TIDMDIA
RNS Number : 6888M
Dialight PLC
18 September 2023
Dialight plc
("Dialight" or the "Group")
Unaudited half year results 2023
Challenging first half, full year below prior expectations
Transformational plan to deliver significantly improved
performance over medium term
Dialight plc (LSE: DIA.L), a global leader in sustainable LED
lighting for industrial applications, announces its half year
results for the period ended 30 June 2023.
H1 2023 H1 2022
Financial summary GBPm GBPm
========================================= ================================ ========
Revenue 73.2 80.8
Underlying (loss)/profit from operating
activities (2.5) 3.1
(Loss)/profit from operating activities (2.8) 2.3
(Loss)/profit for the period (3.1) 1.2
Statutory EPS - basic and diluted (9.6p) 3.7p
Net debt - pre-IFRS 16 (22.7) (20.2)
----------------------------------------- -------------------------------- --------
Key points and outlook
-- At constant currency Group orders down 12%, with Lighting 6%
lower than H1 2022 as a result of weak capex orders, Signals &
Components 25% lower
-- Group revenue 13% lower than the prior year (9% at reported
currency), largely driven by the cyclical downturn in Signals &
Components
-- Gross margin fell to 29.6%, as a result of continued elevated
component costs together with lower overhead absorption (2022:
34.9%). The Group had an operating loss of GBP2.5m in the first
half
-- Net debt at 30 June 2023 of GBP22.7m, driven by the loss in
the period, compared to GBP20.9m at year-end 2022
-- Current trading and the full year outlook are below our prior
expectations. However, the Board expects an improved second half
trading performance when compared to the first half and the prior
year period driven by a solid order book in the seasonally
strongest period, lower component costs coming through and cost
savings. Expected to deliver progress in 2024.
Strategic and operational review
-- The Board, led by new Chair Neil Johnson, has undertaken a
detailed review of the Group's operations and strategy
-- Concluded that the Group has significant opportunities within
its core LED Lighting market, with the potential to deliver
increased growth and materially improved profitability
-- Transformation plan to be initiated in H2 2023, focused on:
o Streamlining the Group to focus on core LED Lighting
business
o Resetting and realigning the Group's cost base; and
o Accelerating growth in key lighting markets
Fariyal Khanbabi, Group Chief Executive, said:
"It has been a pleasure working with the new Board to create our
transformation plan, which we believe will make Dialight a more
focused, leaner organisation that is better able to capitalise on
the opportunities presented by structural growth trends in the
industrial LED lighting market. Combined with a reduced cost base
and investment in improved manufacturing productivity, this should
enable the Group to achieve higher underlying profitability over
the medium term. With the Group's markets remaining challenging the
Board is focused on driving execution of the transformation plan,
with initial restructuring actions to be taken in the second half
of 2023."
CERTAIN INFORMATION CONTAINED IN THIS ANNOUNCEMENT WOULD HAVE
CONSTITUTED INSIDE INFORMATION (AS DEFINED BY ARTICLE 7 OF
REGULATION (EU) NO 596/2014), AS IT FORMS PART OF DOMESTIC LAW BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018) ("MAR") PRIOR
TO ITS RELEASE AS PART OF THIS ANNOUNCEMENT AND IS DISCLOSED IN
ACCORDANCE WITH THE COMPANY'S OBLIGATIONS UNDER ARTICLE 17 OF THOSE
REGULATIONS.
Contacts:
Dialight plc
Tel: +44 (0)203 058 3542
Neil Johnson - Chairman
Fariyal Khanbabi - Group Chief Executive
About Dialight :
Dialight (LSE: DIA.L) is a global leader in sustainable LED
lighting for industrial applications. Dialight's LED products are
providing the next generation of lighting solutions that deliver
reduced energy consumption and create a safer working environment.
Our products are specifically designed to provide superior
operational performance, reliability, and durability, reducing
energy consumption and ongoing maintenance, and achieving a rapid
return on investment.
The company is headquartered in the UK, with the main operations
in the USA, UK, Mexico, Malaysia and Singapore, Australia. To find
out more about Dialight, visit www.dialight.com .
Notes:
1. Net debt excludes lease liabilities under IFRS 16
2. Constant currency impact is calculated by re-translating the
prior year's numbers at the exchange rate prevailing in the current
year.
3. Cautionary Statement: This announcement contains certain
statements, statistics and projections that are or may be
forward-looking. The accuracy and completeness of all such
statements, including, without limitation, statements regarding the
future financial position, strategy, projected costs, plans and
objectives for the management of future operations of Dialight plc
and its subsidiaries are not warranted or guaranteed. These
statements typically contain words such as 'intends', 'expects',
'anticipated', 'estimates' and words of similar import. By their
nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that will
occur in the future. Although Dialight plc believes that the
expectations will prove to be correct. There are a number of
factors, many of which are beyond the control of Dialight plc,
which could cause actual results and developments to differ
materially from those expressed or implied by such forward-looking
statements. This announcement contains inside information on
Dialight plc.
Chairman Overview
I took over as Chair in May post the AGM. The time since it has
been a busy period with the newly formed Board having reviewed our
strategy and visited our sites in Mexico, our largest manufacturing
plants. I have also met with all of the senior team and visited our
US sites in Farmingdale and Roxboro. The new Board has significant
experience that will be invaluable in supporting the executive
team.
Our observations are that Dialight has many positive attributes
including great core products in lighting and good engineering
capabilities. However, the key part of our transformation plan is
to simplify the Group. This will include possible divestments,
investment in manufacturing efficiency through greater automation
and strengthening the team. The executive team has built plans
based on this requirement, which the Board has reviewed and agreed
this. We expect that over the medium term this will create
substantial profit growth and shareholder value.
CEO review
Overall Group revenues were 9% lower than the prior year (13%
constant currency). The main driver of the reduction was lower
revenue in Signals & Components, particularly from the
Components and Vehicle segments, as well as to a lesser extent
softer Lighting demand. The lower Group gross margins of 30%
(decrease from 35%) were largely due to component cost inflation,
especially as higher priced inventory, purchased in 2022, was
worked through, and reduced fixed overhead absorption. We continued
our strong focus on cost control, lowering Selling, General and
Administrative costs by GBP0.9m. This resulted in an underlying
operating loss of GBP2.5m compared to GBP3.1m profit in H1
2022.
We continued to see inflated component prices despite
improvements in component availability. We are renegotiating future
pricing with key suppliers, with progress here, and have focused
our engineering team on product cost reductions that will take
effect in the second half and into 2024. Some of this inflation has
been offset by the price increases we implemented in the second
half of 2022.
Lighting represented c.75% of first half revenues. Lighting
orders fell 1% (constant currency 6% decrease) due to lower capex
orders. The most significant growth was from EMEA, where orders
were up 43% (constant currency 36% increase) versus H1 2022. This
was driven from a low base by a key strategic customer within the
region. Our core US market saw orders up 1%, (constant currency 4%
decrease) with continued growth in our MRO business offset by lower
capex orders. Australia grew by 3% (constant currency 2% decrease)
whilst Asia had a very disappointing performance but with limited
impact on the Group given its relative size.
We continue to develop our strategic accounts team who are
working closely with our field sales team. The majority of our
large US customers, or potential ones, require a preferred supplier
agreement to be in place with their corporate team before any sale
is made at the plant level. We have signed a number of key
agreements in the first half of the year building on the track
record of recent years. We are confident that this will benefit us
over the longer term.
Signals & Components is a high-volume business operating
within highly competitive markets. 2022 benefitted from an
exceptionally high opening order book that helped the strong
performance of this division in H1 2022, but H2 2022 saw a
significant downturn in the key Component segment and as expected
this has continued into 2023. We expect conditions to improve
modestly as we go into 2024.
Operations and supply chain management continue to be a priority
for the Group. The Group has continued to be focused on maintaining
security of supply to our customers, which has impacted on our
short-term financial performance. This decision reflects the hard
work in recent years to recover our market reputation and share
post the problems with our former outsourced manufacturing partner.
We have been able to maintain on time delivery of over 90% for all
product lines, which we believe is industry leading, especially in
the lighting market.
Inventory levels were reduced by GBP4.6m as the number of
component shortages reduced towards the end of the period, lead
times improved, and the level of finished goods inventory was
reduced from the December high. In constant currency, the reduction
was GBP2.2m as most inventory is denominated in US Dollars.
We continue to invest in new and improved product development
with GBP1.9m spent in H1. The main areas of investment were into
new battery backup systems (launched in July), a new high output
floodlight (to be launched in H2), power supply improvements and
product development that will result in significant cost reductions
across several product families and production processes as part of
our transformation plan.
Market conditions
The challenging end market conditions experienced at the end of
2022 have continued into 2023 making predicting the timing of
larger capex orders difficult. Despite the challenging conditions
we continued to grow our sales pipeline, with new business
opportunities having at least 50% likelihood (by our definition)
growing by 37% since December. All regions have grown, with the key
US market up 25%.
The Group continues to be successful in expanding its customer
base into a wider range of process industries including aerospace,
electric vehicles, and food & beverage, with several large
contracts awarded in H1 and further contracts expected in H2 and
beyond. Facilities in these markets can be very significant in
scale and often have demanding operational requirements which lend
themselves to Dialight's highly engineered product range.
The Group's natural resource markets in oil & gas and mining
are showing continued solid demand and account for 54% of H1
Lighting revenue (2022: 40%). Mining customers are benefitting from
the demand for Lithium and Nickel in battery production.
Transformation Plan
With the support of the new Board, we have developed a
comprehensive transformation plan for Dialight, which is designed
to address legacy issues associated with excess cost and complexity
within the organisation, whilst at the same time focusing more
resources on the most attractive growth opportunities within the
core LED lighting market. The transformation plan has the potential
to increase growth and profitability materially in the medium term,
delivered through numerous initiatives, structured around three key
objectives:
1. To streamline the Group;
2. To reset the business' cost and productivity profile; and
3. To accelerate growth in key lighting product and market niches
This plan represents the biggest project that Dialight has
undertaken in recent years, but we believe it has the potential to
unlock significant value for the business and all its stakeholders.
Specifically, we are confident that in delivering the plan we can
create a business with over GBP180m in sales, post non-core
divestments, gross margins of over 40% and underlying operating
margins that are consistently higher than 10%. To deliver the plan,
and its benefits, will require relentless focus on execution and
will absorb cash short term against a challenging market backdrop
but the plan is crucial to delivering the financial returns we know
the Group is capable of.
Identified solutions to legacy challenges
Whilst the Group's proprietary technology and commercial
strategy have enabled us to establish leading positions in a number
of attractive LED lighting markets and supported high levels of
growth over recent years, profitability and cash generation have
been poor. The new Board's review of the Group's strategy and
operations this year has identified several underlying factors
which it believes have contributed to disappointing
performance:
-- Fragmented organisation, comprising five distinct businesses;
-- Disparate manufacturing footprint, with low levels of automation;
-- Product range which is too broad and complex; and
-- Ageing product portfolio in certain areas.
To address each of these challenges, the Group needs to be both
simplified and more focused. In particular, the following steps
need to be taken to create a better performing organisation:
-- Review of the Group's businesses, with any deemed non-core to be exited;
-- Consolidate manufacturing operations and invest in increased automation at key sites;
-- Realign the cost base to be- fit a more streamlined business;
-- Reduce the product range and increase standardisation; and
-- Narrow and consolidate supply chains.
Increasing focus
Dialight's core strengths centre around our products and a long
history of innovation within the industrial lighting market. Our
fixtures meet the needs of our customers to enhance safety, reduce
energy and maintenance costs and critically, help them achieve
their corporate objectives of being carbon net zero. Our products
also provide the best cost of ownership to industrial customers,
with attractive paybacks based on energy savings and maintenance
cost avoidance.
LED Lighting for industrial applications is the Group's largest
business, representing over 65% of revenues in 2022. It is where
the majority of our resources are focused. Alongside LED Lighting,
the Group has four smaller businesses focused on niches within the
wider lighting market: Components (16% Group revenues in 2022);
Traffic (7% of Group revenues); Vehicle (6% of Group revenues); and
Obstruction (5% of Group revenues). Whilst each of these businesses
has attractive facets within their respective niche markets, the
Board does not believe that all of them have the potential to
generate returns over the long term that are accretive to the LED
Lighting business. In part this is reflective of the scale and
outlook of the markets involved, but also considers the investment
required in product development as well as resources required from
a manufacturing perspective. The Board has initiated a review of
the Group's portfolio. However, the timing and terms of any
potential divestment are uncertain.
Reducing cost
Dialight today has four principal manufacturing sites across
Mexico, the US and Malaysia. This footprint helps to support the
international nature of our customer base, but also gives rise to
inefficiency at both a site and network level. Reducing complexity
in our product range and site network will be part of streamlining
the business.
We also see the potential for significant productivity and cost
benefits to be realised through increasing the automation of our
manufacturing processes. Today, many of our manufacturing processes
are excessively labour intensive, which has resulted in rapid cost
escalation in the last 18 months as wage inflation has accelerated.
Against this backdrop, automation represents a significant
improvement opportunity with labour reductions of >70% on some
process lines possible. Whilst this would require an increase in
capital investment, automation alone has the potential to deliver
annual cost savings to the Group of over GBP3m.
Accelerating growth
At >$10bn, the industrial LED lighting market continues to be
very attractive, with the conversion from historic technologies and
increasing focus on safety and sustainability supporting long term
structural growth. Our historic focus on the harsh and hazardous
segment has helped achieve a market leading position in the US,
with excellent customer and distributor relationships. This has
been enhanced by the strategic account initiative which has greatly
improved penetration of large-scale customers and led to a
significant increase in higher value orders. Alongside this, we
have also made very encouraging progress in winning new business in
the Food & Beverage sector, which represents an incremental
market of $1bn for Dialight.
Alongside the growth in LED Lighting demand, we are also seeing
a rapid evolution in technology as customers seek ever-increasing
levels of productivity and efficiency from their sites. The
integration of monitoring, safety and productivity features within
our lighting fixtures represents an immediate opportunity to
enhance our products and over the longer term we see the potential
for the lighting networks within buildings to play a key role in
industrial connectivity. We believe our key areas of product
differentiation, technology expertise, open architecture and
excellent customer relationships make us well placed to be a leader
in this technological evolution.
To capitalise on this opportunity, we are expanding our
commercial strategy in two ways. Firstly, we see scope to further
monetise our specific technology expertise through selling
component elements of this, for example, power supply topology, as
separate products into markets where we do not operate. Secondly,
we will focus additional resources into developing fixture products
with integrated monitoring or control components for specified
higher value customer applications. Taken together, we think that
the potential for these new products could generate sales of
>GBP10m in the medium term.
Sanmina litigation
As previously disclosed, Dialight is involved in ongoing
litigation with Sanmina Corporation, following the termination in
September 2018 of the manufacturing services agreement (MSA). The
Federal court ruled on 14th March 2023 that the strength of
evidence on our claim of fraudulent inducement, together with
various claims and counterclaims relating to accounts receivable
and accounts payable, is sufficient that the dispute should be
resolved by jury trial, pending any appeal process. Sanmina
subsequently filed a motion of reconsideration seeking the reversal
of the judge's denial of summary adjudication of Sanmina's accounts
receivable claim but the Court has yet to release its ruling. The
March ruling confirms that Dialight can challenge the contractual
liability cap in the MSA based on Sanmina's fraudulent inducement
and Dialight intends to rigorously pursue this claim, and the
various other contract-based claims, to trial. We will continue to
update as appropriate.
Purpose and sustainability
Sustainability continues to be the bedrock of the business
influencing product design, material choices and the way we operate
the business. Our revenue is categorised as 100% green revenue by
FTSE Russell as it is 100% LED based. The level of Co2 emissions
that our customers will avoid increases by c. 2m tonnes from
Lighting sales every year.
We have used the analysis derived from our carbon foot printing
over the past three years to submit our Net Zero plan to the
Science Based Target initiative (SBTi) in June this year. This
reiterates our target date of 2040. The plan will be reviewed by
SBTi during the second half of this year and the verified plan will
be published in 2024. The plan is predominantly based around global
decarbonisation of the grid as we estimate that 94% of our
emissions are linked to electricity usage upstream in materials
production, in our operations and downstream in customer usage of
our fixtures.
Safety continues to be a priority, not just for our people but
also for our customers who use our products in harsh and hazardous
locations. We had a single recordable incident in one of our four
operating facilities in the first half and continue to investigate
any occurrences, as well as any near misses.
It has been three years since the launch of the Dialight
Foundation and a huge amount has been achieved over that time with
the support of our employees. The Dialight Foundation has specific
focus areas of women's rights and educational support for children.
We continue to enhance the communities we live in by supporting
local initiatives such as school uniforms and back-to-school
supplies for the children of our employees. In addition, the
Foundation has a hardship fund which can be accessed by staff
facing unforeseen expenses primarily related to family healthcare
issues.
Dialight is committed to always conducting its business in an
ethical and responsible manner, and in full compliance with all
applicable laws and regulations. In addition to our supply chain
rating of silver from EcoVadis, our Ensenada facility was audited
by the Responsible Business Alliance in the first half. This was a
broad-ranging assessment of labour practices, health and safety and
procurement ethics and the facility received a silver rating.
In support of our growth strategy to promote conversion to LED,
we have taken part in industry influencing social media events over
the past few years. With products that do not contain mercury and
are up to five times more efficient than legacy products, matched
with a business approach of integrity and fair treatment of people,
sustainability is the heart of the business.
Change of year end and presentational currency during 2024
Dialight's December year-end coincides with our busiest trading
quarter, with a significant number of short-notice orders placed
for immediate delivery, especially in the final month. Uncertainty
over the extent and timing of these orders creates difficulty in
managing and forecasting the business. We therefore are reviewing
whether to change our year-end to March, so finishing the year with
our quietest quarter.
The Group presents its financial results in Pounds sterling, for
historic reasons, although most of our revenues and costs, along
with our financing, are denominated in US dollars. Movements in
foreign exchange rates can result in major translational
differences in our reported results. As such, we also intend to
assess whether changing our presentational currency to US dollars
would be more appropriate during 2024.
Full year guidance for 2023
Current trading and the full year outlook are below our prior
expectations. However, the Board expects an improved second half
trading performance when compared to the first half and the prior
year period driven by a solid order book in the seasonally
strongest period, lower inventory costs coming through and cost
savings. Expected to deliver progress in 2024.
FINANCIAL REVIEW
Lower revenue, especially in Signals & Components, combined
with margin pressures due to elevated component pricing and labour
inflation led to a GBP5.6m decrease in underlying operating profit
on the prior year to a loss of GBP2.5m. Component costs continued
to impact margin as we utilised components forward ordered in 2022
at elevated prices that we have been unable to fully pass on. We
are starting to see the benefits from lower pricing coming through,
albeit slowly, and this should benefit in the second half. Freight
costs are coming down as we increased the minimum order values for
free shipping and are consolidating shipments to improve
efficiency. However, the minimum wage increased by 20% from 1
January in Mexico, where the majority of our manufacturing team are
based, which has acted as a headwind and highlights the necessity
to increase automation. Selling, General and Administrative costs
fell by GBP0.9m due to cost reduction programmes, despite
inflation, and H2 will see further actions to right size the cost
base.
Net debt increased by GBP1.8m to GBP22.7m with increased
interest costs and payables being partially offset with lower
inventory, and favourable movements in the US dollar exchange rate.
At June, the Group had access to GBP3.7m in undrawn facilities.
Currency impact
Dialight reports its results in Pounds sterling. Our major
trading currency is the US Dollar, which in H1 2023 comprised 86%
of the Group's revenue. The average rate for GBP to USD moved from
1.30 in H1 2022 to 1.23 in H1 2023, with the closing rate
increasing from 1.21 to 1.27. We have therefore presented the
results on a constant currency and actual currency basis to show
business performance without the impact of FX movements.
Lighting segment
H1 2023 H1 2022 Variance H1-22 Constant
GBPm GBPm % at constant currency
currency variance
Lighting GBPm %
----------------- -------- -------- --------- ------------- ----------
Revenue 55.2 57.1 (3.3%) 59.5 (7.2%)
-------- --------
Gross profit 17.6 20.1 (12.4%) 21.1 (16.6%)
-------- --------
Gross profit % 31.9% 35.2% (330bps) 35.5% (360bps)
-------- --------
Overheads (16.7) (16.2) (3.1%) (17.0) 1.8%
----------------- -------- -------- --------- ------------- ----------
Underlying EBIT 0.9 3.9 (76.9%) 4.1 (78.0%)
================= ======== ======== ========= ============= ==========
Lighting represents 75% of the Group's revenue, and consists of
two main revenue streams, large capex projects and on-going
Maintenance, Repair and Operations (MRO) spend. The segment saw a
weaker than expected H1 with customers continuing to exercise tight
controls over spending.
US revenues declined by 9% (at constant currency) with market
share gains in the MRO market helping to reduce the impact from
weakness in the overall market we believe and particularly the lack
of larger capex spend. Continued inflationary pressures, economic
uncertainty and shortages of key skills are resulting in projects
being delayed but we are not seeing projects being cancelled.
Additionally, H1 2022 benefited from a strong opening order book
for the US whereas the opening 2023 position was c. 70% lower, as
previously highlighted. The US order book has grown during H1 and
at the end of June was over double December. This should support an
improved second half. EMEA had a better performance while Asia and
Australia had weaker performances.
Gross margins came under pressure from significant component
price increases on raw materials purchased or committed to last
year that were consumed in the period. Labour costs increased due
to the minimum wage increase in Mexico.
Operating costs were GBP0.5m higher than in the prior period due
to inflation, higher amortisation of new product development costs
and the impact from foreign exchange rates (with most costs
incurred in USD) being offset by lower sales commissions.
This resulted in an underlying EBIT of GBP0.9m compared to an
EBIT of GBP3.9m in 2022.
Signals & Components
H1 2023 H1 2022 Variance H1-22 Constant
GBPm GBPm % at constant currency
currency variance
Signals & Components GBPm %
---------------------- -------- -------- ----------- ------------- -----------
Revenue 18.0 23.7 (24.1%) 25.0 (28.0%)
-------- --------
Gross profit 4.1 8.1 (49.4%) 8.6 (52.3%)
-------- --------
Gross profit % 22.8% 34.2% (1,140bps) 34.4% (1,160bps)
-------- --------
Overheads (3.9) (4.5) 13.3% (4.7) 17.0%
---------------------- ======== ======== ----------- ------------- -----------
Underlying EBIT 0.2 3.6 (94.4%) 3.9 (94.9%)
====================== ======== ======== =========== ============= ===========
Signals & Components is a high-volume business operating
within highly competitive markets.
The previously highlighted cyclical downturn in the key
Component segment resulted in revenue decreasing by 24% (28%
constant currency).
This resulted in gross margin at 22.8%, significantly below the
34.2% seen last year, due to the revenue decline, mainly in higher
margin products, increased material and labour costs, and lower
absorption of fixed production costs that were only partially
offset by price increases. Overheads were reduced by GBP0.6m to
GBP3.9m.
Unallocated costs
Unallocated costs comprise costs not directly attributable to a
segment. In H1 2023 they were GBP3.6m, a decrease of GBP0.8m on the
prior period. The key reductions were lower foreign exchange
translational losses and employee variable pay, partially offset by
higher professional fees (mainly audit fees and recruitment).
Non-underlying costs
2023 2022
Non-underlying costs GBPm GBPm
======================== ====== ======
Sanmina costs 0.2 0.8
------ ------
Other litigation costs 0.1 -
------ ------
Total 0.3 0.8
========================= ====== ======
Costs of GBP0.2m were incurred in the period in relation to the
ongoing litigation with Sanmina Corporation, following the
termination in September 2018 of the manufacturing services
agreement (MSA). Further details are provided in note 11.
Cash and borrowings
The Group ended H1 2023 with net debt of GBP22.7m, an increase
of GBP1.8m from December 2022. Net debt excludes liabilities
related to the adoption of IFRS 16 Leases, as these are excluded
for covenant testing purposes. The roll forward of net debt was as
follows:
Net Debt GBPm
========================================= =======
Opening balance 01 January 2023 (20.9)
-------
Underlying EBITDA * 1.4
-------
Inventory decrease 2.2
-------
Net working capital excluding inventory (1.4)
-------
Provisions & other movements (0.2)
-------
Investment in R&D (1.9)
-------
Maintenance capex/other (0.7)
Interest & tax paid (1.7)
Foreign exchange 0.5
----------------------------------------- -------
Closing balance at 30 June 2023 (22.7)
========================================= =======
*EBITDA comprises underlying operating loss of GBP2.5m with
depreciation of property, plant, and equipment of GBP1.6m and
amortisation of GBP2.3m added back
The main factors behind the movement in net debt were:
-- Reduction in inventory with raw materials used in production,
lower work in progress and the benefit from changes in FX rates on
US dollar denominated inventory
-- Reduction in trade payables following payment for components
purchased in Q4 2022, offset by improved collection of trade
receivables
-- Continued investment into new product development plus
maintenance capex on factory equipment and IT
-- Higher interest costs following increases in both base rates
in the UK and US, along with a higher level of gross debt
-- The translation of US dollar denominated borrowing back into
Sterling has reduced debt by GBP0.5m due to movements in the GBP:
USD exchange rate exchange (from 1.21 to 1.27).
Gross bank debt was GBP23.2m offset by cash in hand of GBP0.5m
(see note 9 for further details on bank borrowings). The interest
expense of GBP1.4m is analysed in note 4 and will increase in H2
following base rate increases. This is prior to the
fundraising.
Banking and covenants
The Group's financing comprises a $34m revolving credit facility
(RCF) with HSBC (which matures in July 2025 and has an option for
two one-year extensions). In accordance with the Group's strong ESG
commitment, the RCF facility is a sustainability linked loan. The
Group has sufficient liquidity, but headroom has reduced in the
period. As expected, the Group has fully repaid its GBP10m COVID-19
Large Business Interruption Loan Scheme (CLBILS) facility, with
GBP2m repaid since December.
The Group's banking covenants are tested quarterly, and the
Group was fully compliant with its banking covenants during the
period. The Group has a strong relationship with its primary bank,
HSBC, with whom it maintains regular dialogue. Given the current
volatility in market conditions, the Group has engaged with HSBC to
secure additional covenant flexibility to support in the near
term.
* For more information regarding going concern covenants please
refer to note 1
Tax
The tax credit of GBP1.1m for the period to 30 June 2023
reflects the anticipated effective tax rate of 25.0% for the period
ending 31 December 2023. Non-underlying items have been taxed using
the relevant tax rates. The effective tax rate reflects the current
UK tax rate being increased to 25.0% and a US effective tax rate of
24.0%, with the remaining profit coming from countries with an
average tax rate of 28%.
Capital management and dividend
The Board's policy is to have a strong capital base to maintain
customer, investor, and creditor confidence and to sustain future
development of the business. The Board considers consolidated total
equity as capital, which at 30 June 2023 equated to GBP62.4m (2022:
GBP69.5m). The Board is not declaring an interim dividend payment
for 2023 (2022: nil). The Group has a clear capital allocation
discipline and is committed to returning excess funds to
shareholders via future dividend or share repurchase.
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the period ended 30 June 2023
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
============================== ==== ============== ============= =============
Note Total Total Total
GBP'm GBP'm GBP'm
============================== ==== ============== ============= =============
Revenue 2 73.2 80.8 169.7
Cost of sales (51.5) (52.6) (115.1)
============================== ==== ============== ============= =============
Gross profit 21.7 28.2 54.6
Distribution costs (12.5) (12.6) (25.5)
Administrative expenses (12.0) (13.3) (26.8)
============================== ==== ============== ============= =============
(Loss)/profit from operating
activities 2 (2.8) 2.3 2.3
============================== ==== ============== ============= =============
Underlying (loss)/profit
from operating activities (2.5) 3.1 5.0
Non underlying items 3 (0.3) (0.8) (2.7)
============================== ==== ============== ============= =============
(Loss)/profit from operating
activities (2.8) 2.3 2.3
============================== ==== ============== ============= =============
Financial expense 4 (1.4) (0.7) (1.8)
============================== ==== ============== ============= =============
(Loss)/profit before tax (4.2) 1.6 0.5
Income tax credit/(charge) 5 1.1 (0.4) (0.1)
============================== ==== ============== ============= =============
(Loss)/profit for the period (3.1) 1.2 0.4
============================== ==== ============== ============= =============
(Loss)/profit for the period
attributable to:
============================== ==== ============== ============= =============
Equity owners of the Company (3.0) 1.2 0.4
-------------- -------------
Non-controlling Interests (0.1) - -
============================== ==== ============== ============= =============
(Loss)/ profit for the period (3.1) 1.2 0.4
============================== ==== ============== ============= =============
Earnings per share
(Loss)/profit per share -
basic and diluted 6 (9.6)p 3.7p 1.2p
============================== ==== ============== ============= =============
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 June 2023
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'm GBP'm GBP'm
========================================= ============== ============= =============
Other comprehensive (expense)/income
========================================= ============== ============= =============
Exchange difference on translation of
foreign operations (3.6) 7.9 8.1
-------------- -------------
Income tax on exchange differences on
transactions of foreign operations - - (0.6)
----------------------------------------- -------------- ------------- -------------
(3.6) 7.9 7.5
========================================= ============== ============= =============
Items that will not be reclassified
subsequently to profit and loss
Remeasurement of defined benefit pension
liability - - 0.3
Income tax on remeasurement of defined
benefit liability - - (0.1)
----------------------------------------- -------------- ------------- -------------
- - 0.2
========================================= ============== ============= =============
Other comprehensive (expense)/income
for the period, net of tax (3.6) 7.9 7.7
========================================= ============== ============= =============
(Loss)/profit for the period (3.1) 1.2 0.4
========================================= ============== ============= =============
Total comprehensive (expense)/income
for the period (6.7) 9.1 8.1
========================================= ============== ============= =============
Attributable to:
* Owners of the parent (6.7) 9.1 8.1
- - -
* Non-controlling interests
========================================= ============== ============= =============
Total comprehensive (expense)/income
for the period (6.7) 9.1 8.1
========================================= ============== ============= =============
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2023 (unaudited)
Capital Non-
Share Merger Translation redemption Share Own Retained controlling Total
capital reserve reserve reserve premium Shares earnings Total interests Equity
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
Balance at
1 January
2023 0.6 0.5 17.5 2.2 1.0 (0.8) 47.5 68.5 0.2 68.7
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
Loss for the
year - - - - - - (3.1) (3.1) - (3.1)
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Other
comprehensive
income:
Foreign
exchange
translation
differences,
net of taxes - - (3.6) - - - - (3.6) - (3.6)
Total other
comprehensive
expense - - (3.6) - - - (3.1) (6.7) - (6.7)
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Total
comprehensive
expense for
the year - - (3.6) - - - (3.1) (6.7) - (6.7)
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Transactions
with owners,
recorded
directly
in equity:
Share-based
payments - - - - - - 0.3 0.3 - 0.3
Own shares
released from
EBOT and used
for
share-based
payments - - - - - 0.1 - 0.1 - 0.1
Total
transactions
with owners - - - - - 0.1 0.3 0.4 - 0.4
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Balance at
30 June 2023 0.6 0.5 13.9 2.2 1.0 (0.7) 44.7 62.2 0.2 62.4
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2022 (unaudited)
Capital Non-
Share Merger Translation redemption Share Own Retained controlling Total
capital reserve reserve reserve premium Shares earnings Total interests Equity
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
Balance at 1
January
2022 0.6 0.5 10.0 2.2 - (0.7) 47.0 59.6 0.6 60.2
Profit for the
period - - - - - - 1.2 1.2 - 1.2
Other
comprehensive
income:
Foreign
currency
translation
differences,
net of taxes - - 7.9 - - - - 7.9 - 7.9
------ ----------- -------
Total other
comprehensive
income - - 7.9 - - - 1.2 9.1 - 9.1
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
Total
comprehensive
income for
the
period - - 7.9 - - - 1.2 9.1 - 9.1
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
Transactions
with
owners,
recorded
directly in
equity:
Share-based
payments - - - - - - 0.3 0.3 - 0.3
Issue of own
shares - - - - - 0.2 (0.2) - - -
Repurchase of
own
shares - - - - - (0.1) - (0.1) - (0.1)
Minority
interest
purchase
(note
13)* - - - - 1.0 - (0.6) 0.4 (0.4) -
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
Total
transactions
with owners - - - - 1.0 0.1 (0.5) 0.6 (0.4) 0.2
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
Balance at 30
June 2022 0.6 0.5 17.9 2.2 1.0 (0.6) 47.7 69.3 0.2 69.5
============== ======== ======== =========== ========== ======== ======= ======== ====== =========== =======
*Prior year change in presentation.
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022 (audited)
Capital Non-
Share Merger Translation redemption Share Own Retained controlling Total
capital reserve reserve reserve premium Shares earnings Total interests Equity
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
Balance at 1
January
2022 0.6 0.5 10.0 2.2 - (0.7) 47.0 59.6 0.6 60.2
-------------- -------- -------- ----------- ---------- -------- -------- -------- ----- ----------- -------
Profit for the
year - - - - - - 0.4 0.4 - 0.4
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Other
comprehensive
income:
Foreign
exchange
translation
differences,
net of taxes - - 7.5 - - - - 7.5 - 7.5
Remeasurement
of
defined
benefit
pension
liability,
net of taxes - - - - - - 0.2 0.2 - 0.2
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Total other
comprehensive
income - - 7.5 - - - 0.2 7.7 - 7.7
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Total
comprehensive
income for
the
year - - 7.5 - - - 0.6 8.1 - 8.1
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Transactions
with
owners,
recorded
directly in
equity:
Share-based
payments - - - - - - 0.5 0.5 - 0.5
Re-purchase of
own shares - - - - - (0.1) - (0.1) - (0.1)
Minority
interest
purchase
(Note
13) - - - - 1.0 - (0.6) 0.4 (0.4) -
Total
transactions
with owners - - - - 1.0 (0.1) (0.1) 0.8 (0.4) 0.4
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
Balance at 31
December 2022 0.6 0.5 17.5 2.2 1.0 (0.8) 47.5 68.5 0.2 68.7
============== ======== ======== =========== ========== ======== ======== ======== ===== =========== =======
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF TOTAL FINANCIAL POSITION
As at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
Note GBP'm GBP'm GBP'm
============================================================================================ ============= ============ ===========
Assets
Property, plant, and equipment 12.3 13.7 13.9
------------
Right of use assets 8.8 11.1 10.5
------------
Intangible assets 20.2 23.1 21.4
------------
Deferred tax assets 3.3 1.6 2.4
------------
Employee benefits 4.7 3.8 4.5
------------
Other receivables 5.5 5.3 5.6
============================================================================================ ============= ============ ===========
Total non-current assets 54.8 58.6 58.3
============================================================================================ ============= ============ ===========
Inventories 8 49.0 50.0 53.6
------------
Trade and other receivables 25.9 27.8 30.2
------------
Income tax recoverable 0.3 1.2 0.6
------------
Cash and cash equivalents 0.5 2.3 1.7
-------------------------------------------------------------------------------------------- ------------- ------------ -----------
Total current assets 75.7 81.3 86.1
============================================================================================ ============= ============ ===========
Total assets 130.5 139.9 144.4
============================================================================================ ============= ============ ===========
Liabilities
Trade and other payables (31.5) (32.7) (37.3)
Provisions (0.6) (0.8) (0.6)
Tax liabilities (1.6) (1.2) (2.3)
Lease liabilities (1.7) (1.2) (1.2)
Borrowings 9 - (4.0) (2.0)
Total current liabilities (35.4) (39.9) (43.4)
============================================================================================ ------------- ------------ -----------
Provisions (1.4) (1.3) (1.6)
Borrowings 9 (23.2) (18.5) (20.6)
Lease liabilities (8.1) (10.7) (10.1)
Total non-current liabilities (32.7) (30.5) (32.3)
============================================================================================ ============= ============
Total liabilities (68.1) (70.4) (75.7)
============================================================================================ ============= ============ ===========
Net assets 62.4 69.5 68.7
============================================================================================ ============= ============ ===========
Equity
------------
Issued share capital 0.6 0.6 0.6
------------
Merger reserve 0.5 0.5 0.5
------------
Share premium 1.0 1.0 1.0
------------
Other reserves 15.4 19.5 18.9
------------
Retained earnings 44.7 47.7 47.5
============================================================================================ ============= ============ ===========
62.2 69.3 68.5
Non-controlling interests 0.2 0.2 0.2
============================================================================================ ------------- ------------ ===========
Total equity 62.4 69.5 68.7
============================================================================================ ============= ============ ===========
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 30 June 2023
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'm GBP'm GBP'm
======================================== ============= ============= ============
Operating activities
-------------
(Loss)/profit for the period (3.1) 1.2 0.4
-------------
Adjustments for:
-------------
Financial expense 1.4 0.7 1.8
-------------
Income tax (credit)/expense (1.1) 0.4 0.1
-------------
Share-based payments 0.3 0.3 0.5
-------------
Depreciation of property, plant, and
equipment 1.6 1.5 2.9
-------------
Depreciation of right of use assets 1.0 0.9 1.8
-------------
Amortisation of intangible assets 2.3 1.9 4.4
-------------
Impairment losses on intangible assets - - 1.3
---------------------------------------- ------------- -------------
Operating cash flow before movements
in working capital 2.4 6.9 13.2
Decrease (increase) in inventories 2.2 (3.1) (6.7)
Decrease (increase) in trade and other
receivables 3.0 0.8 (1.1)
(Decrease) increase in trade and other
payables (4.4) (2.9) 1.3
(Decrease) increase in provisions (0.2) 0.2 0.3
Pension contributions in excess of
the income statement charge (0.1) (0.2) (0.4)
======================================== ============= ============= ============
Cash generated by operations 2.9 1.7 6.6
Income taxes paid (0.3) (0.5) (0.8)
Interest paid(2) (1.4) (0.7) (1.8)
======================================== ============= ============= ============
Net cash generated by operations 1.2 0.5 4.0
======================================== ============= ============= ============
Capital expenditure (0.7) (1.8) (3.4)
Capitalised expenditure on development
costs and other intangible assets (1.9) (1.7) (3.6)
Purchase of software and licenses - - (0.2)
Purchase of 12.5% of Dialight Australia - - (0.1)
Net cash used in investing activities (2.6) (3.5) (7.3)
======================================== ============= ============= ============
Financing activities
-------------
Drawdown of bank facility 3.6 8.2 8.5
Repayment of bank facility (2.0) (4.0) (4.0)
Re-purchase of own shares - (0.1) (0.1)
Repayment of lease liabilities(1) (1.2) (1.0) (1.7)
======================================== ============= ============= ============
Net cash generated from financing
activities 0.4 3.1 2.2
======================================== ============= ============= ============
Net (decrease) / increase in cash
and cash equivalents (1.0) 0.1 (1.1)
======================================== ============= ============= ============
Cash and cash equivalents at beginning
of period 1.7 1.2 1.2
Effect of exchange rates (0.2) 1.0 1.6
======================================== ------------- ------------- ------------
Cash and cash equivalents at end of
period 0.5 2.3 1.7
======================================== ============= ------------- ------------
The Group has classified:
1. cash payments for the principal portion of lease payments as
financing activities.
2. cash payments for the interest portion of lease payments as
operating activities consistent with the presentation of interest
payments chosen by the Group.
The accompanying notes on pages 19 to 30 form an integral part
of these interim financial statements
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 30 June 2023 (unaudited)
1. Basis of preparation and principal accounting policies
Dialight plc (the Company) provides sustainable, energy
efficient and intelligent LED lighting technologies driving towards
a net zero economy. Its primary market is North America, with
smaller operations in EMEA and the rest of the world.
The Company is listed on the London Stock Exchange and is
incorporated and domiciled in England and Wales under registration
number 2486024. Its registered office is at Leaf C, Level 36, Tower
42, 25 Old Broad Street, London EC2N 1HQ.
This condensed consolidated interim financial information was
approved for issue on 17(th) September 2023 and has not been
audited.
Statement of compliance
This condensed consolidated interim financial information for
the six months ended 30 June 2023 has been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with UK-adopted International Accounting Standard 34
'Interim Financial Reporting' (IAS 34). The condensed consolidated
interim financial information should be read in conjunction with
the financial statements for the 12-month period ended 31 December
2022, which have been prepared in accordance with UK-adopted
International Accounting Standards in conformity with the
requirements of the Companies Act 2006
This condensed consolidated interim financial information for
the period ended 30 June 2023, and the comparative information in
relation to the period ended 30 June 2022, do not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. Statutory accounts for the 12-month period
ended 31 December 2022 were approved by the Board of Directors on 2
April 2023 and delivered to the Registrar of Companies. The report
of the auditors on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain a statement
under Section 498 of the Companies Act 2006.
Going concern
The consolidated financial information is prepared on a going
concern basis which the Directors believe to be appropriate for the
reasons stated below.
The market conditions faced by the Group in H1 2023 are
considered to be short-term in nature, with signs that trading
conditions will improve in H2 and will see the benefits from price
increases and lower raw material costs coming through. These
improvements, together with the actions that management is taking
in relation to right-sizing its cost base and reducing product
costs, are expected to deliver improved profitability over H2 2023
and beyond. The Group enters H2 2023 with a solid order book and a
strong pipeline of projects that are expected to lead to further
orders providing cover for the second half.
The Group's financing arrangements consist of a USD $34m
revolving credit facility (RCF) with HSBC (which matures in July
2025 and contains options for two one-year extensions). In
accordance with the Group's strong ESG commitment, the RCF facility
is a sustainability linked loan.
Based on the Group's cashflow forecasts and operating budgets,
and assuming that trading does not deteriorate considerably from
expected levels, the directors believe that the Group will generate
sufficient cash to meet its requirements for at least 12 months
from the date of approval of the interim financial information and
will comply with all its banking covenants. Accordingly, the
adoption of the going concern basis remains appropriate.
1. Basis of preparation and principal accounting policies
(continued)
Sensitivity analysis
In assessing going concern, the Directors have prepared
scenarios using the Board approved Group forecast for 2023 and
management expectations for 2024. The base case scenario
incorporates the latest trends on revenue, costs, and margins;
market expectations that demand for OE products will improve from
Q4; ongoing benefits from previous price rises; additional H2 price
rises in Signals & Components; benefits from H2 cost reduction
programmes (including product changes); existing order backlog; and
the expected conversion rates for the improved pipeline of
potential orders.
In a plausible downside scenario, the Directors have assumed
that the expected growth in revenue from market conditions
returning to normal for both OE and delayed capex projects occurs
but that margins remain under pressure from inflation, and we see
lower benefits from product cost reductions and factory efficiency
improvements. The scenario modelling also includes the potential
for a negative outcome from the ongoing Sanmina litigation (see
note 11).
Under a plausible downside scenario, the Group has forecasted a
potential breach of its Interest Cover covenant, which gives rise
to a material uncertainty, and which may cast significant doubt on
the entity's ability to continue as a going concern, meaning it may
be unable to realise its assets and discharge its liabilities in
the normal course of business.
Management has proactively engaged in a series of discussions
with its lender to seek flexibility in its covenants in the short
term. Encouragingly, the indications from these advanced
discussions suggest support to provide such flexibility. However,
as of the date of publication of this interim financial
information, formal agreements regarding the covenant flexibility
have not been finalised.
In light of the aforementioned matters, the Board of Directors
has diligently considered the going concern basis in preparing this
interim financial information. While acknowledging the outstanding
formalisation of covenant flexibility arrangements and resulting
material uncertainty, the directors have concluded that, given the
positive indications from the lender, it remains appropriate to
continue to adopt the going concern basis in the preparation of
this interim financial information.
The directors will closely monitor the situation, provide
updates as necessary, and, if required, take additional measures to
ensure the entity's ability to continue as a going concern
Taxation
Taxes on income in the interim periods are accrued using the
effective tax rate that would be applicable to total expected
annual earnings.
Adoption of new and revised standards
The accounting policies adopted in the preparation of these
unaudited condensed financial statements are consistent with the
policies applied by the Group in its consolidated financial
statements for the year ended 31 December 2022.
During the period the Group has adopted the following new and
revised standards and interpretations which have had no impact on
these condensed consolidated financial statements:
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendment to IAS 12);
-- Accounting Policies, Changes in Accounting Estimates and
Errors: definition (Amendments to IAS 8);
-- Amendments to IAS1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements.
Estimates and judgements
In preparing these condensed financial statements, management
has made judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income, and expense. Actual results may differ
from these estimates. The significant judgements made by management
in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those applicable to the
consolidated financial statements as at and for the year ended 31
December 2022.
2. Operating segments
The Group has two reportable operating segments. These segments
have been identified based on the internal information that is
supplied regularly to the Group's chief operating decision maker
for the purposes of assessing performance and allocating resources.
The chief operating decision maker is considered to be the Group
Chief Executive Officer.
The two reportable operating segments are:
- Lighting, which develops, manufactures, and supplies highly
efficient LED lighting solutions for hazardous and industrial
applications in which lighting performance is critical and includes
anti-collision obstruction lighting; and
- Signals & Components, which develops, manufactures, and
supplies status indication components for electronics OEMs,
together with niche industrial and automotive electronic components
and highly efficient LED signalling solutions for the traffic and
signals markets.
There is no inter-segment revenue and there are no individual
customers that represent more than 10% of revenue.
All revenue relates to the sale of goods. Segment gross profit
is revenue less the costs of materials, labour, production, and
freight that are directly attributable to a segment. Overheads
comprise operations management, selling costs plus the unallocated
corporate costs, which includes share -- based payments.
Segmental assets and liabilities are not reported internally and
are therefore not presented below.
2. Operating segments (continued)
6 months ended 30 June 2022 (unaudited) Lighting Signals & Components Unallocated Total
============================================= ========== ======================== =========== =======
GBP'm GBP'm GBP'm GBP'm
============================================= ========== ======================== =========== =======
Revenue 57.1 23.7 - 80.8
-------------------------------------------------- ---------- ------------------------ ----------- -------
Gross profit 20.1 8.1 - 28.2
Overhead costs (16.2) (4.5) (4.4) (25.1)
================================================== ========== ======================== =========== =======
Underlying profit/(loss) from operating activities 3.9 3.6 (4.4) 3.1
Non-underlying items (0.8) - - (0.8)
-------------------------------------------------- ---------- ------------------------ ----------- -------
Profit/(loss) from operating activities 3.1 3.6 (4.4) 2.3
Financial expense (0.7)
-------------------------------------------------- ---------- ------------------------ ----------- -------
Profit before tax 1.6
Taxation (0.4)
================================================== ========== ======================== =========== =======
Profit after tax 1.2
================================================== ========== ======================== =========== =======
Other segmental data
========================================================== ========= ================= =========== =========
Depreciation of property, plant, and equipment 1.1 0.4 - 1.5
Depreciation of right of use asset 0.6 0.3 - 0.9
Amortisation * 1.9 - - 1.9
========================================================== ===================== ===== =========== =========
*Re-presentation of H1 2022 amortisation, with no impact on
overall income statement
2022 (audited) Lighting Signals and Components Unallocated Total
================================================= ========== ========================== =========== =======
GBP'm GBP'm GBP'm GBP'm
================================================= ========== ========================== =========== =======
Revenue 121.0 48.7 - 169.7
------------------------------------------------------ ---------- -------------------------- ----------- -------
Gross profit 40.6 14.0 - 54.6
Overhead costs (33.7) (8.3) (7.6) (49.6)
====================================================== ========== ========================== =========== =======
Underlying profit/(loss) from operating activities 6.9 5.7 (7.6) 5.0
Non-underlying items (2.7) - - (2.7)
------------------------------------------------------ ---------- -------------------------- ----------- -------
Profit/(loss) from operating activities 4.2 5.7 (7.6) 2.3
Financial expense (1.8)
------------------------------------------------------ ---------- -------------------------- ----------- -------
Profit before tax 0.5
Taxation (0.1)
====================================================== ---------- -------------------------- ----------- -------
Profit after tax 0.4
====================================================== ========== ========================== =========== =======
Other segmental data
============================================================== ======= ===================== =========== =======
Depreciation of property, plant, and equipment 2.1 0.8 - 2.9
Depreciation of right of use asset 1.3 0.5 - 1.8
Amortisation 4.4 - - 4.4
Impairment of intangible assets 1.3 1.3
============================================================== ==================== ======== =========== =======
2. Operating segments (continued)
Geographical segments
The Lighting and Signals & Components segments are managed
on a worldwide basis but operate in three principal geographic
areas: North America, EMEA and the Rest of World. The following
table provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods. All revenue
relates to the sale of goods.
Sales revenue by geographical market
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBP'm GBP'm GBP'm
(unaudited) (unaudited) (audited)
============== ============ ============ ============
North America 57.8 61.5 132.7
EMEA 6.2 7.3 14.5
Rest of World 9.2 12.0 22.5
============== ============ ============ ============
Revenue 73.2 80.8 169.7
============== ============ ============ ============
3. Non-underlying items
The Group incurs cost and earns income that is non-recurring in
nature or that, in the Director's judgement, need to be separately
disclosed for users of the consolidated financial statements to
obtain a full understanding of the financial information and the
best indication of the underlying performance of the Group. The
table below presents the components of non-underlying profit or
loss recorded within administrative expenses.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBP'm GBP'm GBP'm
(unaudited) (unaudited) (audited)
--------------------------------------- ============= ============= =============
Non-underlying items
Legal costs related to manufacturing
partner 0.2 0.8 1.0
Impairment of capitalised development
costs - - 1.3
Other litigation costs 0.1 - 0.4
Non-underlying costs recorded in
administrative expenses 0.3 0.8 2.7
======================================= ============= ============= =============
As previously reported, Dialight sought to reach a negotiated
conclusion of various outstanding matters and performance issues
following the termination, in 2018, of the manufacturing services
agreement (MSA) with its former manufacturing partner, Sanmina
Corporation ("Sanmina"). Following unsuccessful mediation at the
beginning of 2022, Sanmina lodged a motion for summary judgement to
dismiss the majority of Dialight's claim. The detailed evidence
from both parties was examined by Federal judge and the Court's
ruling on Sanmina's dismissal motion was released to the parties
under seal on Tuesday 14 March 2023. The court denied Sanmina's
motion to dismiss Dialight's fraudulent inducement claim and denied
its motion for summary judgment on Sanmina's accounts receivable
claim. The court granted Sanmina's motion as to the dismissal of
Dialight's willful misconduct claim. The judge ruled that the
strength of the evidence on the fraudulent inducement claim,
together with various claims and counterclaims relating to accounts
receivable and accounts payable, is sufficient that the dispute
should be resolved by jury trial, pending any appeal process.
Sanmina subsequently filed a motion of reconsideration seeking the
reversal of the judge's denial of summary adjudication of Sanmina's
accounts receivable claim but the Court has yet to release its
ruling on this motion.
3. Non-Underlying items (continued)
The March 2023 ruling confirms that Dialight can challenge the
contractual liability cap in the MSA based on Sanmina's fraudulent
inducement and Dialight intends to rigorously pursue this claim,
and the various other contract-based claims, to trial. Dialight has
sought external legal advice and is paying for the legal costs as
incurred. During the period costs of GBP0.2m have been expensed
(2022: GBP0.8m), with GBP1.0m in the year to December 2022.
Other litigation costs of GBP0.1m (2022: GBP0.4m) relate to a
contractual litigation case, initiated by Dialight during 2022,
relating to the use of intellectual property.
The prior year's impairment related to the paused development of
a new range of Obstruction products within the Lighting segment.
During 2022, management explored several options to complete the
development, including continuing internal development or utilising
third party technology. The most likely option was to utilise third
party components in the new product suite, as this would be quicker
and allow Dialight to capitalise on market opportunities and gain
market share. The change in strategy would not involve use of the
Dialight developed technology, so the paused development cost of
GBP1.3m was impaired in H2 2022 and the non-cash cost classified as
non-underlying in accordance with Group accounting policy.
4. Financial expense
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBP'm GBP'm GBP'm
(unaudited) (unaudited) (audited)
========================================== ============ ============ ============
Interest expense on lease liabilities 0.3 0.2 0.1
Interest expense on financial liabilities
, except lease liabilities 1.0 0.5 1.1
Arrangement fee amortisation 0.1 - 0.1
Net interest on defined benefit pension
liability - - 0.5
========================================== ============ ============ ============
Financial expense 1.4 0.7 1.8
========================================== ============ ============ ============
5. Income tax expense
The tax credit of GBP1.1m for the period to 30 June 2023
reflects the anticipated effective tax rate of 25.0% for the period
ending 31 December 2023. Non-underlying items have been taxed using
the relevant tax rates. The effective tax rate reflects the current
UK tax rate being increased to 25.0% and a US effective tax rate of
24.0%, with the remaining profit coming from countries with an
average tax rate of 28%.
6. Earnings per share (EPS)
The calculation of basic EPS at 30 June 2023 was based on a loss
for the period of GBP3.1m (2022: GBP1.2m profit) and a weighted
average number of ordinary shares outstanding during the six months
ended 30 June 2023 of 32,785,468 (2022: 32,574,576), excluding the
204,838 own shares purchased by the Group to satisfy share awards
(which includes 19,048 shares purchased in the current period for
GBP43k).
6.Earnings per share (continued)
Weighted average number of ordinary shares
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
'000 '000 '000
(unaudited) (unaudited) (audited)
=================================== ============= ============ ============
Weighted average number of shares 32,785 32,575 32,575
------------
Dilutive effect of share options 292 453 656
----------------------------------- ------------- ------------ ------------
Diluted weighted average number of
shares 33,077 33,028 33,231
----------------------------------- ------------- ------------ ------------
Earnings per share are provided below as the Directors consider
that this measurement of earnings per share gives valuable
information on the performance of the Group.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
Per share Per share Per share
(unaudited) (unaudited) (audited)
================================== ============ ============ ============
Basic (loss)/profit per share* (9.6p) 3.7p 1.2p
Diluted (loss) /profit per share* (9.6p) 3.7p 1.2p
================================== ============ ============ ============
* The same number of shares are used in both the H1 2023 basic
and diluted loss per share calculations, as there is no dilutive
effect when the Group is in a loss-making position.
7. Dividends
There were no dividends declared or paid in the six months ended
30 June 2023. The Directors have not declared an interim dividend
for 2023 (2022: nil).
8. Inventories
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2023
GBP'm GBP'm GBP'm
(unaudited) (unaudited) (audited)
============================== ============ ============ ============
Raw materials and consumables 20.8 24.7 22.7
Work in progress 11.1 11.8 11.9
Finished goods 16.9 13.2 18.8
Spare parts 0.2 0.3 0.2
------------------------------ ============ ============ ============
Total 49.0 50.0 53.6
============================== ============ ============ ============
Inventories to the value of GBP30.4m (30 June 2022: GBP35.4m)
were recognised as expenses in the period. The inventory reserve at
the balance sheet date was GBP3.0m, which represents 6.2% of
inventory (31 December 2022 7.7%). The reserve was reduced by
GBP1.1m due to utilisation in the period.
The decrease in inventory since December 2022 was driven by
management actions, reductions in raw material prices, improvements
in shipping times and movements in the GBP: USD exchange rate that
decreased inventory by c. GBP2.4m.
We continue to keep inventory levels and future commitments
under close review but will continue to maintain above average raw
material and work in progress (WIP) stocks until lead times for raw
materials return to normal levels. This allows us to maintain
supply, which we see as critical to the future success of the
Group.
9. Borrowings
The Group's financing comprises a USD $34m revolving credit
facility (RCF) with HSBC (which matures in July 2025 and contains
options for two one-year extensions). In accordance with the
Group's strong ESG commitment, the RCF facility is a sustainability
linked loan. As expected, the Group has fully repaid its GBP10m
COVID-19 Large Business Interruption Loan Scheme (CLBILS) facility,
with GBP2m repaid since December 2022.
The Group's banking covenants are tested quarterly and the Group
was fully compliant with its banking covenants during the period,
except that the additional covenant on the CLBILS facility of
adjusted cashflow to debt service was waived during the period. The
RCF facility contains standard covenants comprising maximum
leverage and minimum interest cover.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBP'm GBP'm GBP'm
(unaudited) (unaudited) (audited)
==================================== ============ ============ ============
Borrowings at the beginning of the
period 22.6 16.9 16.9
------------
Facility drawdown (RCF)* 3.6 6.2 8.5
Facility repayment (CLBILS)* (2.0) (2.0) (4.0)
Interest accrued 1.0 0.5 1.1
Interest paid (1.0) (0.5) (1.1)
Impact of revaluing USD borrowings (1.0) 1.4 1.2
==================================== ============ ============ ============
Borrowings at the end of the period 23.2 22.5 22.6
==================================== ============ ============ ============
*Re-presentation of H1 2022 CLBILS repayment and RCF drawdown,
with no impact on overall borrowings statement
* For more information regarding going concern covenants please
refer to note 1
10. Principal exchange rates
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
======================= ======== ======== ============
Average for the period
US Dollar 1.23 1.30 1.24
--------
Canadian Dollar 1.66 1.65 1.61
--------
Euro 1.14 1.19 1.17
--------
Mexican Peso 26.40 26.32 24.87
======================= ======== ======== ============
10. Principal exchange rates (continued)
30 June 30 June 31 December
2023 2022 2022
================ ======= ======= ===========
Spot rate
US Dollar 1.27 1.21 1.21
-------
Canadian Dollar 1.68 1.57 1.64
-------
Euro 1.16 1.16 1.13
-------
Mexican Peso 21.66 24.47 23.53
================ ======= ======= ===========
11. Contingencies
Sanmina litigation
As previously reported, Dialight sought to reach a negotiated
conclusion of various outstanding matters and performance issues
following the termination, in 2018, of the manufacturing services
agreement (MSA) with its former manufacturing partner, Sanmina
Corporation ("Sanmina"). The failure to reach a satisfactory
resolution of these issues led to both parties issuing formal legal
proceedings against the other on 20th December 2019 in the US
District Court for the Southern District of New York. The basis of
the claim filed by Sanmina relates to outstanding invoices and to
residual inventory which they allege that they purchased for
Dialight. The claim filed by Dialight is more complex in nature and
relates to significant counterclaims, and costs and losses suffered
by Dialight. Dialight has sought external legal advice and is
paying for the legal costs as incurred. As at 30 June 2023,
Dialight has not made any provision for future legal costs.
The claim filed by Dialight alleged that Dialight suffered
significant costs and losses (with total potential damages of
approximately $220m) as a result of: (a) Sanmina's fraudulent
inducement of Dialight to enter into the MSA; (b) Sanmina breaching
the terms of the MSA in a wilful and/or grossly negligent manner
(for example in respect of their failure to appropriately manage
supply chain and inventory levels and to deliver product on time
and free of workmanship defects); and, (c) Sanmina's gross
negligence and/or wilful misconduct in the performance of its
duties owed to Dialight. If Sanmina's claim is successful, the
range of outcomes could include the payment by Dialight to Sanmina
of between $0 and $8.3m (excluding legal costs and judicial
interest, but inclusive of Dialight 'escrow' monies held by
Sanmina). If Dialight's claims are successful, the range of
outcomes could include the payment by Sanmina to Dialight of
between $0 and c. $220m (excluding legal costs and judicial
interest).
Sanmina subsequently lodged a motion for summary judgement to
dismiss elements of Dialight's claims/counterclaims (first filed on
2 May 2022). The detailed evidence and legal arguments from both
parties (submitted in May-July 2022) was examined by Federal judge
and the Court's ruling on Sanmina's dismissal motion was released
to the parties under seal on Tuesday 14 March 2023. The court
denied Sanmina's motion to dismiss Dialight's fraudulent inducement
claim and denied its motion for summary judgment on Sanmina's
accounts receivable claim. The court granted Sanmina's motion as to
the dismissal of Dialight's willful misconduct claim. The judge
ruled that the strength of the evidence on the fraudulent
inducement claim, together with various claims and counterclaims
relating to accounts receivable and accounts payable, is sufficient
that the dispute should be resolved by jury trial, pending any
appeal process. Sanmina subsequently filed a motion of
reconsideration seeking the reversal of the judge's denial of
summary adjudication of Sanmina's accounts receivable claim but the
Court has yet to release its ruling. The March ruling confirms that
Dialight can challenge the contractual liability cap in the MSA
based on Sanmina's fraudulent inducement and Dialight intends to
rigorously pursue this claim, and the various other contract-based
claims, to trial.
11. Contingencies (continued)
Dialight currently expects that the case will go to trial in
early 2024 (subject, potentially, to the timing impact of either
party appealing any adverse judgment). Open court documents,
including the ruling and pleadings in respect of the motion for
summary judgment, can be accessed on the Public Access to Court
Electronic Records (PACER) public access system for the U.S.
District Court for the Southern District of New York (
https://ecf.nysd.uscourts.gov ).
Defined benefit pension schemes
During 2011, the Roxboro UK Pension Fund (the "Scheme") was
closed to future accrual. This Scheme is included within pension
assets. As part of the negotiations regarding closure, the Company
agreed to grant a parent company guarantee in respect of all
present and future obligations and liabilities (whether actual or
contingent and whether owed jointly or severally and in any
capacity whatsoever) of Dialight Europe Limited, the principal
employer, to make payments in the Scheme up to a maximum amount
equal to the entire aggregate liability, on the date on which any
liability under the guarantee arises, of every employer (within the
meaning set out in Section 318 of the Pensions Act 2004 and
regulations made thereunder) in relation to the Scheme, were a debt
under Section 75(2) of the Pensions Act 1995 to have become due on
that date. No provision has been made in relation to this
contingency.
Uncertainties under income tax treatment
The Group operates in certain jurisdictions that are unstable or
have changing political conditions, giving rise to occasional
uncertainty over the tax treatment of items of income and expense.
In addition, from time-to-time certain tax positions taken by the
Group are challenged by the relevant tax authorities, which carry a
financial risk as to the final outcome. The Directors have
considered the potential impact arising from these uncertainties
and risks on the Group's tax assets and liabilities, both
recognised and unrecognised, and believe that they are not material
to the Financial Statements.
12. Related party transactions
There have been no changes in the nature of related party
transactions from those described in the 2022 Annual Report that
could have a material effect on the financial position or
performance of the Group in the period to 30 June 2023 (see also
note 13 below).
13. Interests in other entities
Transaction with non-controlling interest
In May 2022, the Group acquired a further 12.5% share of its
subsidiary Dialight ILS Australia Pty Ltd ('Dialight Australia')
for consideration of GBP1m satisfied by issuing 266,958 shares and
up to GBP0.1m in cash, plus GBP0.1m in costs. This increased
ownership to 87.5%. Immediately prior to the transaction, the
carrying amount of the 25% non-controlling interest in Dialight
Australia was GBP0.7m. The Group has recognised a decrease in
non-controlling interest of GBP0.4m and a decrease in equity
attributable to the parent of GBP0.8m. Incremental costs that were
directly related to changes in ownership interest were deducted
from equity. The effect on Group equity is summarised as:
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm (unaudited) GBPm (unaudited) GBPm
(audited)
================================================= ================= ================= ============
Carrying amount of non-controlling
interest acquired - 0.4 0.4
----------------- -----------------
Consideration paid to non-controlling
interest - (1.0) (1.0)
-----------------
Incremental costs directly attributable
to the transaction - (0.2) (0.2)
------------------------------------------------- ----------------- ================= ============
Excess of consideration paid less costs
recognised in transactions with non-controlling
interests within equity - (0.8) (0.8)
------------------------------------------------- ----------------- ----------------- ------------
There were no transactions with non-controlling interests in
2023.
14. Principal and emerging risks
The Board is responsible for identifying the nature and extent
of the risks the Group has to manage in order to successfully
pursue its growth strategy and generate shareholder value over the
long term. The principal risks and uncertainties affecting the
business activities of the Group for the six months to 31 December
2023 remain as listed on pages 74 to 79 of the Annual Report for
the year ended 31st December 2022 (which can be found at
www.dialight.com).
The Board uses a risk framework, which is designed to support
the process for identifying, evaluating, and managing both
financial and non-financial risk. The Group has identified the
following key risks. This is not an exhaustive list but rather a
list of the most material risks facing the Group. The impact of
these risks, individually or collectively, could potentially affect
the ability of the Group to operate profitably and generate
positive cash flows in the medium to long term. As a result, these
risks are actively monitored and managed, as detailed below.
-- Organic growth - The risk of stagnation of growth where the
product portfolio is not renewed, where there is any failure to
identify customer requirements (including pricing sensitivity and
economic models), and the risk of concentration of certain
verticals and/or geographical markets.
-- Environmental and geological - The Group's main manufacturing
centre is in Mexico and its main market is North America. Any
impediment to raw materials getting into Mexico or restrictions on
finished goods entering North America related to natural disasters
could have a large impact on profitability. Disruption to global
markets and transport systems arising from geological, biological,
economic and/or political events may impact the Group's ability to
operate and the demand for its products.
14. Principal and emerging risks (continued)
-- Funding - The Group has a net debt position and there is a
risk related to liquidity. The Group has not paid a dividend since
2015. The Group reports in Sterling; however, the majority of its
revenues cost base and borrowings are in US Dollars. Fluctuations
in exchange rates between Sterling and US Dollar could cause profit
and balance sheet volatility.
-- Production capacity and supply chain - The Group operates a
complex international supply chain (both inbound and outbound)
which can be impacted by a range of risk factors including
political disruption, border frictions, logistics challenges and
other compliance issues. Supply chain challenges can in turn impact
production capacity and efficiency - as well as other factors
including investment in capacity, labour-supply issues, and costs
of production.
-- Cyber and data systems - Disruption to business systems would
have an adverse impact on the Group. The Group also needs to ensure
the protection and integrity of its data. With the Group's
dispersed international footprint, increasing automation and
increased homeworking following COVID-19 there is greater risk of
impact on IT infrastructure/communications between employees.
-- Product development strategy -- Inability to translate market
requirements into profitable products. Failure to deliver
technologically advanced products and to react to disruptive
technologies.
-- Product risk - The Group gives a 10-year warranty on Lighting
products which are installed in a variety of high-risk
environments. Risks could arise in relation to product failure and
harm to individuals and damage to property.
-- Talent and diversity - The Group performance is dependent on
attracting and retaining high-quality staff across all
functions.
-- Intellectual property - Theft or violation of intellectual
property ("IPR") by third parties or third parties taking legal
action for IPR infringement.
-- Geopolitical / macro-economic impacts - The Group faces a range of external geo-political, socio-political, and macro-economic risks which, after a period of relative calm in global markets, have recently emerged as significant potential disruptors. In particular, the Group sources a significant number of key components from China.
The identification of risks and opportunities, the development
of action plans to manage the risks and maximise the opportunities,
and the continual monitoring of progress against agreed key
performance indicators (KPIs) are integral parts of the business
process and core activities throughout the Group.
These will continue to be evaluated, monitored, and managed
through the remainder of 2023 and beyond.
Directors' responsibilities
The directors confirm that these condensed interim financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and that the
interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
On behalf of the Board
Fariyal Khanbabi
Chief Executive Officer
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END
IR FFFSLALIDLIV
(END) Dow Jones Newswires
September 18, 2023 02:00 ET (06:00 GMT)
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