Dialight
plc
("Dialight" or the
"Group")
Unaudited second interim
results for the 12-month period ended 31 December
2023
Dialight plc (LSE: DIA.L), a
global leader in sustainable LED lighting for industrial
applications, announces its interim results for the 12-month period
ended 31 December 2023.
The Company has changed its
financial year end from 31 December to 31 March as communicated in
its trading update on 30 January 2024. These second interim
financial statements comprise 6-month and 12-month results for the
period ending 31 December 2023, with corresponding
comparatives.
Challenging market
conditions persist but Transformation plan underway to unlock
significant value over the medium term
|
Financial summary
|
6 months
H2 2023
£m
(unaudited)
|
6
months
H2
2022
£m
(unaudited)
|
12 months
2023
£m
(unaudited)
|
12
months
2022
£m
(audited)
|
|
Revenue
|
75.6
|
88.9
|
148.8
|
169.7
|
|
Underlying profit from operating
activities
|
2.6
|
1.9
|
0.1
|
5.0
|
|
(Loss)/profit from operating
activities
|
(8.8)
|
-
|
(11.7)
|
2.3
|
|
(Loss)/profit before tax for the
period
|
(10.2)
|
(1.1)
|
(14.4)
|
0.5
|
|
(Loss)/profit after tax for the
period
|
(7.6)
|
(0.8)
|
(10.8)
|
0.4
|
|
Statutory EPS - basic and
diluted
|
(21.0p)
|
(2.4p)
|
(31.1p)
|
1.2p
|
|
Net debt - excluding IFRS 16 lease
liabilities
|
12.3
|
20.9
|
12.3
|
20.9
|
Key points for the 12 month period
· Group revenue of £148.8m was 12% lower than the prior year
(12% at reported currency), largely driven by the cyclical downturn
in Signals & Components, notably Opto-Electronics
· Group orders down 5% at constant currency
o Lighting 2% lower than 2022 reflecting weak capex
orders
o Signals & Components 15% lower as a result of weakness in
Opto-Electronics
· Gross margin reduced to 31.5% (2022: 32.2%) reflecting a
combination of labour inflation and lower overhead
absorption
· The
Group delivered an underlying operating profit of £0.1m in the
12-month period helped by stronger performance in
the second six-month period
· Non
underlying items of £11.8m, including an impairment charge of £9.2m
to goodwill. Net debt at 31 December 2023
reduced to £12.3m (31 December 2022: £20.9m) after receiving £9.8m
net proceeds from an equity fundraising completed in October
2023
· Solid progress with Transformation Plan with key objectives
firmly established; Group engaged with a number of potential buyers
of identified non- core businesses.
· Challenging market conditions expected to continue through
2024, however the Board remains confident in the
refreshed strategy and the medium-term benefits
of the transformation project
Contacts:
Dialight plc
Tel: +44 (0)203 058
3542
Neil Johnson - Chairman
Steve Blair - Group Chief
Executive
Carolyn Zhang - Group Chief
Financial Officer
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 operations in the USA, UK, Mexico, Malaysia,
Singapore, Australia, Germany, and Dubai. 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.
CEO Review
Group revenues for the 12 months
ended 31 December 2023 were 12% lower than the prior 12-month
period at £148.8m (12% constant currency decrease). The reduction
was seen across both business segments, with Signals &
Components revenues heavily impacted by the cyclical downturn in
Opto-Electronics and the Lighting business continuing to be
impacted by capital projects being deferred to later
periods.
Demand trends and operating
conditions in the Group's end markets through the latter part of
2023 remained consistent with those we reported in the half year
results announced in September 2023. Despite ongoing softness in a
number of segments, the Group continued to make progress benefiting
from improved service and product availability as a result of the
actions taken over the previous 18 months.
Group gross margins for the
12-month period reduced slightly to 31.5% from 32.2% in the
comparable period, with improvements in material costs through cost
reduction projects and negotiation with suppliers in part
offsetting increased labour rates and lower fixed overhead
absorption. With the launch of a number of cost reduction projects,
and improvements in purchase prices, gross margins improved
materially in the second six months to 33.4% from both H1 2023
(29.7%) and H2 2022 (29.7%).
We faced ongoing challenges from
price inflation of components throughout the first six months of
the year despite improvements in availability. However,
negotiations with key suppliers showed strong progress in the
second six-month period with a significant improvement in the level
of discounts received. Inventory levels reduced driven by utilising
stock purchased at higher prices. In addition, the engineering team
delivered c.£0.5m of savings in material costs from product cost
reductions in 2023 which will continue to provide benefits
throughout 2024.
We maintained our strong focus on
cost control in the year, lowering Selling, General and
Administrative (SG&A) costs by £2.8m (£2.5m constant currency).
This combination of lower volumes
and gross margins contributed to a significant reduction in Group
underlying operating profit from operating activities to £0.1m
(2022: £5.0m). Non underlying costs for the 12-month period
were £11.8m and included a charge of £9.2m to impair the carrying
value of goodwill. Finance costs increased to £2.7m (2022: £1.8m),
mirroring the surge in global interest rates during the
year.
Overall this has resulted in a
loss before tax for the 12-month period ended 31 December 2023 of
£14.4m compared with a profit before tax of £0.5m in the prior year
comparable period.
Lighting represented c.76% of
revenues in the year (2022: c.71%). Lighting orders fell 2% (2%
constant currency decrease) due to a 5% reduction in capex orders,
with MRO orders in line. The EMEA region outperformed expectations,
where orders were up 27% (27% constant currency increase) versus
2022, as the region benefitted from large orders with key
customers. Our core US market saw orders decline by 2%, (1%
constant currency decrease) with the strength of our MRO business
helping to offset continued deferment of capex orders. Similarly,
Australia saw a 2% decline (2% constant currency decrease) whilst
Asia was adversely impacted by a high value order cancellation, but
with limited impact on the Group given its size.
We continued to develop our
strategic accounts team who are working closely with our field
sales team. The majority of our large US customers and target
customers, require a "preferred supplier agreement" to be in place
with their corporate Head Office, before any sale can be confirmed
at the plant level. We have now been specified for a very large
industrial lighting project in the US which is a significant
achievement, with revenues expected to commence in full year 2025,
and we continue to sign agreements with other major
customers.
Signals & Components is a
high-volume business operating within highly competitive and
cyclical markets. Revenues in 2022
benefitted from an exceptionally high order book following record
growth in 2021, however as the cycle began to turn, orders declined
significantly in the key Opto-Electronics business in H2 2022,
resulting in a very weak opening order book at the start of the
year. Order rates showed modest signs of recovery in 2023, however
inventory levels in the channel remain high. Market conditions are
expected to continue to see slow improvement as we go into
2024.
Operations and supply chain
management remained a key focus for the Group in 2023, with a
gradual shift from maintaining security of supply to focusing on
price renegotiation, as material availability improved for some
components. We continue to see some short-term impact from material
shortages within the market but remain committed to maintaining
short lead times and c.90% on time delivery within Lighting and
Signals & Components, which has been critical in supporting our
MRO orders.
Cash generated from operations
remained robust at £4.9m, benefitting from a substantial reduction
in inventory levels of £10.4m as the number of component shortages
continued to reduce in the year and the Group consumed inventory
purchased during the major supply chain shortages in 2022. The
Group remains focused on reducing the level of inventory
held.
We continued to invest in new and
improved product development with £3.6m spent in 2023. The main
areas of investment were into new battery backup systems (launched
in July 2023), a new high output floodlight, power supply
improvements and product cost reductions across several product
families and production processes as part of our transformation
plan.
As of 31 December 2023, the Group
had net bank debt of £12.3m (2022: £20.9m) after having raised
£9.8m of proceeds from the equity fund raising completed on October
2023.
Transformation plan
Following the equity fundraising
announced in September 2023, the Group has commenced its
transformation plan, which is focused on streamlining the Group,
accelerating growth, and improving profitability. The plan focuses
on unlocking value within the Group, whilst growing the core
Lighting business to deliver the 2026 objectives of a larger and
more profitable business.
Implementation of the plan will
require a relentless focus on execution excellence. To
accelerate the strategy, certain investments are required in the
short term, which will deliver the improved financial returns
assumed over the medium term. To ensure successful delivery and
clear strategic oversight, the Board has established a formal Board
Committee, which meets monthly with senior executives. In addition,
the Group has commenced recruitment of key hires to support
existing stakeholders in achieving the plan objectives, including
two project managers to oversee the Mexico elements of the
transformation and with recruitment of key hires for the
development of new revenue streams currently in progress.
Furthermore, an external engineering, procurement, and construction
firm has been appointed to ensure our Malaysia downsizing
transformation is delivered in a short time frame.
Reducing cost through consolidation and
automation
Dialight operates from 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 site network forms a
key component of streamlining the business, but also provides the
potential for cost reduction through consolidation. The Group has
made good progress on this aspect of the transformation and is in
advanced negotiation to secure the lease of the land for the new
production site in Mexico which is expected to be operational in
2025. Progress has been made in the transformation of our Malaysia
operations, with the lease signed for a smaller Opto-Electronics
focused production facility in Penang, Malaysia. Reconfiguration of
production is already underway following the transfer of Malaysian
Lighting production to the Group's Mexican manufacturing
facilities, with the full transformation expected to complete in
May 2024.
In addition to site consolidation,
the transformation plan is focused on cost reduction through
automation. Today, many of our manufacturing processes are
excessively labour intensive, which has resulted in rapid cost
escalation in the last two years as wage inflation has accelerated.
Against this backdrop, automation represents a significant
improvement opportunity.
The first phase of the automation
process is underway, commencing with an investment of c.£1.8m into
our Mexican facility. Delivery of the equipment is expected in the
first half of 2024 and will be operational by October
2024.
Increasing focus
The transformation plan includes
an ongoing review of the Group's business, with a view to narrowing
its focus to Dialight's core competencies. LED Lighting for
industrial applications is the Group's largest business,
representing over 71% of revenues in 2023 and 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 (13% Group revenues in 2023); Traffic & Rail
(6% of Group revenues); Vehicle (6% of Group revenues); and
Obstruction (4% of Group revenues). Whilst each of these businesses
has attractive facets within their respective niche markets, the
Board does not believe that all have the potential to generate
sufficient returns. As a result, the Group's Traffic and Rail
businesses were identified for divestment and good progress has
been achieved in identifying buyers of these businesses at prices
that reflect their inherent value. Ongoing negotiations to dispose
of these businesses are expected to complete in 2024, with the net
proceeds being applied to support the investment required under the
transformation plan.
Accelerating growth
The industrial LED lighting market
with an addressable market of c. £10bn 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
continues to be enhanced by the strategic account initiative which
has improved penetration of large-scale customers, and by our
expansion into 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.
The transformation plan seeks to
capitalise on this opportunity through two initiatives; further
monetising our technology expertise through selling component
elements, for example power supply topology, into markets where we
do not operate, and 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 readily generate sales in excess of
£10m in the medium term.
We have made good progress to date
on both of these elements of our transformation plan which will
accelerate in 2024. Several potential partners have been identified
to support the prospect of selling our power supply topology who we
are engaging with and expect to move to development phases with one
or more partners in H1 2024. With regards to embedding advanced
control features into our fixtures, we have begun partnering with
one new controls manufacturer, alongside our existing partnership
with Enlighted, and are integrating their controls systems within
our key fixtures. A further two potential controls partners have
been identified with development expected early in 2024. The
critical next step is conducting proof of concept testing via beta
sites, of which two are currently underway.
Streamlining processes and reducing
complexity
As identified during the Board's
business review in 2023, our current product range is too broad and
complex. We have made good progress on standardising our product
offering, with our engineering and operations functions
collaborating to achieve large reductions in SKUs through
standardisation of sub-assemblies and completion of upgrades to low
volume products. This will not only enable more efficient
production but will also support greater material purchasing
accuracy and inventory control. We expect these projects to be
completed in H1 2024. In addition, the Group has decided to
discontinue the Stainless Steel Linear, a legacy product line. We
remain confident that there will be no significant impact on
revenues as a result, with suitable alternative products readily
available.
Realigning the cost base
In addition to focussing on
improvements in our gross profit, the transformation plan will seek
to address our operating cost base with a realignment to reflect
the current organisation. This is being carried out in phases, with
the initial steps taken through restructuring of operating
departments, generating a £0.9m cost reduction in 2023, and more
recently the decision to relocate the London office to a lower cost
facility will generate c.£0.3m of annual savings for
2024.
The second phase of this aspect of
the transformation will focus on the US sales function, ensuring
this is structured to position Dialight for growth whilst
minimising external sales costs incurred. Changes are being
implemented from Q2 2024.
Sanmina litigation
As previously reported, Dialight
is involved in ongoing litigation with Sanmina Corporation,
following the termination in September 2018 of the manufacturing
services agreement (MSA). Dialight confirms that a trial date has
been set for 15 July 2024, subject to any further motions, appeal
processes and/or mediation, and is anticipated to last for 10 days.
Further details of Dialight's claim against Sanmina can be accessed
at
www.dialight.com/ir/shareholder-information/sanmina-litigation/.
If Dialight's claims are successful at trial, the range of outcomes
could include the payment by Sanmina to Dialight of between $0 and
c. $220m (excluding legal costs and judicial interest). If
Sanmina's claim is successful at trial the range of outcomes could
include the payment by Dialight to Sanmina of between $0m and $8.3m
(excluding legal costs and judicial interest).
Purpose and sustainability
As a sustainability focussed
business, our aim is to reduce global emissions in the industrial
LED-lighting sector through growth in LED-luminaire sales. We now
have over 3 million industrial LED lighting fixtures installed in
customer sites and we expect that these installations will deliver
avoided emissions for our customers of c.2m tonnes over their
lifecycle relative to non- LED lighting fixtures.
We have been analysing and
reporting Scope 1, 2 and 3 emissions since 2020. In 2022 our
climate change rating was B. Using this data, we submitted our near
term and long-term targets to the Science Based Targets initiative
(SBTi) during 2023. The SBTi has validated that the science-based
emissions reduction targets conform with the SBTi Criteria and
Recommendations (Criteria version 5.1). SBTi has classified our
targets as in line with a 1.5°C trajectory and Dialight is now a
member of Business Ambition for 1.5°C.
From a base year of 2020, our
targets are:
· to
reduce absolute Scope 1&2 emissions by 38% by 2029
· to
reduce absolute Scope 3 emissions by 22% by 2029
· to
reach net-zero greenhouse gas emissions across the value chain by
2040
The major tenet of our plan
relates to reducing electricity use by:
· continually increasing the efficiency of our products to
reduce electricity usage
· researching the use of materials in our products that require
less upstream processing
· anticipating the availability of a decarbonised electrical
grid as 90% of our total emissions come from customer usage of our
products
We continue to prioritise safety,
not only in our own facilities but also within our supply chain,
where performance is evaluated by EcoVadis. Our re-rating
with EcoVadis will be published shortly and our prior rating was
silver in November 2022.
The contribution of our products
to sustainable customer solutions continues with updates to our two
largest product lines. The High Bay and Area Light fixtures now
have the option of battery back-up versions. Poor visibility is a
leading cause of accidents at industrial facilities, ensuring
proper illumination is of paramount importance, especially in
facilities where power outages can occur.
The business growth targeted in
our strategic review and transformation plan will increase our
positive sustainability impact even more and help more of our
customers to achieve their net zero targets.
Change of year end and presentational currency during
2024
As previously announced,
Dialight's December year-end coincides with the Group's 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. Given this,
the decision has been taken to change the Group's financial year
end to 31 March, thereby finishing the year with the quietest
quarter. A pre close trading update will be provided soon after
this date, with the audited FY24 results being released in July
2024.
The Group has historically
presented its financial results in UK sterling despite most of the
underlying revenues, costs, and financing being denominated in US
dollars. As a result, movements in foreign exchange rates can
result in significant translational differences in the reported
results. To mitigate this the Board is now considering a change in
its presentational currency form UK sterling to US dollars, but no
decision has yet been confirmed.
Market condition and outlook
We anticipate challenging market
conditions will persist through 2024 with longer than usual order
cycles for major projects due to inflationary pressures, shortages
of key skills, and economic uncertainty, particularly in our key US
market. Despite this we continued to grow our sales pipeline by
c.7% from December 2022, ending the year with a stronger opening
order book for 2024 whilst maintaining short lead times to support
our MRO business.
The Group also 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 the year
and further contracts expected as capital spending improves.
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.
With this background and with the
refreshed strategy focussed on delivering medium-term benefits of
the transformation project, the Board remains confident of making
progress in 2024.
Steve Blair
Group Chief Executive
FINANCIAL REVIEW
Overall performance in H2 2023
showed improvement on H2 2022, with underlying operating profit
increasing by £0.7m (£0.9m constant currency) despite a £13.3m
reduction in revenue between the periods. This revenue reduction
was largely the result of the downturn experienced in the
Opto-Electronics market, in addition to the continued deferment of
capital projects within the Lighting business. The Group was able
to mitigate the impact of the revenue reduction in H2 2023
following the actions taken to improve gross margin, including the
engineering cost reduction projects, in addition to restructuring
benefits and other SG&A savings. However, following adverse
performance in H1 2023, the full year underlying operating profit
decreased to £0.1m from £5.0m in 2022.
Component costs continued to
impact margin as we utilised components forward ordered in 2022 at
elevated prices. We are starting to see the benefits from lower
inventory pricing coming through, albeit slowly, and this should
benefit 2024. Freight costs are improving following increases
to the minimum order values for free shipping and consolidation of
shipments to improve efficiency, with a significant reduction in
the use of expedited shipping modes as material availability
improved. However, the minimum wage increased by 20% from 1 January
in Mexico, where the majority of our manufacturing team are based,
highlighting the necessity to increase automation. Full year
SG&A costs fell by £2.8m (£2.4m constant currency) which
included £0.9m benefit of restructuring actions. Further cost
improvement was the result of £0.8m savings in sales commission due
to lower orders and £1.0m FX gain, offsetting £1.0m increase in
amortisation.
Net debt decreased by £8.6m to
£12.3m following the equity raise in H2 2023 which generated net
proceeds of £9.8m after transaction costs of £0.7m. Inventory has
continued to reduce due to actions taken within operations in
addition to reductions in raw material prices and favourable
movements in the GBP: USD exchange rate. This benefit was largely
offset by a decrease in trade and other payables.
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 1.18 in H2 2022 to 1.25 in H2 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
|
Lighting
|
6 months
H2 2023
£m
|
6 months
H2 2022
£m
|
Variance
|
H2 2022
at
constant
currency
£m
|
Constant
currency
variance
|
|
Revenue
|
57.2
|
63.9
|
(10.5%)
|
60.6
|
(5.6%)
|
|
Gross profit
|
20.6
|
20.5
|
0.5%
|
19.3
|
6.7%
|
|
Gross profit %
|
36.1%
|
32.1%
|
400bps
|
31.8%
|
430bps
|
|
Overheads
|
(15.0)
|
(17.5)
|
14.3%
|
(16.4)
|
8.5%
|
|
Underlying EBIT before unallocated costs
|
5.6
|
3.0
|
86.7%
|
2.9
|
93.1%
|
|
|
|
|
|
|
|
|
Lighting
|
12 months
2023
£m
|
12 months
2022
£m
|
Variance
|
2022
at
constant
currency
£m
|
Constant
currency
variance
%
|
|
Revenue
|
112.4
|
121.0
|
(7.1%)
|
120.1
|
(6.4%)
|
|
Gross profit
|
38.1
|
40.6
|
6.2%
|
40.3
|
(5.5%)
|
|
Gross profit %
|
33.9%
|
33.6%
|
30bps
|
33.6%
|
30
bps
|
|
Overheads
|
(31.6)
|
(33.7)
|
6.2%
|
(33.4)
|
5.4%
|
|
Underlying EBIT before unallocated costs
|
6.5
|
6.9
|
5.8%
|
6.9
|
(5.8%)
|
The Lighting (Lighting &
Obstruction) segment represents approximately 76% 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 2023 with customers
continuing to exercise tight controls over spending, particularly
within capex projects.
Full year US revenues declined by
6% (at constant currency) with market share gains in the MRO market
helping to reduce the impact from weakness in the overall market
and particularly the lack of larger capex spend. This has
predominantly been due to inflationary pressures, shortages of key
skills and economic uncertainty, resulting in projects being
delayed. Additionally, 2022 benefited from a strong opening order
book for the US whereas the opening 2023 position was c. 70% lower.
The US order book has grown during 2023 which should support an
improved 2024. EMEA continued to outperform expectations in H2
2023, achieving 5% growth in revenue on full year 2022 and a 21%
increase its opening order book for 2024, helping to offset adverse
performance within our Asia and Australia businesses.
Gross margins improved in H2 2023
following the launch of cost reduction projects and improvements in
shipping costs, however we continued to see pressure from
significant component price increases on raw materials purchased or
committed to last year that were consumed in the period. The level
of improvement in H2 2023 helped to improve full year gross margins
overall to 33.9% (2022: 33.6%), despite the £7.7m reduction in
revenue, positioning the business for improved performance in
2024.
Operating costs were £2.5m lower
when comparing H2 2023 to H2 2022, although these only decreased by
£2.1m when comparing full year results. The decrease was due to
restructuring savings, FX gains (with most costs incurred in USD),
lower sales commissions and the settlement reached relating to IP
charges.
This resulted in an underlying
EBIT of £5.6m for 2023 H2 compared to an EBIT of £3.0m for 2022 H2
(2022 H2 CCY: £2.9m), bringing full year performance marginally
below prior year at £6.5m underlying EBIT (2022: £6.9m).
Signals & Components
|
Signals & Components
|
6 months
H2 2023
£m
|
6 months
H2 2022
£m
|
Variance
|
H2 2022
at
constant
currency
£m
|
Constant
currency
variance
|
|
Revenue
|
18.4
|
25.0
|
(26.4%)
|
23.6
|
(22.0%)
|
|
Gross profit
|
4.6
|
5.9
|
(22.0%)
|
5.6
|
(17.9%)
|
|
Gross profit %
|
25.0%
|
23.6%
|
140bps
|
23.6%
|
140bps
|
|
Overheads
|
(4.1)
|
(3.8)
|
(7.9%)
|
(3.5)
|
(17.1%)
|
|
Underlying EBIT before unallocated costs
|
0.5
|
2.1
|
(76.2%)
|
2.1
|
(76.2%)
|
|
|
|
|
|
|
|
|
Signals & Components
|
12 months
2023
£m
|
12 months
2022
£m
|
Variance
|
2022
at
constant
currency
£m
|
Constant
currency
variance
|
|
Revenue
|
36.4
|
48.7
|
(25.3%)
|
48.6
|
(25.1%)
|
|
Gross profit
|
8.8
|
14.0
|
(37.1%)
|
14.1
|
37.6%
|
|
Gross profit %
|
24.1%
|
28.7%
|
(460bps)
|
29.1%
|
(500bps)
|
|
Overheads
|
(8.0)
|
(8.3)
|
3.6%
|
(8.2)
|
(2.4%)
|
|
Underlying EBIT before unallocated costs
|
0.8
|
5.7
|
(86.0%)
|
5.9
|
(86.4%)
|
Signals & Components is a
high-volume business operating within highly competitive markets.
There are three main elements to this business: traffic lights,
Opto-Electronic (OE) components and vehicle lights.
The previously highlighted
cyclical downturn in the key OE market resulted in revenue
decreasing by 26.4% (22% constant currency) when comparing 2023 H2
with 2022 H2. This resulted in a full year gross margin of 24.1%,
significantly below the 28.7% (29.1% constant currency) seen last
year, due to lower absorption of fixed production costs and
increased labour rates. Overheads for the 12 months were reduced to
£8.0m from £8.3m in 2022 (constant currency 2022:
£8.2m).
Unallocated costs
Unallocated costs comprise costs
not directly attributable to a segment. In H2 2023 they were £3.5m,
an increase of £0.3m on H2 2022. Unallocated costs for the full
year decreased to £7.2m from £7.6m. The key reductions were lower
foreign exchange translational losses and employee variable pay,
partially offset by higher professional fees.
Non-underlying costs (note 4)
|
Non-underlying costs
|
6 months
H2 2023
£'m
|
6
months
H2
2022
£'m
|
12 months
2023
£'m
|
12
months
2022
£'m
|
|
Impairment of goodwill (note
3)
|
9.2
|
-
|
9.2
|
-
|
|
Costs related to manufacturing
partner
|
0.8
|
0.2
|
1.1
|
1.0
|
|
Other litigation costs
|
0.2
|
0.4
|
0.3
|
0.4
|
|
Transformation costs
|
1.2
|
-
|
1.2
|
-
|
|
Impairment of capitalised
development costs
|
-
|
1.3
|
-
|
1.3
|
|
Total
|
11.4
|
1.9
|
11.8
|
2.7
|
A review of goodwill was performed
at 31 December 2023 which has resulted in an impairment of goodwill
of £9.2m being recognised. The basis of the recoverable amount is
the value in use using managements latest five-year forecast. The
impairment charge is material and non-cash, and has therefore been
excluded from underlying results.
The Group has incurred £1.2m of
non-underlying costs relating to the transformation plan. This is a
significant multi-year change programme for the Group 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 its core industrial LED lighting market. The costs
incurred in H2 2023 relate to resetting and realigning the Group's
cost base. The multi-year transformation plan is a material,
infrequent programme and is not considered to be part of the
underlying performance of the business.
Costs of £1.1m were incurred in
the 12-month period in relation to the ongoing litigation with
Sanmina Corporation, following the termination of the manufacturing
services agreement (MSA) in September 2018 (refer to note
14).
Cash and borrowings
The Group ended 2023 with net bank
debt of £12.3m, a decrease of £8.6m from December 2022. Net bank
debt excludes liabilities related to the adoption of IFRS 16
Leases, as these are excluded for covenant testing purposes.
The roll forward of net bank debt was as follows:
|
Net Bank Debt
|
£m
|
|
Opening balance 01 January 2023
|
(20.9)
|
|
Underlying EBITDA
*
|
7.9
|
|
Inventory decrease
|
10.4
|
|
Net working capital excluding
inventory
|
(9.3)
|
|
Provisions & other
movements
|
(0.3)
|
|
Investment in R&D
|
(3.6)
|
|
Maintenance capex/other
|
(1.1)
|
|
Interest & tax paid
|
(4.1)
|
|
Equity raise - net of
costs
|
9.8
|
|
Foreign exchange and
non-underlying
|
(1.1)
|
|
Closing balance at 31 December 2023
|
(12.3)
|
*Underlying EBITDA comprises
underlying operating loss of £0.1m with depreciation of property,
plant, and equipment of £3.2m and amortisation of £4.6m 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
USD denominated inventory
· Reduction in trade payables following payment for materials
purchased in Q4 2022, supporting purchase price negotiations with
key suppliers
· Continued investment into new product development plus
maintenance capex on factory equipment and IT, albeit at a reduced
level in light of the transformation plan
· The
translation of USD denominated borrowing back into Sterling has
increased debt by £1.1m due to movements in the GBP: USD exchange
rate exchange (from 1.21 to 1.27).
Gross bank debt was £21.9m offset
by cash in hand of £9.6m (see note 10 for further details on bank
borrowings). The interest expense of £2.7m is analysed in note
5.
Banking and covenants
The Group's funding includes a
revolving credit facility (RCF) of USD $34m from HSBC, set to
mature in July 2025, with options for two one-year extensions.
Aligned with the Group's robust commitment to environmental,
social, and governance (ESG) principles, the RCF facility operates
as a sustainability-linked loan. As agreed, the Group has repaid
the £10m COVID-19 Large Business Interruption Loan (CLBIL), with
the final £2m repaid in the first half of 2023.
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 secured a waiver for Q3 2023 and reset it
covenants for Q4 2023.
Tax
The tax credit of £3.6m for the 12
months period to 31 December 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 31
December 2023 equated to £65.4m (2022: £68.7m). 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 31 December
2023
|
|
Note
|
6 months
ended
31 December
2023
£'m
(unaudited)
|
6
months
ended
31
December
2022
£'m
(unaudited)
|
12 months
ended
31 December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
|
|
|
|
|
|
|
Revenue
|
2
|
75.6
|
88.9
|
148.8
|
169.7
|
|
Cost of sales
|
|
(50.4)
|
(62.5)
|
(101.9)
|
(115.1)
|
|
Gross profit
|
|
25.2
|
26.4
|
46.9
|
54.6
|
|
Distribution costs
|
|
(11.2)
|
(12.9)
|
(23.7)
|
(25.5)
|
|
Administrative expenses
|
|
(22.8)
|
(13.5)
|
(34.9)
|
(26.8)
|
|
(Loss)/profit from operating activities
|
2
|
(8.8)
|
-
|
(11.7)
|
2.3
|
|
|
|
|
|
|
|
|
Underlying profit from operating activities
|
|
2.6
|
1.9
|
0.1
|
5.0
|
|
Non underlying items
|
4
|
(11.4)
|
(1.9)
|
(11.8)
|
(2.7)
|
|
(Loss)/profit from operating activities
|
|
(8.8)
|
-
|
(11.7)
|
2.3
|
|
|
|
|
|
|
|
|
Financial expense
|
5
|
(1.4)
|
(1.1)
|
(2.7)
|
(1.8)
|
|
(Loss)/profit before tax
|
|
(10.2)
|
(1.1)
|
(14.4)
|
0.5
|
|
Income tax
credit/(charge)
|
6
|
2.6
|
0.3
|
3.6
|
(0.1)
|
|
(Loss)/profit for the period
|
|
(7.6)
|
(0.8)
|
(10.8)
|
0.4
|
|
|
|
|
|
|
|
|
(Loss)/profit for the period attributable
to:
|
|
|
|
|
|
|
Equity owners of the
Company
|
|
(7.6)
|
(0.8)
|
(10.8)
|
0.4
|
|
Non-controlling
Interests
|
|
-
|
-
|
-
|
-
|
|
(Loss)/profit for the period
|
|
(7.6)
|
(0.8)
|
(10.8)
|
0.4
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
(Loss)/profit per share - basic
and diluted
|
7
|
(21.0p)
|
(2.4p)
|
(31.1p)
|
1.2p
|
All results arise from continuing
operations.
The accompanying notes form an
integral part of these interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
For the period ended 31 December
2023
|
|
6 months
ended
31 December
2023
(unaudited)
|
6
months
ended
31
December
2022
(unaudited)
|
12 months
ended
31 December
2023
(unaudited)
|
12
months
ended
31
December
2022
(audited)
|
|
Other comprehensive income/(expense)
|
|
|
|
|
|
Exchange difference on translation
of foreign operations
|
0.3
|
0.2
|
(3.3)
|
8.1
|
|
Income tax on exchange differences
on transactions of foreign operations
|
-
|
(0.6)
|
-
|
(0.6)
|
|
|
0.3
|
(0.4)
|
(3.3)
|
7.5
|
|
Items that will not be reclassified subsequently to profit
and loss
|
|
|
|
|
|
Remeasurement of defined benefit
pension liability
|
-
|
0.3
|
-
|
0.3
|
|
Income tax on remeasurement of
defined benefit liability
|
-
|
(0.1)
|
-
|
(0.1)
|
|
|
|
|
|
|
|
Other comprehensive
(expense)/income for the period, net of tax
|
0.3
|
(0.2)
|
(3.3)
|
7.7
|
|
(Loss)/profit for the
period
|
(7.6)
|
(0.8)
|
(10.8)
|
0.4
|
|
Total comprehensive (expense)/income for the
period
|
(7.3)
|
(1.0)
|
(14.1)
|
8.1
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
-
Owners of the parent
|
(7.3)
|
(1.0)
|
(14.1)
|
8.1
|
|
-
Non-controlling interests
|
-
|
-
|
-
|
-
|
|
Total comprehensive (expense)/income for the
period
|
(7.3)
|
(1.0)
|
(14.1)
|
8.1
|
The accompanying notes form an
integral part of these interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
For the period ended 31 December
2023 (unaudited)
|
|
Share
capital
|
Merger
reserve
|
Translation
reserve
|
Capital
redemption
reserve
|
Share
premium
|
Own
shares
|
Retained
earnings
|
Total
|
Non-controlling interests
|
Total
equity
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'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
|
-
|
-
|
-
|
-
|
-
|
-
|
(10.8)
|
(10.8)
|
-
|
(10.8)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences, net of taxes
|
-
|
-
|
(3.3)
|
-
|
-
|
-
|
-
|
(3.3)
|
-
|
(3.3)
|
|
Total other comprehensive
expense
|
-
|
-
|
(3.3)
|
-
|
-
|
-
|
(10.8)
|
(14.1)
|
-
|
(14.1)
|
|
Total comprehensive expense for the year
|
-
|
-
|
(3.3)
|
-
|
-
|
-
|
(10.8)
|
(14.1)
|
-
|
(14.1)
|
|
Transactions with owners, recorded directly in
equity:
|
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital (notes 11
and 12)
|
0.1
|
-
|
|
|
10.4
|
|
|
10.5
|
|
10.5
|
|
Transaction costs (note
12)
|
-
|
-
|
-
|
-
|
(0.7)
|
-
|
-
|
(0.7)
|
-
|
(0.7)
|
|
Share-based payments
|
-
|
-
|
-
|
-
|
-
|
-
|
0.9
|
0.9
|
-
|
0.9
|
|
Own shares released from EBOT and
used for share-based payments
|
-
|
-
|
-
|
-
|
-
|
0.1
|
-
|
0.1
|
-
|
0.1
|
|
Total transactions with owners
|
0.1
|
-
|
-
|
-
|
9.7
|
0.1
|
0.9
|
10.8
|
-
|
10.8
|
|
Balance at 31 December 2023
|
0.7
|
0.5
|
14.2
|
2.2
|
10.7
|
(0.7)
|
37.6
|
65.2
|
0.2
|
65.4
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
For the period ended 31 December
2022 (audited)
|
|
Share
capital
|
Merger
reserve
|
Translation
reserve
|
Capital
redemption
reserve
|
Share
premium
|
Own
shares
|
Retained
earnings
|
Total
|
Non-
controlling
interests
|
Total
equity
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'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
16)
|
-
|
-
|
-
|
-
|
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
|
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
As at 31 December 2023
|
|
Note
|
31
December
2023
£'m
(unaudited)
|
31
December
2022
£'m
(audited)
|
|
Assets
|
|
|
|
|
Property, plant, and
equipment
|
|
11.2
|
13.9
|
|
Right of use assets
|
|
8.1
|
10.5
|
|
Intangible assets
|
3
|
10.6
|
21.4
|
|
Deferred tax assets
|
|
5.8
|
2.4
|
|
Employee benefits
|
|
4.6
|
4.5
|
|
Other receivables
|
|
5.7
|
5.6
|
|
Total non-current assets
|
|
46.0
|
58.3
|
|
|
|
|
|
|
Inventories
|
9
|
40.7
|
53.6
|
|
Trade and other
receivables
|
|
29.1
|
30.2
|
|
Income tax recoverable
|
|
0.3
|
0.6
|
|
Cash and cash
equivalents
|
|
9.6
|
1.7
|
|
Total current assets
|
|
79.7
|
86.1
|
|
Total assets
|
|
125.7
|
144.4
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Trade and other
payables
|
|
(26.8)
|
(37.3)
|
|
Provisions
|
|
(0.5)
|
(0.6)
|
|
Tax liabilities
|
|
(0.9)
|
(2.3)
|
|
Lease liabilities
|
|
(1.7)
|
(1.2)
|
|
Borrowings
|
10
|
-
|
(2.0)
|
|
Total current liabilities
|
|
(29.9)
|
(43.4)
|
|
|
|
|
|
|
Provisions
|
|
(1.3)
|
(1.6)
|
|
Borrowings
|
10
|
(21.9)
|
(20.6)
|
|
Lease liabilities
|
|
(7.2)
|
(10.1)
|
|
Total non-current liabilities
|
|
(30.4)
|
(32.3)
|
|
Total liabilities
|
|
(60.3)
|
(75.7)
|
|
Net assets
|
|
65.4
|
68.7
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Issued share capital
|
|
0.7
|
0.6
|
|
Merger reserve
|
|
0.5
|
0.5
|
|
Share premium
|
|
10.7
|
1.0
|
|
Other reserves
|
|
15.7
|
18.9
|
|
Retained earnings
|
|
37.6
|
47.5
|
|
|
|
65.2
|
68.5
|
|
Non-controlling
interests
|
|
0.2
|
0.2
|
|
Total equity
|
|
65.4
|
68.7
|
The accompanying notes form an
integral part of these interim financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS
For the period ended 31 December
2023
|
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
Operating activities
|
|
|
|
(Loss)/profit for the
period
|
(10.8)
|
0.4
|
|
Adjustments for:
|
|
|
|
Financial expense
|
2.7
|
1.8
|
|
Income tax
(credit)/expense
|
(3.6)
|
0.1
|
|
Share-based payments
|
0.9
|
0.5
|
|
Depreciation of property, plant,
and equipment
|
3.2
|
2.9
|
|
Depreciation of right of use
assets
|
2.1
|
1.8
|
|
Amortisation of intangible
assets
|
4.6
|
4.4
|
|
Impairment losses on intangible
assets
|
9.2
|
1.3
|
|
Operating cash flow before movements in working
capital
|
8.3
|
13.2
|
|
Decrease (increase) in
inventories
|
10.4
|
(6.7)
|
|
Increase in trade and other
receivables
|
(0.5)
|
(1.1)
|
|
(Decrease) increase in trade and
other payables
|
(8.8)
|
1.3
|
|
(Decrease) increase in
provisions
|
(0.3)
|
0.3
|
|
Pension contributions in excess of
the income statement charge
|
(0.1)
|
(0.4)
|
|
Cash generated by operations
|
9.0
|
6.6
|
|
Income taxes paid
|
(1.4)
|
(0.8)
|
|
Interest
paid2
|
(2.7)
|
(1.8)
|
|
Net cash generated by operations
|
4.9
|
4.0
|
|
Capital expenditure
|
(1.1)
|
(3.4)
|
|
Capitalised expenditure on
development costs and other intangible assets
|
(3.6)
|
(3.6)
|
|
Purchase of software and
licenses
|
-
|
(0.2)
|
|
Purchase of 12.5% of Dialight
Australia
|
-
|
(0.1)
|
|
Net cash used in investing activities
|
(4.7)
|
(7.3)
|
|
Financing activities
|
|
|
|
Proceeds on issue of shares - net
of issue costs (notes 11 and 12)
|
9.8
|
-
|
|
Drawdown of bank facility (note
10)
|
3.9
|
8.5
|
|
Repayment of bank facility (note
10)
|
(3.5)
|
(4.0)
|
|
Re-purchase of own
shares
|
-
|
(0.1)
|
|
Repayment of lease
liabilities1
|
(2.2)
|
(1.7)
|
|
Net cash generated from financing
activities
|
8.0
|
2.2
|
|
Net increase/(decrease) in cash and cash
equivalents
|
8.2
|
(1.1)
|
|
Cash and cash equivalents at
beginning of period
|
1.7
|
1.2
|
|
Effect of exchange
rates
|
(0.3)
|
1.6
|
|
Cash and cash equivalents at end of period
|
9.6
|
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 form an
integral part of these interim financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the period ended 31 December
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 has changed its year
end from 31 December to 31 March. The interim financial statements
include six months and twelve months results for period ending 31
December 2023 and corresponding comparatives.
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
19th February 2024 and has not been audited.
Statement of compliance
This condensed consolidated
interim financial information for the 12 months ended 31 December
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 31 December
2023, and the comparative information in relation to the period
ended 31 December 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 2023 are considered to be short-term in nature, with signs
that trading conditions will improve into 2024 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 improving
profitability over 2024 and beyond. The Group enters 2024
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 $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. Net debt has
decreased by £8.6m to £12.3m following the equity raise in the
second half of 2023 which generated net proceeds of £9.8m after
transaction costs of £0.7m.
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.
Sensitivity analysis
In assessing going concern, the
Directors have prepared scenarios using managements forecast for
2024 and 2025. The base case scenario incorporates the latest
trends on revenue growth, costs, and improved margins as a result
of lower freight costs and improved purchasing power offset by pay
increases in direct labour and increases to production
overheads.
In a plausible downside scenario,
the Directors have assumed that revenues reduce by 5% along with
achieving 20% less improvements from efficiency projects mitigated
through a reduction in discretionary staff costs. The scenario
modelling also includes the potential for a negative outcome from
the ongoing Sanmina litigation (see note 14).
In both scenarios, the Group has
mitigating actions that can be put in place, including various
temporary and permanent cost and cash reductions. Under both
scenarios, the Directors consider that the Group will have
sufficient funds to continue to meet its obligations for at least
12 months from the date of approval of these unaudited interim
financial statements. Therefore, the adoption of the going concern
principle in preparing these financial statements remains
appropriate.
Taxation
Taxes on income in the interim
periods are accrued using the 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:
• IFRS
17 Insurance Contracts;
• 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 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 31 December 2023 (unaudited)
|
|
Lighting
£'m
|
Signals &
Components
£'m
|
Unallocated
£'m
|
Total
£'m
|
|
Revenue
|
|
57.2
|
18.4
|
-
|
75.6
|
|
Gross profit
|
|
20.6
|
4.6
|
-
|
25.2
|
|
Overhead costs
|
|
(15.0)
|
(4.1)
|
(3.5)
|
(22.6)
|
|
Underlying profit/(loss) from operating
activities
|
|
5.6
|
0.5
|
(3.5)
|
2.6
|
|
Non-underlying items (note
4)
|
|
(11.4)
|
-
|
-
|
(11.4)
|
|
(Loss)/profit from operating activities
|
|
(5.8)
|
0.5
|
(3.5)
|
(8.8)
|
|
Financial expense
|
|
-
|
-
|
(1.4)
|
(1.4)
|
|
(Loss)/profit before tax
|
|
(5.8)
|
0.5
|
(4.9)
|
(10.2)
|
|
Taxation
|
|
-
|
-
|
2.6
|
2.6
|
|
(Loss)/profit after tax
|
|
(5.8)
|
0.5
|
(2.3)
|
(7.6)
|
|
|
|
|
|
|
|
|
Other segmental data
|
|
|
|
|
|
|
Depreciation of property, plant,
and equipment
|
|
1.2
|
0.4
|
-
|
1.6
|
|
Depreciation of right of use
asset
|
|
0.8
|
0.3
|
-
|
1.1
|
|
Amortisation of development
costs
|
|
1.7
|
0.6
|
-
|
2.3
|
|
Impairment on intangible
assets
|
|
9.2
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
months ended 31 December 2022 (unaudited)
|
|
Lighting
£'m
|
Signals &
Components
£'m
|
Unallocated
£'m
|
Total
£'m
|
|
Revenue
|
|
63.9
|
25.0
|
-
|
88.9
|
|
Gross profit
|
|
20.5
|
5.9
|
-
|
26.4
|
|
Overhead costs
|
|
(17.5)
|
(3.8)
|
(3.2)
|
(24.5)
|
|
Underlying profit/(loss) from operating
activities
|
|
3.0
|
2.1
|
(3.2)
|
1.9
|
|
Non-underlying items (note
4)
|
|
(1.9)
|
-
|
-
|
(1.9)
|
|
Profit/(loss) from operating activities
|
|
1.1
|
2.1
|
(3.2)
|
-
|
|
Financial expense
|
|
-
|
-
|
(1.1)
|
(1.1)
|
|
Profit/(loss) before tax
|
|
1.1
|
2.1
|
(4.3)
|
(1.1)
|
|
Taxation
|
|
-
|
-
|
0.3
|
0.3
|
|
Profit/(loss) after tax
|
|
1.1
|
2.1
|
(4.0)
|
(0.8)
|
|
|
|
|
|
|
|
|
Other segmental data
|
|
|
|
|
|
|
Depreciation of property, plant,
and equipment
|
|
1.0
|
0.4
|
-
|
1.4
|
|
Depreciation of right of use
asset
|
|
0.7
|
0.2
|
-
|
0.9
|
|
Amortisation of development
costs
|
|
2.5
|
-
|
-
|
2.5
|
|
Impairment on intangible
assets
|
|
1.3
|
-
|
-
|
1.3
|
|
12 months ended 31 December 2023
(unaudited)
|
|
Lighting
£'m
|
Signals &
Components
£'m
|
Unallocated
£'m
|
Total
£'m
|
|
Revenue
|
|
112.4
|
36.4
|
-
|
148.8
|
|
Gross profit
|
|
38.1
|
8.8
|
-
|
46.9
|
|
Overhead costs
|
|
(31.6)
|
(8.0)
|
(7.2)
|
(46.8)
|
|
Underlying profit/(loss) from operating
activities
|
|
6.5
|
0.8
|
(7.2)
|
0.1
|
|
Non-underlying items (note
4)
|
|
(11.8)
|
-
|
-
|
(11.8)
|
|
(Loss)/profit from operating activities
|
|
(5.3)
|
0.8
|
(7.2)
|
(11.7)
|
|
Financial expense
|
|
-
|
-
|
(2.7)
|
(2.7)
|
|
(Loss)/profit before tax
|
|
(5.3)
|
0.8
|
(9.9)
|
(14.4)
|
|
Taxation
|
|
-
|
-
|
3.6
|
3.6
|
|
(Loss)/profit after tax
|
|
(5.3)
|
0.8
|
(6.3)
|
(10.8)
|
|
|
|
|
|
|
|
|
Other segmental data
|
|
|
|
|
|
|
Depreciation of property, plant,
and equipment
|
|
2.4
|
0.8
|
-
|
3.2
|
|
Depreciation of right of use
asset
|
|
1.5
|
0.6
|
-
|
2.1
|
|
Amortisation of development
costs
|
|
3.5
|
1.1
|
-
|
4.6
|
|
Impairment on intangible
assets
|
|
9.2
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months ended 31 December 2022 (audited)
|
|
Lighting
£'m
|
Signals &
Components
£'m
|
Unallocated
£'m
|
Total
£'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 (note
4)
|
|
(2.7)
|
-
|
-
|
(2.7)
|
|
Profit/(loss) from operating activities
|
|
4.2
|
5.7
|
(7.6)
|
2.3
|
|
Financial expense
|
|
-
|
-
|
(1.8)
|
(1.8)
|
|
Profit before tax
|
|
4.2
|
5.7
|
(9.4)
|
0.5
|
|
Taxation
|
|
-
|
-
|
(0.1)
|
(0.1)
|
|
Profit after tax
|
|
4.2
|
5.7
|
(9.5)
|
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 of development
costs
|
|
4.4
|
-
|
-
|
4.4
|
|
Impairment of intangible
assets
|
|
1.3
|
-
|
-
|
1.3
|
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
Ended
31
December
2023
£'m
(unaudited)
|
6
months
ended
31
December
2022
£'m
(unaudited)
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
North America
|
58.9
|
71.2
|
116.7
|
132.7
|
|
EMEA
|
8.1
|
7.2
|
14.3
|
14.5
|
|
Rest of World
|
8.6
|
10.5
|
17.8
|
22.5
|
|
Revenue
|
75.6
|
88.9
|
148.8
|
169.7
|
3. Intangible assets
|
|
Patents,
licenses, and
trademarks
£'m
|
Goodwill
£'m
|
Software
licenses
£'m
|
Development
costs
£'m
|
Total
£'m
|
|
Net book value at 1 January 2023
|
2.0
|
9.2
|
0.7
|
9.5
|
21.4
|
|
Additions
|
0.8
|
-
|
-
|
2.8
|
3.6
|
|
Amortisation
|
(0.8)
|
-
|
(0.1)
|
(3.7)
|
(4.6)
|
|
Impairment
|
-
|
(9.2)
|
-
|
-
|
(9.2)
|
|
Effects of foreign exchange
movements
|
(0.1)
|
-
|
-
|
(0.5)
|
(0.6)
|
|
Net book value at 31 December 2023
|
1.9
|
-
|
0.6
|
8.1
|
10.6
|
A review for impairment was
performed at 31 December 2023 which has resulted in an impairment
of goodwill of £9.2m being recognised. The recoverable amount of
the Lighting segment based on value in use is £53.6m, which is the
carrying value at the end of the year. In accordance with IFRIC 10
the impairment of goodwill recognised cannot be subsequently
reversed. The impairment charge is material, non-cash, and
non-operational related items and has therefore been excluded from
underlying results (note 4).
The basis of the recoverable
amount is the value in use using management's latest 5-year
forecast. This forecast reflects the growth opportunities inherent
in the business in the medium term, including enhanced gross margin
stemming from the implementation of the transformation plan. The
long-term growth rate for the valuation into perpetuity has been
determined as the average of Consumer Price Index (CPI) rates for
the countries in which the CGU operates, predicted for the next
five years.
The pre-tax discount rate is based
on the Group's weighted average cost of capital, which reflects
current market assessments of a number of factors that impact on
the time value of money and any risk specific to the Group. The
discount rate has increased due to the company specific risk
increasing following the announcement of the transformation plan.
The rate includes management's assessment of a normal level of
debt-to-equity ratio within similar companies in the Group's
sector. The costs of the ultimate holding company (stewardship
costs) have been allocated to each CGU as they provide necessary
support to the CGUs to generate cash inflows. These costs have been
allocated on the same allocation basis as the administration
costs.
The key assumptions used in the
value in use calculation are set out below:
|
|
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
Discount rate - pre tax
|
|
19.0%
|
17.9%
|
|
Terminal growth rate
|
|
2.0%
|
2.3%
|
|
Revenue 5-year growth rate range
for lighting segment
|
|
10%
|
12-13%
|
|
Gross margin 5-year
improvement
|
|
6.4%
|
6.8%
|
|
Stewardship allocation
cost
|
|
80%
|
80%
|
4. Non-underlying items
The Group incurs cost and earns
income that is non-recurring in nature or that, in the Director's
judgement, should 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
ended
31
December
2023
£'m
(unaudited)
|
6
months
ended
31
December
2022
£'m
(unaudited)
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
Impairment of goodwill (note
3)
|
9.2
|
-
|
9.2
|
-
|
|
Costs related to manufacturing
partner
|
0.8
|
0.2
|
1.1
|
1.0
|
|
Other litigation costs
|
0.2
|
0.4
|
0.3
|
0.4
|
|
Transformation costs
|
1.2
|
-
|
1.2
|
-
|
|
Impairment of capitalised
development costs
|
-
|
1.3
|
-
|
1.3
|
|
Non-underlying costs recorded in administrative
expenses
|
11.4
|
1.9
|
11.8
|
2.7
|
Please
refer to note 3 for details of the impairment of
goodwill.
During the 12-month period to
December 2023 costs of £1.1m have been expensed (2022: £1.0m)
relating to a legal claim with Sanmina, a manufacturing partner.
Please refer to note 14 for further details of this claim. Other
litigation costs of £0.3m for the year to 31 December 2023 (2022:
£0.4m) relate to a contractual litigation case relating to the use
of intellectual property which was concluded in 2023.
The Group has incurred £1.2m of
non-underlying costs relating to the transformation plan. This is a
significant multi-year change programme for the Group 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 its core industrial LED lighting market. The multi-year
transformation plan is a material, infrequent programme and is not
considered to be part of the underlying performance of the
business. The costs incurred in H2 2023 relate to resetting and realigning the Group's cost
base.
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 £1.3m was impaired in
H2 2022 and the non-cash cost classified as non-underlying in
accordance with Group accounting policy.
5. Financial expense
|
|
6 months
ended
31
December
2023
£'m
(unaudited)
|
6
months
ended
31
December
2022
£'m
(unaudited)
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
Interest expense on lease
liabilities
|
0.3
|
0.3
|
0.5
|
0.5
|
|
Interest expense on financial
liabilities, except lease
liabilities
|
1.0
|
0.6
|
2.0
|
1.1
|
|
Arrangement fee
amortisation
|
0.1
|
0.1
|
0.2
|
0.1
|
|
Net interest on defined benefit
pension liability
|
-
|
0.1
|
-
|
0.1
|
|
Financial expense
|
1.4
|
1.1
|
2.7
|
1.8
|
6. Income tax expense
The tax credits of £2.6m for the 6
month period to 31 December 2023 and of £3.6m for the 12 month
period to 31 December 2023 reflect 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%.
7. Earnings per share (EPS)
The calculation of the 6 month
basic EPS at 31 December 2023 was based on a loss for the 6 month
period of £7.6m (2022: £0.8m loss) and a weighted average number of
ordinary shares outstanding during the 6 months ended 31 December
2023 of 36,413,997 (2022: 32,720,920), excluding
the 204,838 own shares purchased by the Group to
satisfy share awards (which includes 19,048 shares purchased in the
12 month period to 31 December 2023 for £43k).
The calculation of the 12 month
basic EPS at 31 December 2023 was based on a loss for the 12 month
period of £10.8m (2022: £0.4m profit) and a weighted average number
of ordinary shares outstanding during the 12 months ended 31
December 2023 of 34,650,940 (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
12 month period to 31 December 2023 for £43k).
Weighted average number of ordinary shares
|
|
6 months
ended
31
December
2023
'000
(unaudited)
|
6
months
ended
31
December
2022
'000
(unaudited)
|
12 months
ended
31
December
2023
'000
(unaudited)
|
12
months
ended
31
December
2022
'000
(audited)
|
|
Weighted average number of
shares
|
36,414
|
32,721
|
34,651
|
32,575
|
|
Dilutive effect of share
options
|
699
|
292
|
699
|
656
|
|
Diluted weighted average number of
shares
|
37,113
|
33,013
|
35,350
|
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
ended
31
December
2023
Per share
(unaudited)
|
6
months
ended
31
December
2022
Per
share
(unaudited)
|
12 months
ended
31
December
2023
Per share
(unaudited)
|
12
months
ended
31
December
2022
Per share
(audited)
|
|
Basic (loss)/profit per
share*
|
(21.0p)
|
(2.4p)
|
(31.1p)
|
1.2p
|
|
Diluted (loss)/profit per
share*
|
(21.0p)
|
(2.4p)
|
(31.1p)
|
1.2p
|
*Where a loss has been recognized the same number of shares
are used in both the basic and diluted loss per share calculation
as there is no dilutive effect when the Group is in a loss-making
position.
8. Dividends
There were no dividends declared or
paid in the 12 months ended 31 December 2023. The Directors have
not declared an interim dividend for 2023 (2022: nil).
9. Inventories
|
|
12 months
ended
31 December
2023
£'m
(unaudited)
|
12
months
ended
31
December 2022
£'m
(audited)
|
|
Raw materials and
consumables
|
15.7
|
22.7
|
|
Work in progress
|
11.8
|
11.9
|
|
Finished goods
|
13.0
|
18.8
|
|
Spare parts
|
0.2
|
0.2
|
|
Total
|
40.7
|
53.6
|
Inventories to the value of £61.9m
(31 December 2022: £79.0m) were recognised as expenses in the
period. The inventory reserve at the balance sheet date was £2.7m,
which represents 6.3% of gross inventory (31 December 2022: 7.7%).
The reserve was reduced by £1.9m due to utilisation in the period
offset by a £0.6m addition.
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.
£2.6m.
We continue to keep inventory
levels and future commitments under close review and the Group
remains focus on reducing the level of inventory held.
10. Borrowings
The Group's funding includes a
revolving credit facility (RCF) of USD $34 million from HSBC, set
to mature in July 2025, with options for two one-year extensions.
Aligned with the Group's robust commitment to environmental,
social, and governance (ESG) principles, the RCF facility operates
as a sustainability-linked loan. As agreed, the Group has repaid
the £10 million Covid-19 Large Business Interruption Loan (CLBIL),
with the £2 million repaid in the first half of 2023.
Quarterly evaluations ensure
compliance with the Group's banking covenants, which, except for
the temporarily waived additional covenant on the CLBILS loan
concerning adjusted cash flow to debt service, were fully compliant
during the period. In the third quarter of 2023, standard covenants
were briefly reset for that quarter, returning to their original
thresholds afterward. The RCF facility is subject to standard
covenants, encompassing maximum leverage and minimum interest
cover.
|
|
|
|
12 months
ended
31
December
2023
£'m
(unaudited)
|
12
months
ended
31
December
2022
£'m
(audited)
|
|
Borrowings at the beginning of the
period
|
|
|
22.6
|
16.9
|
|
Facility drawdown
(RCF)*
|
|
|
3.9
|
8.5
|
|
Facility repayment
(RCF)
|
|
|
(1.5)
|
-
|
|
Facility repayment
(CLBILS)*
|
|
|
(2.0)
|
(4.0)
|
|
Interest accrued
|
|
|
2.7
|
1.1
|
|
Interest paid
|
|
|
(2.7)
|
(1.1)
|
|
Impact of revaluing USD
borrowings
|
|
|
(1.1)
|
1.2
|
|
Borrowings at the end of the period
|
|
|
21.9
|
22.6
|
*Re-presentation of 2022 CLBILS repayment and RCF drawdown,
with no impact on overall borrowings statement
11. Share capital
|
|
31
December
2023
Number
(unaudited)
|
31
December
2023
£'m
(unaudited)
|
31
December
2022
Number
(audited)
|
31
December
2022
£'m
(audited)
|
|
Authorised:
|
|
|
|
|
|
Ordinary shares of 1.89p
each
|
39,828,141
|
0.7
|
32,946,371
|
0.6
|
|
|
|
|
|
|
|
Issued and fully paid:
|
|
|
|
|
|
At 1 January
|
32,946,371
|
0.6
|
32,610,025
|
0.6
|
|
Issued during the year
|
6,881,770
|
0.1
|
336,346
|
-
|
|
Own shares acquired in the
year
|
-
|
-
|
-
|
-
|
|
At 31 December
|
39,828,141
|
0.7
|
32,946,371
|
0.6
|
On 5 April 2023 a total of 246,513
new ordinary shares of 1.89 pence each in the capital of the
Company were issued.
On 31 October 2023 a total of
6,635,257 new ordinary shares of 1.89 pence each in the capital of
the Company have been allotted to raise gross proceeds of
approximately £10.5 million. Share issue costs of £0.7m have been
netted off against the share premium arising on the new share issue
(see note 12).
12. Share premium account
|
|
|
|
31
December
2023
£'m
(unaudited)
|
31
December
2022
£'m
(audited)
|
|
At 1 January
|
|
|
1.0
|
-
|
|
Minority interest
purchase
|
|
|
-
|
1.0
|
|
Issued during the year
|
|
|
10.4
|
-
|
|
Share issues costs
|
|
|
(0.7)
|
-
|
|
At 31 December
|
|
|
10.7
|
1.0
|
13. Principal exchange rates
|
|
6 months
ended
31
December
2023
(unaudited)
|
6
months
ended
31
December
2022
(unaudited)
|
12 months
ended
31
December
2023
(unaudited)
|
12
months ended
31
December
2022
(audited)
|
|
Average for the period
|
|
|
|
|
|
US Dollar
|
1.25
|
1.18
|
1.24
|
1.24
|
|
Canadian Dollar
|
1.69
|
1.57
|
1.68
|
1.61
|
|
Euro
|
1.16
|
1.15
|
1.15
|
1.17
|
|
Mexican Peso
|
21.68
|
23.42
|
22.04
|
24.87
|
|
|
|
|
31
December
2023
(unaudited)
|
31
December
2022
(audited)
|
|
Spot rate
|
|
|
|
|
|
US Dollar
|
|
|
1.27
|
1.21
|
|
Canadian Dollar
|
|
|
1.69
|
1.64
|
|
Euro
|
|
|
1.15
|
1.13
|
|
Mexican Peso
|
|
|
21.60
|
23.53
|
14. 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 31 December 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 willful 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 willful 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 lodged a motion for summary
judgment to dismiss certain elements of Dialight's claims and
counter-claims. The Court's ruling on Sanmina's dismissal motion
(with pleadings first filed on 2 May 2022) 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.
Sanmina subsequently filed a motion
of reconsideration seeking the reversal of the judge's denial of
summary adjudication of Sanmina's $5.3m accounts receivable claim.
The Court's ruling on Sanmina's motion for reconsideration was
released to the parties under seal on 28 November 2023 where the
court: (a) stated that it was granting the motion for
reconsideration solely to the extent that the Court's prior opinion
could be construed as finding that certain evidence established as
a matter of law that Dialight timely rejected invoices comprising
Sanmina's accounts receivable claim; (b) stated that otherwise
Sanmina's motion for reconsideration was denied; and, (c) affirmed
its prior opinion denying Sanmina's motion for summary judgment on
its accounts receivable claim.
Dialight's fraudulent inducement
claim, together with various claims and counter-claims relating to
excess and obsolete inventory, accounts receivable and accounts
payable, will now proceed to trial, and Dialight will continue to
rigorously pursue its claims. A trial date has been set for 15 July
2024, subject to any further motions, appeal processes and/or
mediation, and is anticipated to last for 10 days. 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)
and at Dialight's corporate website at
www.dialight.com/ir/shareholder-information/sanmina-litigation/.
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.
15. 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 31
December 2023 (see also note 16 below).
16. Interest 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 £1m satisfied by
issuing 266,958 shares and up to £0.1m in cash, plus £0.1m 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 £0.7m. The Group has recognised
a decrease in non-controlling interest of £0.4m and a decrease in
equity attributable to the parent of £0.8m. 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
ended
31
December
2023
£m
(unaudited)
|
6
months
ended
31
December
2022
£m
(unaudited)
|
12 months
ended
31
December
2022
£m
(unaudited)
|
12
months
ended
31
December
2022
£m
(audited)
|
|
Carrying amount of non-controlling
interest acquired
|
-
|
-
|
-
|
0.4
|
|
Consideration paid to
non-controlling interest
|
-
|
-
|
-
|
(1.0)
|
|
Incremental costs directly
attributable to the transaction
|
-
|
-
|
-
|
(0.2)
|
|
Excess of consideration paid less
costs recognised in transactions with non-controlling interests
within equity
|
-
|
-
|
-
|
(0.8)
|
There were no transactions with
non-controlling interests in 2023.
17. 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 12 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)
with the inclusion of an additional risk in relation to the
achievement of the transformation plan.
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.
·
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.
·
Transformation
plan - Key projects and programmes
could fail to deliver, resulting in missed market opportunities,
and/or take longer to deliver, resulting in missed synergies and
savings.
· 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 2024 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
12 months and their impact on the condensed set of financial
statements, and a description of the principal risks and
uncertainties for the remaining 3 months of the financial period;
and
· material related-party transactions in the first 12 months and
any material changes in the related-party transactions described in
the last annual report.
On behalf of the Board
Steve Blair - Group Chief Executive
Carolyn Zhang - Group Chief Financial
Officer
