Zytronic (ZYT) — Corporate Update

0:01 Good morning, and welcome to the ZYTRONIC PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab just situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review your questions submitted today, we'll publish those responses where it's appropriate to do so. I'd now like to hand over to Mark Cambridge, CEO. Good morning. Morning.

0:30 Thank you for attending this IMC webinar, which is in relation to the announcement made by the company on the October 16 and the company's process to communicate with our shareholders around the strategic review and the options presented. I will be taking you through much of this presentation before handing over to Claire to discuss strategic options two to five. I wanted to start by covering a couple of key disclaimer points prior to getting into the body of the presentation. You will have noted from the announcement, the company is now in a technical offer period and by definition of the takeover code. This is because one of the options presented is the sale of the company and therefore a potential outcome of the strategic review. Under rule 28 of the takeover code, the company is also constrained from providing investors with a financial forecast for the transformation plan, which is also one of the options.

1:27 Singer Capital Markets, our nominated adviser and financial adviser to the strategic review, are also restricted from providing any profit forecasts, and as such, will not publish any research whilst we're in an offer period. And And if the board were to conclude the strategic review and proceed with the transformation plan option, the offer period would likely conclude on this date. Moving on to slide three, I would like to start by providing some general background information. The difficulties the company has encountered since the onset of COVID and thereafter, as well as as well as noted on the slide have been commented on over the past several years of trading update and annual reports in some detail.

2:13 And whilst there was the appearance of a bounce back in our reported results for the twenty twenty two fiscal year, it unfortunately has not been sustained and provides us with one of the reasons why the board has decided decided to undertake the strategic review in consultation with our shareholders.

2:32 As was disclosed in the interims, a deep and comprehensive internal review was to be conducted over the summer months, The the outcome of which has been the development of a transformation plan, which is presented in the strategic review as option one. However, along with the option, the strategic reviewer also presents four other options for shareholder consideration during the consultation period with all options covered in the presentation from slide nine onwards.

3:04 The information that we'll now cover through to eight provides details on the company's operational considerations and in effect what has brought the board to this present set of option considerations. The business... The company is based in the Northeast Of England and has been in the same relative location since the mid nineteen nineties and presently comprises three factory units on an established industrial estate near to the banks of the River Tyne. The company has been been involved in the touch industry since 1999, successfully developing and marketing its first manufactured PCAP sensor solution in 2000, which was based on a uniquely developed methodology of direct rating of a microfine copper wire onto two plastic films and high temperature and pressure laminating them between sheets of glass, subsequently developing more advanced techniques to supply directly onto a single glass sheet at room temperature.

4:04 Why a PCAP, as we refer to it, provided a solution to improving the robustness and stability of touch into industrial and commercial use, particularly when it was deployed outdoors.

4:22 The company has continually innovated its way of PCAP and holds 15 internationally granted patents with several others under application and examination. And what the company has significantly done since 2002 is increase its competency in PCAP electronic engineering. The results of this is a high degree of expertise and knowledge in interspatial algorithm development, interfacing firmware to link our products to various computer platforms and operating systems. The advancements from this have led us to our our own own application specific integrated circuits or ASICs as they are known. These tiny silicon wafer packages basically sweep up all the key analog and digital independent components and circuitry into a tiny black box package, making the control boards onto which they are populated significantly smaller and cheaper.

5:24 Pictures of these are shown on this slide to illustrate the size of the ASIC and how they are populated onto our zed x y series of controllers. The three shown being the zed x y 500 family covering the range of p cap sensors from seven inch through to 65 inch. Presently, the development team are working on a new controller to add to this ZXY 100 family... 500 family that would provide for the supply of p cap sensors greater than 65 inches whilst whilst maintaining the same functional performance of the smaller sizes.

6:05 The the graphical illustration represented on this slide shows how the touch industry has evolved from those early nineteen seventies touch technology patent applications to the present day. Most technology industries will follow this form of industry evolution. And as indicated, when the company entered the touch industry marketplace in 2000 with its first PCAP solution, the touch industry itself was very much in its growth phase having been well established by several touch companies and technologies that were already to market. Resistive technology at that time being the most widely adopted. However, within eight years of the company entering the marketplace, the smartphone market blossomed with low cost Asian PCAP sensor manufacturers and the advanced electronics from laptop touchpads driving it. And quite readily, the industry matured and commoditized.

7:03 The PCAP used in this application being non wire and based on a transparent, readily available material known as indium tin oxide, commonly referred to as ITO, which is being used in resistive touch, surface capacitive touch, and and in in the the manufacture of various displays for some time at that point. As the industry has now aged over the last sixteen years and display resolutions significantly improve with nearly all commercial displays now based on four k resolution, optical clarity in all uses of touch is becoming more of a prerequisite. And, unfortunately, the Achilles heel of our wired p cap ever since since its its inception has been the physical presence of the wire, which we've continuously addressed, but not under certain lighting conditions as unfortunately visible in reflective light.

8:02 On the slide, we're also illustrating the various markets in which we are supplying our wired PCAP. And as previously noted and can be clearly observed from the photographs included are are for for industrialized equipment rather than personal consumer use.

8:21 The two graphs presented on this slide illustrate how the combinations of COVID, display optics, and and increased Asian presence in our industrial markets has influenced the company's performance since the 2018 fiscal period. Operational management reacted to the issues of COVID and its aftermath with cost controls and reductions, but the revenue drops in fiscal year twenty twenty three and now as mentioned in the trading update for the preliminary unordered 2024 fiscal year has has meant that such measures are not as effective and believe that any further substantial reductions would affect the company's operability.

9:07 Cost controls are still in place, and it's pleasing as also mentioned in the announcement that we have maintained a similar net cash position at the twenty twenty four fiscal year end as we reported at the half year interims.

9:26 It was because of these ongoing performance and market trends that the internal business and not the operational review was conducted to establish what could be done to realign and reenergize the operational business and and company. Part of this was to establish what we are presently doing, what the markets now require, and and how the company could make appropriate adjustments to transform the outcome. The two illustrations on this slide provide a very quick summary of where we are now and what the future position should be and the factors that that have and will influence this. Considering our present position in the value chain, we've seen commoditization occur in our market sector driven by the Asian peak up consumer product providers and the backing they receive.

10:21 Our competitive advantages through our innovation work has now been somewhat eroded by these cheaper solutions, which are present and now being deemed good good enough. We've always realized that in our markets, the equipment manufacturers or OEMs as they are commonly referred are the design and decision makers in the value chain. And pre COVID with our wired PCAP USPs, it was our ability to directly interface with these that provided us with our growth opportunities as winning a project design in has always been the prize. However, post COVID, what we have also experienced is a shift away from the majority of OEMs wanting just componentry as we now are seeing more demand for integrated touch monitors to ease their manufacturing burdens and costs, which has shunned us behind the display integrators as they now take a more substantial design discussion lead.

11:30 To remedy this situation, we we believe the transformation needs to reposition us in the value chain and retake our position as the design consultants of choice with OEMs, which forms the basis of the proposed transformation plan. In this plan, we are looking to be PCAP sensor type agnostic, differentiate ourselves from display integrators throughout PCAP engineering expertise, knowledge, and and ownership by offering ZYTRONIC inside integrated PCAP monitor solutions as well as maintaining componentry sales for when they are required. Although we've always considered ourselves as servicing the industrial and commercial PCAP markets, our wired PCAP has always been seen as a premium positioned for price.

12:27 To look at the whole PCAP markets and determine its progression, we commissioned as part of the internal review external third party market analysis. The graph represents one independent report view in terms of the forecast volumes of units shipped. The data excludes consumer and automotive markets. The green columns represent peak up units greater than 15 inch in size and where our ZXY 500 electronics provides performance benefits, growing at a compound rate of around 6%. The calculable value of the market varies considerably depending upon which market source and research information is chosen.

13:17 The third party analyst took the lowest valued report as a baseline and utilized reasonable assumptions to remove non addressable considerations such as consumer products, China shipments, and other touch technologies. The PCAP market is now ITO dominated as it used... As it's used across nearly all application uses with metal mesh emerging as an alternative for larger display formats. The company in the first instance has looked at metal mesh as this is the closest in functionality and electronic control to our wired sensors as it also is based on a copper electrode system.

14:05 Work on the incorporation of ITO into the portfolio of product solutions has commenced, but is it of an early stage in comparison to metal mesh? This This now brings us to the strategic review and the options being proposed.

14:26 Certainly, from the information presented over slides four to eight, the board came to a judgment that we needed a strategic catalyst to provide a meaningful improvement, which is presented as the option one transformation plan. However, the board also realizes that under the present circumstances, a strategic review and other options should form the basis of a consultation with the shareholders. Option two being the solvent liquidation of company assets. Option three being the potential sale of the company. Option four being to delist the company and take it private. Saving listing costs, etcetera, and either continuing as is or implementing the new transformation business plan.

15:13 And finally, option five being to sell company assets and continue as a cash shell. As I indicated previously, I will take you through option one, and I'll hand over to Claire who will provide details on options two to five. Excuse me. In In in developing the transformation plan, we've established three strategic initiatives with the execution of the plan in three broad stages. The initiatives are firstly to expand ZYTRONIC's PCAP solutions by technically adding both metal mesh and ITO solutions to our PCAP portfolio.

16:02 With the advancements now made in our electronics with the developed ZXY 500 TOUCH ASIC and controllers, we we now have the technical capabilities to drive these materials, which was unfortunately not previously the case. In doing this, we'll move away from direct sensor manufacture, although we do expect to keep some level of wired capabilities and move to what is termed smart manufacturing by developing supply chain management relationships with companies that that have already developed that material manufacturing expertise most likely in Asia. We'll then significantly expand both our sales and marketing capabilities to refocus on application specific OEM relationships, becoming recognized and addressable PCAP experts and taking the design and sourcing lead with the OEMs, and therefore completely repositioning ourselves in the value chain.

17:06 And as we reduce wire manufacturing, we will reduce the overall facilities footprint, which may thereafter lead us to a new purpose built facility, which will enforce our positioning as as a a p cap hub of excellence as well as establish the in house capabilities required to support the transformed business. In executing the transformation plan, we must conclude the development work outstanding on metal mesh and the substantial work on ITO solutions whilst continuing to drive the opportunities and conversion for our wired PCAP in existing and new customers.

17:56 Work on metal mesh has significantly progressed over the past twelve months as we we have have already identified and approved our first metal mesh supplier, achieved a very modest level of sales towards the end of the 2024 fiscal year, and have a developing pipeline of new opportunities based on the prototyping and sampling of metal mesh solutions.

18:23 As some may have seen through mine and my colleagues' most recent LinkedIn social media posts at the recently concluded gaming expo, metal mesh based products were the only solutions we demonstrated. However, as I indicated, delivering IT or PCAP solutions due to its 70 dominance of the overall market is where the company expects to be.

18:53 In support of the aforementioned transformation, a proportionality graph is presented on this slide, simply illustrating how we envisage the revenue ratios for the transformed business to establish themselves over the next five years. YRP cap proportionally declines, metal mesh increases, and ITO dominate.

19:25 This slide and the following summarizes the information as presented and the mapping of the work undertaken and to be undertaken in delivering the transformation outcome.

19:42 On this slide, the graphic is simply used to indicate the broad flow of the transformation from left to right as we move through the stages of turnaround to capability development and growth. As we add more pertinent market analysis, significantly expand and boost our direct sales presence, develop a revised value proposition to enhance the consultative selling process whilst expanding the PCAP solution portfolio and our overall business capabilities.

20:24 The transformation plan is backed by a comprehensive set of project work streams and charters to drive the overall transformation project to the conclusion in the timelines defined. The project and the work streams are represented on this transformation map with the green radio buttons resent... Representing work already completed the red ones being work still to be concluded and their estimated relative timings. Most of the actions as can be seen on the map are around reconfiguring, reenergizing, and expanding the sales resources and their capabilities, and most importantly, concluding the development work.

21:15 To deliver the transformation plan as we've defined it around our cost base scenario, we expect to incur capital costs of between 2.5 to... And 3,500,000 over the next several years. There are obvious risks associated with this, which we are internally monitoring through a risk matrix log, some of which we have described on this slide and in the announcement. I will now hand over to Claire to take us through the other four strategic options. Thank you, Mark. These next four options that have been proposed to shareholders should require a lot less explanation than Mark has just provided.

22:04 Option two being proposed is that of an orderly solvent liquidation of the company's assets. As stated in previous reported fiscal periods, the company has historically benefited from a strong, clean and simple balance sheet. As was reported in the consolidated statement of financial position at the interims for the period ended 03/31/2024, the group had GBP 3,700,000 of net cash and the properties were recorded also at GBP 3,700,000.

22:42 The company has recently attained a third party property valuation report and presently it concurs with that value. Based on this interim data, the calculated net asset value was a 127p per share, but it is important to highlight that there is no guarantee that this value could be obtained in the event of a liquidation of assets. If this was deemed the appropriate option outcome to the strategic review, then the company would be required to publish a circular to all shareholders and propose a special resolution of which 75% in favor of those shareholders who voted would be required to pass.

23:32 Details of the consolidated statements of comprehensive income and financial position are presented in the appendices on slides nineteen and twenty for reference. This slide provides a condensed summary of options three, four and five. Option three is the option of a sale of the company. I can confirm that at the time of the announcement, the company was not in any discussions nor in receipt of any approach. Similarly to option two, this would also require a special resolution to be passed and any potential offeror may seek to secure irrevocable undertaking from large shareholders should an offer be received.

24:21 Option four as proposed is a consideration to delist the company and continue it as a private business, which would cut the listing costs of being a PLC and either continuing as is or implementing the transformation plan as detailed earlier. And finally, option five is to sell the assets of the company and continue the company as a cash shell, possibly seeking a reverse takeover with a third party who, for example, wishes to use the company's

24:53 listing as a vehicle for other investments. This slide provides a simple graphical illustration of the process to date and the next steps. Presently, we have enacted and concluded Phase one, which has run through much of the latter part of Q3 and all Q4 of the twenty twenty four fiscal year just ended. On release of the announcement on the October 16, we have now moved to the shareholder consultation Phase two, of which this webinar forms an integral part. Once we have concluded phase two, the board will give due consideration to the shareholder feedback from the consultation process and issue a concluding announcement and a board recommendation of the option chosen.

25:46 I will now hand back to Mark for a summary and a conclusion. Thank you, Claire. I would like to summarize this presentation with five comments as shown on this slide. The board has undertaken and concluded an internal review and subsequently announced a strategic review comprising five options. The options have been clearly laid out by the company and range from a transformation plan through solvent liquidation sale or delisting to the selling of assets only and operating as a cash shell. We are undertaking informal shareholder consultation invite comments to the chair via single capital markets or through this platform.

26:37 We unfortunately may not be able to answer certain queries and provide assurances. And finally, we look to provide an update to shareholders on this strategic review in due course. Excuse me. Whilst noting there is currently no certainty to the outcome. Thank you. And that that actually concludes the presentation. That's great, Mark. Claire, thank you very much indeed for up 10... Updating attendees this morning. If I could please ask you to continue to submit your questions just using that q and a tab situated on the right hand corner of the screen. I'm sure Mark and Claire review some of those questions submitted today. I'd just like to remind you that recording this presentation along with a copy of the slides and the published Q and A will be available via your investment company platform.

27:23 Mark, Claire, we did receive a number of questions ahead of today's event and some questions throughout your presentation. I may just hand back to you, of course, where it's appropriate to do so, if I could ask you, please, just to read those out and give a response, and then I'll pick up from you at the end. Yep. Okay. Thank you, Mark. We did receive a few pre submitted questions prior to the event, which we've looked at that we'd like to answer before obviously coming to a conclusion. Question one that was raised was was the leadership team the right team to carry out the internal review? To answer that one, I mean, we've provided brief details of the operational executive team in the appendices on slides twenty one and twenty two.

28:12 The combined level of experience in the peak up markets across the five individuals is circa ninety five years. And it was considered that this would be very difficult to replace in reviewing and delivering the necessities of a transformation within the business. The team delivered for the shareholders leading up to COVID, and it was... And it self developed wired PCAP. And using that experience and expertise and what we can now do with it technically is what give the board the confidence to allow them to develop the transformation business plan with a consultant facilitator.

28:56 Second question, what are the key milestones to executing the transformation plan? Answering and providing answers for that one. You know, the transformation plan has a number of key moving parts, which we commented on and illustrated on slide 13. I guess one key milestone already achieved is technically proven that our state of the art ZXY 500 p cap control electronics can drive not only wired, but also metal mesh and ITO. Most importantly, ITO. Achieving proven quality and reliable supply of these solutions is the next milestone event.

29:42 From this milestone, then we'll follow direct sales expansion both in terms of manpower book consultative selling capabilities. Question... Third question that we received. Assuming strategic option one is chosen, what should shareholders expect with regards to future dividends and longer... On the longer term? I mean, just prior to COVID, the board reset its dividend policy to not pay out interim and annual dividends that were uncovered. And this will continue to be the case as we move forward. Question four.

30:32 I mean, it's basically Peter Gilliam or the new shop peers to have been building a significant stake in ZYTRONIC. Any comments? I think the ant... Succinct answer to that one is the company cannot comment on any particular shareholders reasons for investment as this would be pure speculation. Obviously, the questions that are being raised on the day that we can sort of now start to go through, I think it's it's it's only fair and proper in in this particular instance that we we get a chance to actually fully review those after the closure of this event and provide the written responses, which will will publish on the platform on the I p... I m c platform where it's appropriate to do so as we as we normally have after after every presentation that we've done to date.

31:29 That's great, Mark. Claire, thank you very much indeed. Mark, I I know investor feedback as you quite rightly highlighted during your presentation is important to you and to the board. I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, if I may just ask you for a couple of closing comments. Yeah. I think I just, again, I'd I'd I'd like to thank IMC on the platform for the opportunity afforded to the company in providing us with this valuable form of communication to our shareholders. Mark, Claire, thank you very much indeed for updating investors. Could I please ask investors not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations?

32:14 It's gonna take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the company, we'd like to thank you for attending today's presentation, and enjoy the rest of your day.