordinary business
To consider and, if thought fit, pass the following resolutions as ordinary resolutions of the Company:

To receive the financial statements for the year ended 30 September 2018 and the reports of the Directors and
Auditor thereon.

2. To pay a final dividend of 15.2p per ordinary share of 1.0p for the year ended 30 September 2018 on Friday 22 February

2019 to members on the Register at the close of business on Friday 8 February 2019.

3. To re-elect Mark Cambridge as a Director.

4. To re-appoint Ernst & Young LLP as Auditor and to authorise the Directors to fix its remuneration.

Special business
To consider and, if thought fit, pass the following resolution number 1 as an ordinary resolution of the Company and the
following resolutions numbered 2, 3 and 4 as special resolutions of the Company:

That, pursuant to Section 551 of the Act, the Directors be generally and unconditionally authorised to exercise all
powers of the Company to allot Relevant Securities up to an aggregate nominal amount of £52,945.34, provided that
(unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the Company’s Annual
General Meeting held in 2020 (or, if earlier, at the close of business on the date which is 15 months after the date of this
Annual General Meeting), but in each case prior to its expiry the Company may make offers, and enter into agreements,
which would, or might, require Relevant Securities to be allotted after the authority expires and the Directors may allot
Relevant Securities under any such offer or agreement as if the authority had not expired.

In this resolution, “Relevant Securities” means shares in the Company or rights to subscribe for or to convert any security
into shares in the Company; a reference to the allotment of Relevant Securities includes the grant of such a right; and a
reference to the nominal amount of a Relevant Security which is a right to subscribe for or to convert any security into
shares in the Company is to the nominal amount of the shares which may be allotted pursuant to that right.

2. That if special business resolution 1 above is passed, the Directors be authorised to allot equity securities (as defined
in the Act) for cash under the authority given by that resolution and/or to sell ordinary shares held by the Company
as treasury shares for cash as if Section 561 of the Act did not apply to any such allotment or sale, such authority to
be limited to:

(a)

the allotment of equity securities in connection with an offer of equity securities (whether by way of a rights issue,
open offer or otherwise):

(i)

to holders of ordinary shares in proportion (as nearly as practicable) to the respective numbers of ordinary
shares held by them; and

(ii) to holders of other equity securities in the capital of the Company, as required by the rights of those securities

or, subject to such rights, as the Directors otherwise consider necessary,

but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in
relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the
laws of any territory or the requirements of any regulatory body or stock exchange; and

(b)

the allotment of equity securities or sale of treasury shares (otherwise than under paragraph 2(a) above) up to a
nominal amount of £8,022.02,

such authority to expire at the conclusion of the Company’s Annual General Meeting held in 2020 (or, if earlier, at the
close of business on the date which is 15 months after the date of this Annual General Meeting) but, in each case, prior
to its expiry the Company may make offers, and enter into agreements, which would, or might, require equity securities
to be allotted (and treasury shares to be sold) after the authority expires and the Directors may allot equity securities
(and sell treasury shares) under any such offer or agreement as if the authority had not expired.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

Notice of Annual General Meeting continued

Special business continued
3. That if special business resolution 1 is passed, the Directors be authorised in addition to any authority granted under

special business resolution 2 to allot equity securities (as defined in the Act) for cash under the authority given by that
resolution and/or to sell ordinary shares held by the Company as treasury shares for cash as if Section 561 of the Act
did not apply to any such allotment or sale, such authority to be:

(a)

limited to the allotment of equity securities or sale of treasury shares up to a nominal amount of £8,022.02; and

(b)

used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the
original transaction) a transaction which the Directors of the Company determine to be an acquisition or other
capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most
recently published by the Pre-Emption Group prior to the date of this notice,

4. 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 provided that:

(a)

the maximum number of ordinary shares hereby authorised to be purchased shall be 1,604,404;

(b) the minimum price which may be paid for an ordinary share shall be 1p;

(c)

(d)

the maximum price which may be paid for an ordinary share shall be not more than 5% above the average of the
middle market quotations for ordinary shares as derived from the London Stock Exchange daily official list for
securities admitted to AIM of the London Stock Exchange for the five business days immediately preceding the
date of the purchase of the ordinary share; and

unless previously renewed, revoked or varied, the authority hereby conferred shall expire at the conclusion of
the Company’s Annual General Meeting held in 2020 (or, if earlier, at the close of business on the date which is
15 months after the date of this Annual General Meeting) save that the Company may, prior to such expiry, enter
into a contract to purchase ordinary shares which will or may be executed wholly or partly after the expiry of such
authority and may purchase ordinary shares pursuant to such contract as if such authority has not expired, and
that all ordinary 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

Claire Smith
Company Secretary

Zytronic plc
Whiteley Road
Blaydon-on-Tyne
Tyne and Wear
NE21 5NJ

10 December 2018

ZYTRONIC PLC

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 accompanies this document.

2. Completed Forms of Proxy must be returned to the Company’s registrars at the address shown on the Form of Proxy

not later than 9.30 am on Monday 4 February 2019 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.

3. The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), specifies that
only those holders of ordinary shares of 1p each of the Company registered in the Register of Members of the Company:

(a) as at close of business or 6.00 pm on 4 February 2019; or

(b)

if this meeting is adjourned, at close of business 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
4.00 pm on Monday 4 February 2019 shall be disregarded in determining the rights of any person to attend or vote
at the meeting.

4. Copies of contracts of service between the 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.

ANNUAL REPORT AND FINANCIAL STATEMENTS 2018

STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTS

Bankers
Barclays Bank plc
71 Grey Street
Newcastle-upon-Tyne
NE99 1JP

Handelsbanken
8 Keel Row
The Watermark
Gateshead
NE11 9SZ

Santander Corporate Banking
Baltic Place
South Shore Road
Gateshead
NE8 3AE

Yorkshire Bank
131–135 Northumberland Street
Newcastle-upon-Tyne
NE1 7AG

Regions Bank
2653 Marietta Hwy
Canton, GA
30114
USA

Solicitors
Ward Hadaway
Sandgate House
102 Quayside
Newcastle-upon-Tyne
NE1 3DX

Muckle LLP
Time Central
32 Gallowgate
Newcastle-upon-Tyne
NE1 4BF

Corporate information

Websites
www.zytronicplc.com
www.zytronic.co.uk
www.zytronic-inc.com
www.zytronic.cn
www.zytronic.jp

Secretary
Claire Smith
Email: claire.smith@zytronic.co.uk

Registered office
Whiteley Road
Blaydon-on-Tyne
Tyne and Wear
NE21 5NJ

Tel:
0191 414 5511
Fax: 0191 414 0545

Registration number
03881244

Stockbrokers and
nominated adviser
N+1 Singer
One Bartholomew Lane
London
EC2N 2AX

Registrars
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol
BS13 8AE

Auditor
Ernst & Young LLP
Citygate
St James’ Boulevard
Newcastle-upon-Tyne
NE1 4JD

ZYTRONIC PLC

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business news and touchscreen developments online.

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@ZytronicDisplaysLtd

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videos on our YouTube channel
youtube.com/ZytronicTouchSensor

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+ZytronicCoUK

Visit our investor site at
www.zytronicplc.com

STRATEGIC REPORTZ

Zytronic plc
Whiteley Road
Blaydon-on-Tyne
Tyne and Wear
NE21 5NJ

0191 414 5511