Zytronic has now released their interim results for the year ending 2019.
Revenue declined by £1.1M when compared to the first half of last year and after a smaller fall in cost of sales, gross profit was £912K down. Distribution costs and admin expenses also saw modest falls and after tax expenses declined by £137K the profit for the period came in at £1.2M, a decline of £682K year on year.
When compared to the end point of last year, total assets declined by £1.7M driven by a £2.6M fall in cash, partially offset by a £927K increase in inventories. Total liabilities also decreased during the period, mainly due to a £468K fall in payables. The end result was a net tangible asset level of £24.1M, a decline of £1.1M over the past six months.
Before movements in working capital, cash profits decreased by £833K to £1.9M. There was a cash outflow from working capital and despite a £220K decrease in tax payments, the net cash from operations was £239K, a decline of £2.1M year on year. The group spent £322K on fixed assets and £74K on intangible assets to give a cash outflow of £127K before financing. They then spent £2.4M on dividends which meant that there was a cash outflow of £2.6M and a cash level of £12.1M at the period-end.
The group had lower than expected revenues and profitability in the first half due to considerably slower sales of their touchscreen products into the gaming sector. Sales to Financial, Vending and Signage saw an increase but industrial sales fell by £500K.
The gaming revenues were affected by a slower conversion of opportunities to orders of new design projects not replacing the expected reduction in volumes from several longer running projects, which consisted of higher margin larger format products. In volume terms, the number of touchscreens sold remained at similar levels to last year but the reduction in larger panels had a knock on effect on profitability.
Historically trading in the second half has shown an improvement over the first half and there are several projects that should improve performance as they come to fruition but at this stage the board is taking a cautious and conservative view on an increase in activity levels from the gaming sector in the second half.
At the current share price the shares are trading on a PE ratio of 10.8 but this increases to 14.4 on the full year consensus forecast. After the interim dividend was held the same the shares are yielding 9.3% which is predicted to remain the same for the full year. At the period-end the group had net cash of £12.1M compared to £14.6M at the year-end.
Overall then this was a rather difficult period for the group. Profits were down, net assets decreased, the operating cash flow deteriorated and no free cash flow was generated. The problem is the reduction in the larger high-value displays to the gaming industry. It doesn’t seem like the board are overly confident that this will reverse any time soon so despite the huge yield (9.3%) which may not be sustainable, I think the 14.4 PE ratio shows that these shares are not really cheap yet. I am staying out for now.