Dialight
plc
("Dialight" the "Company" or
the "Group")
Audited preliminary results
for the 15-month period ended 31 March 2024
Dialight plc (LSE: DIA.L), the global leader in sustainable
LED lighting for industrial applications,
announces its audited preliminary results for the 15-month
period ended 31 March 2024.
Financial summary
|
15-months ended 31 March
2024
US $'m
|
12-months ended 31 December 2022
US
$'m
|
Revenue
|
226.0
|
209.8
|
Underlying (loss)/profit from
operating activities
|
(4.6)
|
6.1
|
(Loss)/profit from operating
activities
|
(30.2)
|
2.8
|
(Loss)/profit after tax
|
(32.5)
|
0.5
|
Statutory (loss)/profit per share
- diluted
|
(91.1)
cents
|
1.5
cents
|
Pre-IFRS16 Net debt
|
(16.4)
|
(25.4)
|
Key points
· Group revenue for the 15-month period to 31 March 2024 was US
$226.0m
· Underlying gross margin dropped slightly to 31.0% versus
32.1% in the previous period reflecting a combination of labour and
materials inflation
· Underlying operating loss of US $4.6m for the 15-month period
to 31 March 2024
· Non-underlying costs of US $25.6m compromise costs relating
to the transformation plan (US $4.5m), impairment of goodwill (US
$11.2m), impairment of other intangible assets (US $4.1m), business
disposal costs (US $3.5m), and litigation costs (US
$2.3m)
· Net
debt of US $16.4m after raising US $12.0m net proceeds from an
equity issue completed in October 2023
· Completed on the disposal of the Traffic business in July
2024 realising gross cash proceeds of US $5.8m
· Over
the last five months, refocused the business in alignment with the
core values that the leadership team have collaboratively
developed
· Positive momentum within the business moving forward with
alignment and support to the strategy
Full year results presentation
The Annual Report & Accounts
for the 15-month period ended 31 March 2024 results presentation
can be found at:
https://www.dialight.com/ir/reports-news
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.
Underlying (loss)/profit from operating activities and underlying
LBIT/EBIT are the same measures.
3. The
group's interim results for the six months ending 30 September 2024
are due to be released in November 2024.
4.
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 is 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.
CHIEF EXCEUTIVE OFFICER'S REVIEW
The financial period under review
was one of significant change for Dialight, with a major
restructuring not only of the Board and senior leadership team but
the entire organisation's approach to doing business. Whilst I have
only been part of the executive team for a relatively short time -
having stepped into the CEO role in February of this year - a lot
has already occurred and we are already starting to see the green
shoots of progress.
Total Group revenue for the
15-month period to 31 March 2024 was US $226.0m versus US $209.8m
for the 12-month period to 31 December 2022. This slight increase
is negated by the longer reporting timeframe, and indicates a
slowdown in revenue growth over the past year. However, the last
three months showed improving performance month by month and we met
forecast revenues in February and March.
Dialight made an underlying
operating loss of US $4.6m in the same 15-month period, and our
underlying gross margin dropped slightly to 31.0% (versus 32.1% in
the previous period).
We have refocused the business in
alignment with the core values that the leadership team have
collaboratively developed in recent months. We are confident this
will help bring success to Dialight going forward. The
opportunities are significant, it is for us to maximise what we
achieve and when.
TRANSFORMING THE ORGANISATION
In September 2023 we announced a
transformation plan that will see us streamline the Group, reset
cost and productivity, and accelerate growth in lighting. We are
executing on that plan with a new self-help strategy further
developed in early 2024, comprising four key pillars:
1. Winning hearts and minds
We will engage and excite our
people, our shareholders and our customers.
2. Sales transformation
We will make improvements to
better support the Sales team in feeding our factories with orders.
We will also be providing additional tools and support to help with
accountability, discipline and excellence from our Sales
teams.
3. Operational transformation
We will streamline processes and
optimise our production capabilities.
4. Margin improvement and cash generation
We will run the business in a
sustainable way to secure Dialight's long-term future.
Winning hearts and minds
If our strategy is to be a
successful one, we need all our people to be pulling in the same
direction. The senior leadership team is making every effort to
engage and excite our employees, to improve discretionary effort
and delivery at every level.
We are reinforcing the message
that change is coming, that change is expected, and that change
will be delivered. Through accountability, discipline, commitment
and integrity - and a core set of goals and objectives - we are
helping every person understand their contribution to the business,
removing the silos that had been allowed to form in recent years
and setting the business on a path for growth.
In early 2024, we held town hall
meetings in Farmingdale (New Jersey, US), Tijuana (Mexico),
Ensenada (Mexico) and Perth (Australia), as well as roundtable
discussions with employees in Farmingdale. Based on the input
received during these sessions, we followed up with feedback emails
to employees - and I have used a monthly written blog to update the
global teams on our progress across the organisation.
We have also started holding
regular meetings between all sales regions and our engineering and
development teams, to better inform decisions about future product
requirements and opportunities for cost improvement.
We have two teams looking at the
engineering change order (ECO) and order input and quotation
processes, based on the feedback we have received.
The response from across the
organisation has been positive, with employees appreciating the
more open and transparent communication they are seeing and
hearing. We are committed to treating our people as intelligent,
individual human beings, because their support is vital.
I will continue this combination
of in-person and written dialogue as our transformation progresses,
keeping employees informed and recognising the important role they
are playing.
Sales transformation
Top-line growth is the key to our
future success - and especially to the short-term recovery of the
business.
We are transforming globally to
ensure all teams are using the same tools and approach, breaking
down silos and improving collaboration. By being better organised
internally, and by working more effectively with our customers, we
can deliver more value to the business - generating more orders
with greater predictability.
We are investing in our Sales team
to accelerate this change, including better training and more
regular reviews, and we are demanding disciplined sales
performance.
We are also reviewing the global
makeup of our team, to ensure we have the right people in the right
places - both to capitalise on the opportunities we have
identified, and to improve the efficiency of our sales operation.
This efficiency will allow us to reinvest in salespeople and sales
support.
Operational transformation
Our operations teams are strong
and committed to better visibility and control of their business,
but we have to provide them with better tools, visibility and
support to achieve this goal.
In support of this, I have created
the role of Chief Operating Officer - and was delighted that Rizwan
Ahmad has agreed to accept the role. Rizwan has already been with
Dialight for more than 20 years, running engineering and
development. He knows and understands the business well and is a
real team player.
Rizwan will be carrying out an
in-depth review of the approach, assumptions, and next steps for
our operational transformation - including our order-to-cash
process - with the goal of making the organisation's operations
more efficient, effective and sustainable.
One strong example of where we can
make significant improvements is in product simplification - and we
are already making real progress here. For example, in one product
we have reduced the number of individual SKUs from 70 to just three
- a fundamental difference to the manufacturing process that saves
time and money while still producing the same result for our
customers.
Margin improvement and cash generation
Cost reduction and control is
essential if we are to generate the headroom we require in order to
accelerate our transformation.
We know that every penny we spend
is one we cannot invest somewhere else, so we are being more
careful about controlling how and where we spend - giving us the
freedom to invest in new salespeople, training, systems and tools.
We are also making further process and policy implementations and
improvements across the business to have better control of every
aspect of our operations.
With quick action, discipline and
accountability, I am confident that we can improve Dialight's
financial outlook and make a real difference to the business in the
medium term, as we seek to maximise our self-help approach and
deliver predictable forecasts and performance for the benefit our
customers, suppliers, employees, shareholders, and other
stakeholders.
Steve Blair
Chief Executive Officer
FINANCIAL REVIEW
Dialight has been through a true
reset over the period, with an almost completely new Board and new
management in place. We are also resetting and rebuilding our
relationships with all our external stakeholders, including our
shareholders.
We want better visibility of the
company's performance throughout the year, which is one of the key
reasons we have changed our year end from December to March - we
are putting ourselves in a better position to respond to the
seasonality of our industry. This change also means that this
report covers a 15-month period.
The fourth quarter of the calendar
year (October to December) is always an unpredictable one for our
business. However, while previously this marked the end of our
reporting period, we are now able to better manage our expectations
and provide better forecasting for what will now be our final
quarter (January to March) - giving us a clearer view of how we can
adjust, reorganise, and bring greater predictability to our
operations.
As a Board and a management team,
we are committed to providing realistic forecasts for the business
- and we will deliver against these forecasts quarter after
quarter. You can already see the impact of our hard work in our
improved Q5 performance, as Dialight met its revenue forecasts for
the first time in 18 months - with group revenues of US $41.0m in
the quarter ending 31 March 2024.
We will also keep our promises to
the bank by living within our means, with a manageable facility,
and delivering within that. We are tightening up all areas of the
business - being more cautious, giving more realistic forecasts,
and living up to them.
Another major difference in our
reporting this year is the currency change from GBP to USD. While
Dialight will continue as a PLC registered and listed in the UK,
the majority of our production and sales arise in North America -
making it more natural for us to report in the currency that 80% of
our revenue is paid in. USD has always been Dialight's dominant
currency, and our reporting now reflects that.
We are rebuilding shareholder and
market confidence, and gradually getting the business back to a
healthy position.
CURRENCY CHANGE
The Group has historically
presented its financial results in GBP sterling despite most of the
underlying revenues, costs and financing being denominated in US
dollars. As a result, large movements in foreign exchange rates
resulted in significant translational differences in the reported
results. To mitigate this the Group has changed its presentational
currency from GBP sterling to US dollars, with prior-year
comparatives restated in line. Please refer to note 1(b) for
further details of the change in accounting policy.
FINANCIAL PERFORMANCE
Group revenues of US $226.0m for
the 15 months ended 31 March 2024 (2022: US $209.8m) generated an
underlying gross profit of US $70.1m (2022: US $67.4m) giving an
underlying gross margin of 31.0% 2022 (32.1%). Distribution costs
of US $36.8m and underlying administrative costs of US $37.9m
resulted in an underlying operating loss of US $4.6m. The total
operating loss for the period was US $30.2m (2022: profit of US $2.8m) after US
$25.6m (2022: $3.3m) of non-underlying costs were
recognised.
12 month comparison
Group revenues for the 12 months
ended 31 December 2023 were $185.0m, an 11.8% decrease against the
prior year. The reduction was seen across both segments, with
Signals and 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.
Gross margin for the 12 month period reduced slightly to 31.6%
(2022: 32.1%), with improvements in material costs through cost
reduction projects and negotiation with suppliers in part
offsetting increased labour rates and lower fixed overhead
absorption.
We maintained our strong focus on
cost control in the year, lowering Selling, General and
Administrative (SG&A) costs by $3.0m.
This combination of lower volumes
and gross margins contributed to a significant reduction in Group
underlying operating profit from operating activities to US $0.1m
(2022: US $6.1m).
Lighting before unallocated costs
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 15-month period to March 2024 was weaker than expected
for this segment, with customers continuing to exercise tight
controls over spending - particularly within capex projects. This
has predominantly been due to inflationary pressures, shortages of
key skills and economic uncertainty, resulting in projects being
delayed.
Lighting
|
15-months
ended
31 March
2024
US $m
|
12-months
ended
31 December
2022
US $m
|
Revenue
|
171.1
|
149.6
|
Underlying gross profit
|
57.6
|
50.2
|
Underlying gross profit margin
|
33.7%
|
33.6%
|
Underlying overheads
|
(50.8)
|
(41.7)
|
Underlying operating profit before unallocated
costs
|
6.8
|
8.5
|
Underlying gross margins slightly
improved during the period, 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 in the previous financial year
but that were consumed during the current financial
period.
Overhead costs were proportionally
lower to the previous year reflecting restructuring of savings,
proportionally lower sales commissions and the settlement reached
relating to intellectual property (IP) charges.
Signals & Components before unallocated
costs
Signals and Components is a
high-volume business operating within highly competitive markets.
There are three main elements: traffic lights; Opto-Electronic (OE)
components; and vehicle lights.
Signals & Components
|
15-months
ended
31 March
2024
US $m
|
12-months
ended
31 December
2022
US $m
|
Revenue
|
54.9
|
60.2
|
Underlying gross profit
|
12.5
|
17.2
|
Underlying gross profit margin
|
22.8%
|
28.6%
|
Underlying overheads
|
(12.3)
|
(10.3)
|
Underlying operating profit before unallocated
costs
|
0.2
|
6.9
|
The previously highlighted
cyclical downturn in the key OE market resulted in revenue
decreasing proportionally with an underlying gross margin of 22.8%
- significantly below the 28.6% seen last year - due to lower
absorption of fixed production costs and increased labour rates.
Overhead costs of US $12.3m reduced proportionally due to
restructuring savings, resulting in an underlying profit of US
$0.2m for the period.
Unallocated costs
Central overheads comprise costs
not directly attributable to a segment and are shown separately. In
the 15-month period these totalled US $13.0m, being US $11.6m of
underlying costs with a further US $1.4m of non-underlying costs.
Underlying costs primarily relate to head office costs and
professional fees with non-underlying costs relating to the finance
transformation project.
Non-underlying costs
Non-underlying costs
|
15-months
ended
31 March
2024
US $m
|
12-months
ended
31 December
2022
US $m
|
Transformation project
|
4.5
|
-
|
Impairment of goodwill (note
8)
|
11.2
|
-
|
Impairment of other intangible
assets (excluding business disposal impairment)
|
4.1
|
1.6
|
Litigation cost
|
2.3
|
1.7
|
Business disposal costs
|
3.5
|
-
|
Total
|
25.6
|
3.3
|
To give a full understanding of
the Group's performance and aid comparability between periods, the
Group reports certain items as non-underlying to normal
trading.
The Group has incurred US $4.5m 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. Implementation of
the transformation plan is expected to be complete by 31 March
2026. 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 the 15-month
period to 31 March 2024 relate to resetting and realigning the
Group's cost base including severance costs, and legal and
professional fees. An impairment charge of US $1.1m for property,
plant, and equipment and dilapidation costs of US $0.4m have been
recognised in relation to the planned vacation of the Malaysian
facility later in 2024.
A review of goodwill was performed
at 31 December 2023 which has resulted in an impairment of goodwill
of US $11.2m 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.
In addition a further US $3.5m of
development costs and US $0.6m of concessions, patents, licences
and trademarks costs have been impaired during the period. An
impairment review of other intangible assets was performed as at 31
March 2024 following the preparation of revised 5 year cashflow
forecasts which showed reduced growth. The basis of the recoverable
amount is the value in use using the revised 5-year
forecast.
During the 15-month period to
March 2024 costs of US $1.9m have been expensed (2022: US $1.2m)
relating to a legal claim with Sanmina, a manufacturing partner.
Please refer to note 19 for further details of this claim. Other
litigation costs of US $0.4m for the 15-month period to 31 March
2024 (2022: US $0.5m) relate to a contractual litigation case
relating to the use of intellectual property which was concluded in
2023.
Business disposal costs relate to
the post year end disposal of the Traffic business. These costs
relate to a US $0.5m impairment of development costs for projects
that will no longer be pursued and US $3.0m of specific inventory
that will no longer be sold which has been recognised within costs
of goods sold.
Inventory
Inventory levels of US $49.1m
decreased by US $15.7m from December 2022, driven by large
reductions in holdings of raw materials and finished goods - and a
smaller decrease in the levels of sub-assemblies.
|
31 March
2024
US $m
|
31 December
2022
US $m
|
Raw materials
|
18.8
|
27.5
|
Sub-assemblies
|
13.4
|
14.4
|
Finished goods
|
16.7
|
22.7
|
Spare parts
|
0.2
|
0.2
|
Total
|
49.1
|
64.8
|
Following the global commodity
shortage and increased shipping times, Dialight - in common with
many companies - took the decision to hold higher levels of raw
material in order to safeguard production and fulfil customer
orders. As macro- economic conditions have eased over the past 15
months, Dialight has been able to reduce this holding - using the
raw materials on hand and maximising usage of previously
manufactured finished goods.
Improved inventory management has
resulted in an improved ageing profile of goods held, with the aged
inventory provision reducing from US $5.0m at December 2022 to US
$3.6m at March 2024. At March 2024 an additional provision of US
$3.0m was recognised in relation to specific inventory relating to
the traffic business that is not expected to be sold, resulting in
a total inventory provision of US $6.6m.
Cash and borrowings
The Group ended March 2024 with
net debt of US $16.4m, a decrease of US $9.0m from December 2022's
US $25.4m. The overall level of borrowing remained consistent at US
$27.9m at 31 March 2024, compared with US $27.4m at 31 December
2022. Net debt excludes liabilities related to the adoption of IFRS
16 leases, which are excluded for covenant testing purposes. The
roll-forward of net debt was as follows:
Net Debt
|
US $m
|
US $m
|
Opening balance 01 January 2023
|
|
(25.4)
|
Inflows
|
|
|
Operating cash flows before
movements in working capital
|
3.0
|
|
Equity raise
|
12.0
|
|
Movements in inventory
|
15.7
|
30.7
|
Outflows
|
|
|
Movements in working capital
excluding inventory
|
(5.4)
|
|
Capital expenditure including
intangible assets
|
(6.8)
|
|
Interest and tax paid
|
(6.7)
|
|
Repayment of lease
liabilities
|
(2.9)
|
|
Repurchase of own
shares
|
(0.1)
|
(21.9)
|
Foreign exchange
movements
|
|
0.2
|
Closing balance at 31 March 2024
|
|
(16.4)
|
The main factors behind the
movement in net debt were:
· The
equity raise, which generated net proceeds of US $12.0m after
transaction costs of US $0.9m;
· Reduction of US $15.7m in inventory, with significantly lower
levels of raw materials and finished goods held;
· A US
$10.9m reduction in trade payables following payment for materials
purchased towards the end of 2022, supporting purchase-price
negotiations with key suppliers; and
· 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.
Gross bank debt of US $27.9m was
offset by cash in hand of US $11.5m - see note 13 for further
details on bank borrowings. The interest expense of US $4.1m is
analysed in note 4.
Banking and covenants
The Group's funding includes a
revolving credit facility (RCF) of US $34.0 million from HSBC which
was extended on 14 June 2024 to 21 July 2026 on the same terms as
the original agreement. Aligned with the Group's robust commitment
to environmental, social, and governance (ESG) principles, the RCF
facility operates as a sustainability-linked loan.
The RCF facility is subject to
quarterly covenants encompassing maximum leverage and minimum
interest cover. The covenants for the quarter ending 30 September
2023 were temporarily reset from a leverage ratio maximum target of
less than 3x to 4.5x, and an interest cover minimum target of a
maximum 4x to 2.5x. The covenants reverted to the original hurdles
from quarter ending 31 December 2023 onwards.
A retrospective review of covenant
calculations for the 15-month period to 31 March 2024 was performed
by management as part of the year-end audit after certain matters
came to the attention of the Board. This retrospective review
identified that breaches of the covenants had and/or may have had
occurred when also retrospectively applying finalised year-end
accounting adjustments. These waiver requests were communicated to
HSBC who have agreed to issue retrospective covenant waivers for
the relevant quarters. The waivers are subject to legal
finalisation at the date of this report. Given the covenants were
and/or may potentially have been breached before and at 31 March
2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date,
the outstanding borrowings under the RCF of US $27.9m have been
classified as a current liability.
Please refer to note 1(c) for
details of how this has been considered as part of the going
concern assessment.
As agreed, the Group has repaid
the £10 million Covid-19 Large Business Interruption Loan (CLBIL),
with the final £2 million repaid in the first half of
2023.
Tax
Based on a loss before tax of US
$34.3m for the 15-month period, the Group had an effective tax rate
of 5.2% (2022: 16.7%) resulting in a tax credit of US $1.8m (2022:
charge of US $0.1m).
In the period the Group made a net
cash tax payment of US $2.6m.
Pension costs
The Group has two defined benefit
schemes that are closed to new entrants. The aggregate surplus on
both schemes is US $5.4m, a small decrease of US $0.1m from 31
December 2022. The income statement expense of US $0.1m is made up
of US $0.4m of current service costs expense offset by US $0.3m of
interest income. Actuarial losses of US $0.5m recognised in other
comprehensive income, were offset by cash contributions of US $0.3m
and an FX gain of US $0.2m. The cash cost of the scheme in the
period to 31 March 2024 of US $0.3m (2022: US $0.5m) was agreed
with the trustees following the 2019 valuation. The latest
valuations were completed as at April 2022, with future cash
contributions agreed at the current levels.
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
March 2024 equated to US $63.9m (December 2022: US
$83.0m).
The Board is not declaring a
dividend payment for the period ending March 2024 (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.
Post balance sheet events
The Group's multicurrency
revolving credit facility of $34.0m with HSBC was extended on 14
June 2024 to 21 July 2026 on the same terms as the original
revolving credit facility agreement.
On 29 July 2024 the Group
announced that it has entered into an agreement for the sale of its
business manufacturing signal lights used in traffic, pedestrian
and railroad management in North America (the Traffic Business) to
Leotek Electronics USA LLC and realising gross cash proceeds of US
$5.8m. After transaction and other costs, net cash proceeds are US
$5.5m which will be used to reduce group indebtedness. The Business
had previously been identified as non-core.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the 15-month period ended 31
March 2024
|
|
15-months
ended
31 March
2024
(audited)
|
12-months
ended
31 December
2022
(audited)
|
|
Note
|
US $'m
|
US $'m
|
Revenue
|
2
|
226.0
|
209.8
|
Cost of sales
|
|
(158.9)
|
(142.4)
|
Gross profit
|
|
67.1
|
67.4
|
Distribution costs
|
|
(36.8)
|
(31.5)
|
Administrative expenses
|
|
(60.5)
|
(33.1)
|
(Loss)/Profit from operating activities
|
|
(30.2)
|
2.8
|
|
|
|
|
Underlying (loss)/profit from
operating activities
|
2
|
(4.6)
|
6.1
|
Non-underlying items
|
3
|
(25.6)
|
(3.3)
|
(Loss)/Profit from operating activities
|
|
(30.2)
|
2.8
|
|
|
|
|
Financial expense
|
4
|
(4.1)
|
(2.2)
|
(Loss)/Profit before tax
|
|
(34.3)
|
0.6
|
Taxation
|
5
|
1.8
|
(0.1)
|
(Loss)/Profit for the period
|
|
(32.5)
|
0.5
|
|
|
|
|
(Loss)/Profit for the period attributable
to:
|
|
|
|
Equity owners of the
Company
|
|
(32.5)
|
0.5
|
Non-controlling
Interests
|
|
-
|
-
|
(Loss)/Profit for the period
|
|
(32.5)
|
0.5
|
|
|
|
|
(Loss)/Profit per share
|
|
|
|
Basic
|
6
|
(91.1)
cents
|
1.5
cents
|
Diluted
|
6
|
(91.1)
cents
|
1.5
cents
|
The accompanying notes are
extracted from the financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
for the period ended 31 March
2024
|
|
15-months
ended
31 March
2024
(audited)
|
12-months
ended
31 December
2022
(audited)
|
|
|
US $'m
|
US $'m
|
Other comprehensive income
|
|
|
|
Items that may be reclassified subsequently to profit and
loss
|
|
|
|
Exchange differences on
translation of foreign operations
|
|
0.4
|
0.3
|
Income tax on exchange difference
on translation of foreign operations
|
|
-
|
-
|
|
|
0.4
|
0.3
|
Items that will not be reclassified subsequently to profit
and loss
|
|
|
|
Remeasurement of defined benefit
pension liability
|
|
(0.5)
|
0.4
|
Income tax on remeasurement of
defined benefit pension liability
|
|
0.1
|
(0.1)
|
|
|
(0.4)
|
0.3
|
Other comprehensive income for the
period, net of tax
|
|
-
|
0.6
|
(Loss)/Profit for the
period
|
|
(32.5)
|
0.5
|
Total comprehensive income for the period
|
|
(32.5)
|
1.1
|
Attributable to:
|
|
|
|
-
Owners of the parent
|
|
(32.5)
|
1.1
|
-
Non-controlling interests
|
|
-
|
-
|
Total comprehensive income for the period
|
|
(32.5)
|
1.1
|
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
for the period ended 31 March 2024
(audited) and the year 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
|
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US $'m
|
US
$'m
|
US $'m
|
Balance at 1 January 2023
|
1.0
|
1.0
|
12.2
|
4.3
|
1.2
|
(1.1)
|
64.2
|
82.8
|
0.2
|
83.0
|
Loss for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
(32.5)
|
(32.5)
|
-
|
(32.5)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences, net of taxes
|
-
|
-
|
0.4
|
-
|
-
|
-
|
-
|
0.4
|
-
|
0.4
|
Remeasurement of defined benefit
pension liability, net of taxes
|
-
|
-
|
-
|
-
|
-
|
-
|
(0.4)
|
(0.4)
|
-
|
(0.4)
|
Total other comprehensive
income
|
-
|
-
|
0.4
|
-
|
-
|
-
|
(0.4)
|
-
|
-
|
-
|
Total comprehensive income for the period
|
-
|
-
|
0.4
|
-
|
-
|
-
|
(32.9)
|
(32.5)
|
-
|
(32.5)
|
Transactions with owners, recorded directly in
equity:
|
|
|
|
|
|
|
|
|
|
|
Issue of share capital
|
0.2
|
-
|
-
|
-
|
12.7
|
-
|
-
|
12.9
|
-
|
12.9
|
Transaction costs
|
-
|
-
|
-
|
-
|
(0.9)
|
-
|
-
|
(0.9)
|
-
|
(0.9)
|
Share-based payments
|
-
|
-
|
-
|
-
|
-
|
-
|
1.5
|
1.5
|
-
|
1.5
|
Re-purchase of own
shares
|
-
|
-
|
-
|
-
|
-
|
(0.1)
|
-
|
(0.1)
|
-
|
(0.1)
|
Total transactions with owners
|
0.2
|
-
|
-
|
-
|
11.8
|
(0.1)
|
1.5
|
13.4
|
|
13.4
|
Balance at 31 March 2024
|
1.2
|
1.0
|
12.6
|
4.3
|
13.0
|
(1.2)
|
32.8
|
63.7
|
0.2
|
63.9
|
|
Share
capital
|
Merger
reserve
|
Translation reserve
|
Capital
redemption reserve
|
Share
premium
|
Own
shares
|
Retained
earnings
|
Total
|
Non-controlling interests
|
Total
equity
|
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
US $'m
|
US
$'m
|
US $'m
|
Balance at 1 January 2022
|
1.0
|
1.0
|
11.9
|
4.3
|
-
|
(1.0)
|
63.4
|
80.6
|
0.8
|
81.4
|
Profit for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
0.5
|
0.5
|
-
|
0.5
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences, net of taxes
|
-
|
-
|
0.3
|
-
|
-
|
-
|
-
|
0.3
|
-
|
0.3
|
Remeasurement of defined benefit
pension liability, net of taxes
|
-
|
-
|
-
|
-
|
-
|
-
|
0.3
|
0.3
|
-
|
0.3
|
Total other comprehensive
income
|
-
|
-
|
0.3
|
-
|
-
|
-
|
0.3
|
0.6
|
-
|
0.6
|
Total comprehensive income for the year
|
-
|
-
|
0.3
|
-
|
-
|
-
|
0.8
|
1.1
|
-
|
1.1
|
Transactions with owners, recorded directly in
equity:
|
|
|
|
|
|
|
|
|
|
|
Share-based payments
|
-
|
-
|
-
|
-
|
-
|
-
|
0.6
|
0.6
|
-
|
0.6
|
Re-purchase of own
shares
|
-
|
-
|
-
|
-
|
-
|
(0.1)
|
-
|
(0.1)
|
-
|
(0.1)
|
Minority interest
purchase
|
-
|
-
|
-
|
-
|
1.2
|
-
|
(0.6)
|
0.6
|
(0.6)
|
-
|
Total transactions with owners
|
-
|
-
|
-
|
-
|
1.2
|
(0.1)
|
-
|
1.1
|
(0.6)
|
0.5
|
Balance at 31 December 2022
|
1.0
|
1.0
|
12.2
|
4.3
|
1.2
|
(1.1)
|
64.2
|
82.8
|
0.2
|
83.0
|
CONSOLIDATED STATEMENT OF TOTAL FINANCIAL
POSITION
at 31 March 2024
|
|
31 March
2024
(audited)
|
31 December
2022
(audited)
|
31 December
2021
(audited)
|
|
Notes
|
US $'m
|
US $'m
|
US $'m
|
Assets
|
|
|
|
|
Property, plant and
equipment
|
7
|
12.7
|
16.8
|
16.2
|
Right of use assets
|
|
8.8
|
12.7
|
15.3
|
Intangible assets
|
8
|
8.1
|
25.9
|
28.9
|
Deferred tax assets
|
|
5.8
|
2.8
|
1.8
|
Employee benefits
|
|
5.4
|
5.5
|
5.2
|
Other receivables
|
|
5.9
|
6.8
|
6.4
|
Total non-current assets
|
|
46.7
|
70.5
|
73.8
|
Inventories
|
10
|
49.1
|
64.8
|
57.4
|
Trade and other
receivables
|
|
32.3
|
36.6
|
35.4
|
Income tax recoverable
|
|
0.8
|
0.8
|
1.6
|
Cash and cash
equivalents
|
12
|
11.5
|
2.0
|
1.6
|
Total current assets
|
|
93.7
|
104.2
|
96.0
|
Total assets
|
|
140.4
|
174.7
|
169.8
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Trade and other
payables
|
|
(34.3)
|
(45.2)
|
(44.4)
|
Provisions
|
9
|
(1.2)
|
(0.7)
|
(0.8)
|
Current tax liabilities
|
|
(1.4)
|
(2.8)
|
(2.4)
|
Lease liabilities
|
|
(2.0)
|
(1.5)
|
(1.7)
|
Borrowings
|
13
|
(27.9)
|
(2.4)
|
(5.4)
|
Total current liabilities
|
|
(66.8)
|
(52.6)
|
(54.7)
|
Provisions
|
9
|
(1.6)
|
(1.9)
|
(1.7)
|
Borrowings
|
13
|
-
|
(25.0)
|
(17.4)
|
Lease liabilities
|
|
(8.1)
|
(12.2)
|
(14.6)
|
Total non-current liabilities
|
|
(9.7)
|
(39.1)
|
(33.7)
|
Total liabilities
|
|
(76.5)
|
(91.7)
|
(88.4)
|
Net assets
|
|
63.9
|
83.0
|
81.4
|
|
|
|
|
|
Equity
|
|
|
|
|
Issued share capital
|
14
|
1.2
|
1.0
|
1.0
|
Merger reserve
|
|
1.0
|
1.0
|
1.0
|
Share premium
|
15
|
13.0
|
1.2
|
-
|
Other reserves
|
|
15.7
|
15.4
|
15.2
|
Retained earnings
|
|
32.8
|
64.2
|
63.4
|
|
|
63.7
|
82.8
|
80.6
|
Non-controlling
interests
|
|
0.2
|
0.2
|
0.8
|
Total equity
|
|
63.9
|
83.0
|
81.4
|
CONSOLIDATED STATEMENT OF CASH FLOWS
for the period ended 31 March
2024
|
|
31 March
2024
(audited)
|
31
December 2022
(audited)
|
|
Notes
|
US $'m
|
US
$'m
|
Operating activities
|
|
|
|
(Loss)/profit for the
period
|
|
(32.5)
|
0.5
|
Adjustments for:
|
|
|
|
Financial expense
|
4
|
4.1
|
2.2
|
Income tax
(income)/expense
|
5
|
(1.8)
|
0.1
|
Share-based payments
|
|
1.5
|
0.6
|
Depreciation of property, plant
and equipment
|
7
|
4.3
|
3.6
|
Impairment losses on property,
plant and equipment
|
7
|
1.1
|
-
|
Gain on lease
modification
|
|
(0.2)
|
-
|
Depreciation of right of use
assets
|
|
3.0
|
2.2
|
Amortisation of intangible
assets
|
8
|
7.7
|
5.3
|
Impairment losses on intangible
assets
|
8
|
15.8
|
1.6
|
Operating cash flow before movements in working
capital
|
|
3.0
|
16.1
|
Decrease/(Increase) in
inventories
|
|
15.7
|
(8.3)
|
Decrease/(Increase) in trade and
other receivables
|
|
5.2
|
(1.4)
|
(Decrease/(Increase) in trade and
other payables
|
|
(10.9)
|
1.6
|
Increase in provisions
|
9
|
0.2
|
0.4
|
Pension contributions less
than/(more than) income statement charge
|
|
0.1
|
(0.5)
|
Cash generated by operations
|
|
13.3
|
7.9
|
Income taxes paid
|
|
(2.6)
|
(1.0)
|
Interest
paid2
|
4
|
(4.1)
|
(2.2)
|
Net cash generated by operations
|
|
6.6
|
4.7
|
Investing activities
|
|
|
|
Purchase of property, plant and
equipment
|
7
|
(1.4)
|
(4.2)
|
Purchase of intangible
assets
|
8
|
(5.4)
|
(4.6)
|
Purchase of Dialight Australia
shares
|
|
-
|
(0.1)
|
Net cash used in investing activities
|
|
(6.8)
|
(8.9)
|
Financing activities
|
|
|
|
Proceeds on issue of shares - net
of issue costs
|
14
|
12.0
|
-
|
Drawdown of bank
facility
|
13
|
6.2
|
18.6
|
Repayment of bank
facility
|
13
|
(5.9)
|
(13.0)
|
Arrangement fee for revised
facility
|
|
-
|
(0.6)
|
Re-purchase of own
shares
|
|
(0.1)
|
(0.1)
|
Repayment of lease
liabilities1
|
|
(2.9)
|
(2.0)
|
Net cash inflow from financing activities
|
|
9.3
|
2.9
|
Net increase/(decrease) in cash and cash
equivalents
|
|
9.1
|
(1.3)
|
Cash and cash equivalents at
beginning of the period
|
12
|
2.0
|
1.6
|
Effect of exchange
rates
|
|
0.4
|
1.7
|
Cash and cash equivalents at end of the
period
|
12
|
11.5
|
2.0
|
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.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
for the period ended 31 March 2024
(audited)
1. Basis of preparation and principal accounting
policies
(a) Statement of compliance
The consolidated financial
statements have been prepared in accordance with UK-adopted
International Accounting Standards. The Company has elected to
present its parent company financial statements in accordance with
FRS 102 "The Financial Reporting Standard applicable in the UK and
Republic of Ireland".
The financial information set out
in this document does not constitute the Group's statutory accounts
for the 15-month period ended 31 March 2024 or the 12-month period
ended 31 December 2022 but is derived from those accounts.
Statutory accounts for the 12-month period ended 31 December 2022
have been delivered to the registrar of companies. The auditors
have reported on those accounts; their reports were (a)
unqualified, and (ii) did not contain a statement under section 498
(2) or (3) of the Companies Act 2006. Statutory accounts for the
15-month period ended 31 March 2024 will be delivered to the
registrar of companies in due course. The auditors have reported on
those accounts; their reports were (i) unqualified, and (ii) did
not contain a statement under section 498 (2) or (3) of the
Companies Act 2006. The Auditor's report on these accounts did
contain an emphasis of matter in relation to the fact that a
material uncertainty existed that may cast doubt on the Group's
ability to continue as a going concern.
As set out in Note 1(c) the
directors have identified a material uncertainty which may cast
significant doubt on the entity's ability to continue as a going
concern, meaning it may be unable to realise it assets and
discharge its liabilities in the normal course of business.
Notwithstanding this material uncertainty, the Directors consider
it remains appropriate to continue to adopt the going concern basis
in the preparation of the financial statements.
The financial statements for the
15-month period ended 31 March 2024 (including the comparatives for
the 12-month period ended 31 December 2022) were approved and
authorised for issue by the Board of Directors on 29 July 2024.
This results announcement for the 15-month period ended 31 March
2024 was also approved by the Board on 29 July 2024.
Whilst the financial information
included in this statement has been compiled in accordance with the
recognition and measurement principles of UK-adopted International
Accounting Standards, this statement does not itself contain
sufficient information to comply with UK-adopted International
Accounting Standards. Full Financial Statements that comply with
IFRS are included in the 2024 Annual Report.
(b) Changes in significant accounting
policies
The Group has changed its
reporting currency from GBP sterling to US dollars to provide
greater transparency in the Group's performance for investors and
other stakeholders and to reduce exchange rate volatility in
reported figures.
In accordance with IAS 8,
Accounting Policies, Changes in Accounting Estimates and Errors,
this change in presentational currency was applied retrospectively
and accordingly, prior year comparatives have been restated.
Financial information included in the consolidated financial
statements for years ended 31 December 2022 and 31 December 2021
has been restated in US dollars as follows:
•
assets and liabilities in non-US denominated
currencies were translated into US dollars at the rate of exchange
ruling at the relevant balance sheet date;
•
non-US dollar income statements and cash flows
were translated into US dollars at average rates of exchange for
the relevant period;
•
share capital, share premium and all other equity
items were translated at the historical rates.
The exchange rates used were as
follows:
|
12-months ended
31
December 2022
Average
rate
|
31
December 2022
At
balance sheet date
|
12-months ended
31
December 2021
Average
rate
|
31
December 2021
At
balance sheet date
|
Pound sterling
|
0.8086
|
0.8271
|
0.7271
|
0.7402
|
Euro
|
0.9510
|
0.9338
|
0.8457
|
0.8815
|
Canadian dollar
|
1.3015
|
1.3541
|
1.2535
|
1.2697
|
Mexican peso
|
20.1025
|
19.4663
|
20.2748
|
20.4560
|
(c) Consolidated basis of preparation
Going concern
Net debt has decreased from US
$25.4m to US $16.4m following the equity raise in the second half
of 2023 which generated net proceeds of US $12.0m after transaction
costs of US $0.9m. At 31 March 2024 the Group had US $34.0m in
facilities of which US $27.9m was drawn with US $11.5m of cash on
hand.
The Group's multicurrency
revolving credit facility of US $34.0m with HSBC was extended on 14
June 2024 to 21 July 2026 on the same terms as the original
revolving credit facility agreement. The covenants are tested
quarterly and are as follows:
Ratio
|
Calculation
|
Threshold
|
Leverage ratio
|
Net debt : proforma unaudited
EBITDA
|
<3.0x
|
Interest cover
|
Proforma unaudited EBITDA :
interest expense
|
>4.0x
|
The covenants for the quarter
ending 30 September 2023 were temporarily reset from a leverage
ratio maximum target of less than 3x to 4.5x, and an interest cover
minimum target of a maximum 4x to 2.5x. The covenants reverted to
the original hurdles from quarter ending 31 December 2023
onwards.
A retrospective review of covenant
calculations for the 15-month period to 31 March 2024 was performed
by management as part of the year-end audit after certain matters
came to the attention of the Board. This retrospective review
identified that breaches of the covenants had and/or may have had
occurred when also retrospectively applying finalised year-end
accounting adjustments. These waiver requests were communicated to
HSBC who have agreed to issue retrospective covenant waivers for
the relevant quarters. The waivers are subject to legal
finalisation at the date of this report. Given the covenants were
and/or may potentially have been breached before and at 31 March
2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date,
the outstanding borrowings under the RCF of US $27.9m have been
classified as a current liability.
Further details, including the
relevant covenant tests, are included in note 13.
In assessing the going concern
assumptions, the Directors have prepared four main scenarios being
the base case, a downside case in relation to revenue and margin, a
downside case in relation to revenue and margin including an
adverse Sanmina outcome and a reverse stress test (break-even
assessment) over the going concern period which the Directors have
assessed as being a two-year period to 31 March 2026. Various
upside scenarios also exist but those result in very positive
outcomes and have not been included here given the focus of the
Directors, and its auditors, is on the risk to the going concern
basis of preparation to the financial statements. Nonetheless, the
Directors consider these upside scenarios as realistic outcomes and
continue to drive the group's performance and other activities to
seek to achieve those positive results.
The downside scenarios reflect the
risk of lower-than expected organic revenue growth in core Lighting
markets, lower gross margins than forecast due to lower revenue
forecasts and cost savings not being realised to the full extent
forecasted. In the downside scenario including an adverse Sanmina
outcome, an estimated worst-case outflow of US $7.9m has been
modelled, consistent with the disclosures provided in note
19.
Base case
The base case is derived from the
most recent Board approved 2024 budget, which assumes that revenues
and margin will improve over the going concern period due to the
Group's transformational project undertaken by management. The base
case is based on organic sales growth and the annualization of the
efficiency and material cost reduction projects launched in the
financial year. In this scenario, the Directors consider that
the Group will continue to operate within its available committed
facilities of US $34.0m with sufficient headroom with covenant
compliance throughout the forecast period.
The market conditions faced by the
Group in the 15 months to 31 March 2024 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 key assumptions in the base
case include:
· continued net revenue growth in both years driven by a
combination of factors including increasing benefits from strategic
relationships, price increases and increased source & sell
product range sales resulting in net revenue growth of 6.7% in FY25
and 1.9% in FY26;
· continued net revenue growth in Lighting due to our focus on
markets with growing demand and where growth is driven by
structural, safety and sustainability factors at a higher level
than seen in 2024;
· a
small recovery from the cyclical downturn in the opto-electronic
segment;
· gross margins normalise as component price premiums reduce
and supply becomes more readily available, freight costs normalise,
and the benefits from cost reduction and automation programmes are
delivered resulting in a gross profit margin improvement of 4% in
FY25 and a further 2% in FY26 respectively; and
· operating costs are flexed in line with the incremental
revenue and increasing operational leverage.
Downside case - lower
revenue and margin
The Directors have
assumed:
· reduction of expected net revenue growth to 4.9% and -2.8% in
FY25 and FY26 respectively across Lighting, Opto-electronics and
Vehicle; and
· lower gross profit margin than base case through risk factor
applied to estimated operational efficiencies with a 4% improvement
in FY25 and no improvement in FY26.
Downside case - lower
revenue, margin and an adverse Sanmina outcome
The Directors have
assumed:
· reduction of expected net revenue growth to 4.9% and -2.8% in
FY25 and FY26 respectively across Lighting, Opto-electronics and
Vehicle;
· lower gross profit margin than base case through risk factor
applied to estimated operational efficiencies with a 4% improvement
in FY25 and no improvement in FY26; and
· estimated Sanmina outflow of $7.9m in Q2 FY25.
Reverse stress test
(break-even assessment)
The Directors have
assumed:
· reduction of expected net revenue growth to 1.1% and -8.1% in
FY25 and FY26 respectively across Lighting, Opto-electronics and
Vehicle; and
· lower gross profit margin than base case through risk factor
applied to estimated operational efficiencies with an improvement
of 3% in FY25 and no improvement in FY26.
In all these scenarios, the Group
has a series of controllable mitigating actions that can be taken
swiftly (a number of which have already been enacted), including
various temporary and permanent cost and cash saving
measures.
In the base case scenario and in
the downside scenario (lower revenue and margin), the Group have
sufficient liquidity and are not forecast to breach any covenants
in the going concern period. In the downside case (lower revenue,
margin and an adverse Sanmina outcome), the current Group liquidity
becomes insufficient in Q2 FY25 following a forecast payment to
settle the adverse outcome. In the reverse stress test, the
interest cover ratio is forecast to breach in Q3 FY25 with further
breaches of both the leverage ratio and interest cover in Q1 FY26
onwards. In this case, the Group are forecast to have insufficient
liquidity in Q4 FY26.
Whilst the Directors believe the
Group will be able to deliver on its transformation plan, generate
forecast organic sales growth and realise cost reductions within
the next 12 months, the Directors recognise that the transformation
plan is in its early stages and as such, a reliable history of its
effectiveness is not yet available. In the reverse stress test,
whilst revenues are forecast to decrease from FY24 to FY26, total
gross profit is forecast to increase by 3% between FY24 to FY26. As
a result, the Group are required to increase total gross profit in
excess of this in order to avoid breaching covenants. The
directors have therefore concluded that there is a plausible risk
of covenant breach and insufficient liquidity within the reverse
stress test scenario.
Further, the legal claim against
the Company by Sanmina, which is outlined in note 19 represents a
possible adverse outcome outside of the Group's control which could
result in a material cash outflow. In this scenario, the Group
would have insufficient liquidity in the going concern period in
management's downside case, without taking mitigating actions or
securing additional funding.
In addition, whilst HSBC have
agreed to issue a retrospective covenant waiver for the relevant
quarters as set out above, the waivers are subject to legal
finalisation at the date of this report.
These circumstances give rise to a
material uncertainty, which may cast significant doubt on the
entity's ability to continue as a going concern, meaning it may be
unable to realise it assets and discharge its liabilities in the
normal course of business. Notwithstanding this material
uncertainty, the Directors consider it remains appropriate to
continue to adopt the going concern basis in the preparation of the
financial statements.
(d) Use of estimates, judgements and
assumptions
The preparation of the
consolidated financial statements requires management to make
judgements, estimates and assumptions that affect the application
of policies and reported amounts of assets and liabilities,
income and expenses. These estimates, judgements and assumptions
are based on historical experience and other factors that are
believed to be reasonable under the circumstances. Actual results
may differ from these estimates. The areas which require the most
use of management estimation and judgement are set out
below.
Significant judgements
Termination of outsourced
manufacturing agreement
Significant judgement is applied in
determining whether to recognise a provision or a contingent
liability in respect of the claims from the Group's former
manufacturing partner Sanmina. In the view of management, it is not
probable that the Group will have to make a payment, therefore no
provision is required and the matter is disclosed as a contingent
liability in note 19, which contains further details on the
matter.
Development and patent
costs
The Group capitalises development
costs and patent costs provided they meet all criteria in the
respective accounting policy. Costs are only capitalised when
management applies judgement that is satisfied as to the ultimate
commercial viability of the projects based on review of the
relevant business case. The capitalised costs are amortised over
the expected useful economic life, which is determined based on the
reasonable commercial prospects of the product and a comparison to
similar products being sold by the Group.
The Group has US $7.4m (2022: US
$13.9m) of development and patent costs that relate to the current
product portfolio and new products expected to launch over the next
one to two years. Following the decision to dispose of the Traffic
business US $0.5m of development costs have been written off. An
impairment review of the total balance was performed resulting in a
further US $3.5m of development costs and US $0.6m of concessions,
patents, licences and trademarks costs being impaired during the
period. The total impairment of US $4.6m has been recorded in the
income statement as a non-recurring expense (note 3).
All of the development projects
are within the Lighting CGU and are tested for impairment at the
CGU level as part of the goodwill testing. However, management also
performs a review of each individual project to see if there are
any indications of specific impairment by comparing the carrying
amount of the asset with the net present value derived from the
Board approved strategic plan.
Inventory reserve - disposal of
traffic business
Following the decision by
management to dispose of the traffic business a judgement has been
made to fully provide for all related inventory given the inventory
remains property of the Group at the date of completion and there
is no obligation by the acquirer to purchase any such inventory
subsequent to completion. While under the sales and purchases
agreement the acquirer will have the right to acquire all or part
of the related inventory, at the date of the approval of these
financial statements the intention of the acquirer is not known.
The provision totals $3.0m as at 31 March 2024. This has
been recognised within costs of goods sold
and is disclosed as a non-underlying item within note 3.
Estimates
Inventory reserve
The total value of the inventory
provision for all categories of inventory over which judgement has
been exercised was $6.6m (2022: $5.0m) and this represents 11.8%
(2022: 7.2%) of the gross inventory value.
Details of the inventory reserve
are set out in note 10.
Inventory reserve - Raw materials and
sub-assemblies
All raw and sub-assembly inventory
that is over 24-months old at the balance sheet date is provided
for. This basis for estimate reduces estimation subjectivity,
whilst allowing for the adverse impact from component shortages
that have led to high inventory levels and some components being
held for longer than expected. Two years has been assessed to be
appropriate as the components have a long shelf life, continue to
be used in production and the product demand mix between project
and MRO business continues to be skewed as a result of
COVID-19.
Management believes that any
reasonably possible change in the assumption would not cause any
significant change in the provision estimate for raw materials and
sub-assemblies in the next financial year.
The value of the inventory
provision for raw materials and sub-assemblies as at 31 March 2024
was US $5.9m (2022: US $4.3m).
Inventory reserve - finished goods
The review of finished goods
inventory was based on all inventory over 365 days old. Inventory
on hand was compared to historical sales, current orders, sales
pipeline and whether the product had been recently
launched.
Management judgement was then
applied to determine whether there was a reasonable probability
that the inventory would be sold, with a provision being required
for any inventory that failed this assessment.
Management believes that any
reasonably possible change in the assumption would not cause any
significant change in the provision estimate for finished
goods.
The value of the inventory
provision for finished goods as at 31 March 2024 was US $0.7m
(2022: US $0.7m).
Inventory - absorbed overhead
costs
The valuation of inventory,
detailed in note 10, requires the use of estimates in the amount of
costs to be absorbed into inventory valuation. There are two
elements of cost over which estimates are applied.
Firstly, in relation to the amount
of production overheads that are included in the inventory
valuation. The pools of cost related to production comprise labour
and direct overheads attributable to the production process. They
are assessed to ensure that costs not related to production are
excluded. Consistent with prior year, the Group uses the weighted
average inventory turns calculated by comparing the level of
inventory on hand with the amount of production by month. This
gives the number of days of overhead that should be absorbed in
inventory (2024: 76 days 2022: 68 days). The value of directly
attributable costs over which judgement was exercised was US $7.6m
(2022: US $8.5m) and this represents 15% (2022: 13%) of the
inventory value. For every day that the estimate of the days used
for the overheads absorbed changes, it changes the calculation by
US $97k.
Secondly, in relation to the
amount of freight costs that are included in the inventory
valuation. The costs represent transportation costs for raw
materials and the labour cost of the buyers placing the orders. The
cost is absorbed into inventory by comparing the level of inventory
on hand with the amount of material costs in the cost of sales.
This gives the number of days of freight costs that are capitalised
(2024: 187 days, 2022: 151 days). Costs of transporting finished
goods to distribution centres on a global basis are included in the
inventory valuation until the associated finished goods have been
sold outside the Group. The value of freight costs over which
judgement was exercised was US $2.8m (2022: US $5.0m) and this
represents 6% (2022: 8%) of the inventory value. For every day that
the estimate of the days used for the overhead absorbed changes, it
changes the calculation by US $17k.
Management believes that any
reasonably possible change in the assumptions would not cause any
significant change in the amount of costs absorbed into
inventory.
Goodwill
The Group tests at least annually
whether goodwill has suffered any impairment in accordance with the
accounting policy. The recoverable amounts of the Group's
CGU's have been determined based on value in use calculations,
which involve a high level of estimation due to the uncertainty
caused by the geopolitical situation and potential material
shortages due to delays in the supply chain.
A review for impairment was
performed at 31 December 2023 which has resulted in the goodwill
balance of US $11.2m being fully impaired. In undertaking the
assessment, the potential net impact of climate change on the
forecasts has been considered.
Considering the Group's business
model, strategy and exposure, the opportunities overcome the risk
and the majority of the risk relates to the ability to cope with
accelerated product demand and has been reflected in our
forecast.
(e) Adoption of new and revised standard/interpretations and
amendments
The following accounting
standards, interpretations, improvements and amendments have become
applicable for the current period and although the Group has
adopted them, they have had no material impact on the Group. These
comprise:
· Classification of Liabilities as Current or Non-current
(Amendments to IAS 1);
· IFRS
17 Insurance Contracts and amendments to IFRS 17 Insurance
Contracts;
· Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8);
and
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The following amendments to
standards and interpretations have also been issued, but are not
yet effective and have not been early adopted for the period ended
31 March 2024:
· Non-current Liabilities with Covenants and classification of
Liabilities as Current or Non-current (Amendments to IAS
1);
· Lease liability in a Sale and Leaseback (Amendments to IFRS
16);
· Supplier Finance Arrangements (Amendments to IAS 7 and IFRS
7); and
· Lack
of Exchangeability (Amendments to IAS 21).
The adoption of these amendments
is not expected to have a material impact on the Group.
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 signaling 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. Segmental assets and liabilities are not reported
internally and are therefore not presented below.
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.
Reportable segments
15 months ended 31 March 2024 (audited)
|
Lighting
|
Signals and
Components
|
Unallocated
|
Total
|
|
US $'m
|
US $'m
|
US $'m
|
US $'m
|
Revenue
|
171.1
|
54.9
|
_
|
226.0
|
Underlying gross profit
|
57.6
|
12.5
|
-
|
70.1
|
Underlying overhead
costs
|
(50.8)
|
(12.3)
|
(11.6)
|
(74.7)
|
Underlying profit/(loss) from operating
activities
|
6.8
|
0.2
|
(11.6)
|
(4.6)
|
Non-underlying items (note
3)
|
(20.6)
|
(3.6)
|
(1.4)
|
(25.6)
|
Loss from operating activities
|
(13.8)
|
(3.4)
|
(13.0)
|
(30.2)
|
Financial expense
|
-
|
-
|
(4.1)
|
(4.1)
|
Loss before tax
|
(13.8)
|
(3.4)
|
(17.1)
|
(34.3)
|
Taxation
|
-
|
-
|
1.8
|
1.8
|
Loss after tax
|
(13.8)
|
(3.4)
|
(15.3)
|
(32.5)
|
12 months ended 31 December 2022 (audited)
|
Lighting
|
Signals
and Components
|
Unallocated
|
Total
|
|
US
$'m
|
US
$'m
|
US
$'m
|
US
$'m
|
Revenue
|
149.6
|
60.2
|
_
|
209.8
|
Gross profit
|
50.2
|
17.2
|
-
|
67.4
|
Overhead costs
|
(41.7)
|
(10.3)
|
(9.3)
|
(61.3)
2)
|
Underlying profit/(loss) from operating
activities
|
8.5
|
6.9
|
(9.3)
|
6.1
|
Non-underlying items (note
3)
|
(3.3)
|
-
|
-
|
(3.3)
|
Profit/(loss) from operating activities
|
5.2
|
6.9
|
(9.3)
|
2.8
|
Financial expense
|
-
|
-
|
(2.2)
|
(2.2)
|
Profit before tax
|
5.2
|
6.9
|
(11.5)
|
0.6
|
Taxation
|
-
|
-
|
(0.1)
|
(0.1)
|
Profit after tax
|
5.2
|
6.9
|
(11.6)
|
0.5
|
Other segmental data
|
15 months ended 31 March
2024 (audited)
|
12
months ended 31 December 2022 (audited)
|
|
Lighting
US $'m
|
Signal &
components
US $'m
|
Total
US $'m
|
Lighting
US
$'m
|
Signals
& components
US
$'m
|
Total
US
$'m
|
Depreciation of property, plant
and equipment
|
3.3
|
1.0
|
4.3
|
2.6
|
1.0
|
3.6
|
Depreciation of right of use
assets
|
2.3
|
0.7
|
3.0
|
1.6
|
0.6
|
2.2
|
Amortisation of intangible
assets
|
7.7
|
_
|
7.7
|
5.4
|
_
|
5.4
|
Impairment of property, plant and
equipment
|
1.1
|
_
|
1.1
|
_
|
_
|
_
|
Impairment of goodwill
|
11.2
|
-
|
11.2
23.
|
_
|
_
|
_
|
Impairment of intangible
assets
|
4.1
|
0.5
|
4.6
|
1.6
|
-
|
1.6
|
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 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
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
North America
|
183.7
|
164.1
|
EMEA
|
18.3
|
17.9
|
Rest of World
|
24.0
|
27.8
|
Total sales revenue
|
226.0
|
209.8
|
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 items recognised in the income
statement. All costs are recognised within administrative expenses
unless otherwise stated.
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
Transformation project
|
4.5
|
-
|
Impairment of goodwill (note
8)
|
11.2
|
-
|
Impairment of other intangible assets (excluding business disposal
impairment) (note 8)
|
4.1
|
1.6
|
Litigation costs
|
2.3
|
1.7
|
Business disposal costs
|
3.5
|
-
|
Non-underlying items recorded in administrative
expenses
|
25.6
|
3.3
|
The Group has incurred US $4.5m 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. Implementation of
the transformation plan is expected to be complete by 31 March
2026. 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 the
15-month period to 31 March 2024 relate to resetting and realigning
the Group's cost base including severance costs, and legal and
professional fees. An impairment charge of US $1.1m for property,
plant, and equipment (note 7) and dilapidation costs of US $0.4m
(note 9) have been recognised in relation to the planned vacation
of the Malaysian facility later in 2024.
Please refer to note 8 for details
of the impairment of goodwill and other intangible
assets.
During the 15-month period to
March 2024 costs of US $1.9m have been expensed (2022: US $1.2m)
relating to a legal claim with Sanmina, a manufacturing partner.
Please refer to note 19 for further details of this claim. Other
litigation costs of US $0.4m for the 15-month period to 31 March
2024 (2022: US $0.5m) relate to a contractual litigation case
relating to the use of intellectual property which was concluded in
2023.
Business disposal costs relate to
the post year end disposal of the Traffic business. These costs
relate to a US $0.5m impairment of development costs for projects
that will no longer be pursued and US $3.0m of specific inventory
that will no longer be sold which has been recognised within costs
of goods sold.
4.
Financial expense
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
Net interest income on defined
benefit liability
|
(0.3)
|
(0.1)
|
Interest expense on financial
liabilities, excluding lease liabilities
|
3.3
|
1.6
|
Facility arrangement fee
expense
|
0.4
|
-
|
Interest expense on lease
liabilities
|
0.7
|
0.7
|
Net financing expense recognised in the consolidated income
statement
|
4.1
|
2.2
|
5.
Taxation
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
Current tax expense
|
|
|
Current period
|
1.2
|
2.5
|
Adjustment for prior
years
|
(0.1)
|
(0.2)
|
Total current tax expense
|
1.1
|
2.3
|
Deferred tax expense
|
|
|
Origination and reversal of
temporary differences
|
(4.0)
|
(2.3)
|
Adjustment for prior
years
|
0.7
|
0.1
|
Adjustment for prior
years
|
0.4
|
-
|
Total deferred tax credit
|
(2.9)
|
(2.2)
|
Total tax (credit)/expense
|
(1.8)
|
0.1
|
Reconciliation of effective tax rate
|
15-months
ended
31 March
2024
%
|
15-months
ended
31 March
2024
US
$'m
(audited)
|
12-months ended
31
December 2022
%
|
12-months ended
31
December 2022
US
$'m
(audited)
|
(Loss)/profit for the period after
tax
|
|
(32.5)
|
|
0.5
|
Total tax charge
|
|
1.8
|
|
0.1
|
(Loss)/profit for the period
before tax
|
|
(34.3)
|
|
0.6
|
Income tax using the UK
corporation tax rate of 23.8% (2022: 19.0%)
|
23.8
|
(8.2)
|
19.0
|
0.1
|
Effect of higher taxes on overseas
earnings
|
(1.5)
|
0.5
|
16.7
|
0.1
|
Change in tax laws and
rates
|
(1.2)
|
0.4
|
-
|
-
|
Expenses not deductible for tax
purposes
|
(8.5)
|
2.9
|
16.7
|
0.1
|
Current year losses for which no
deferred tax is recognised
|
(2.9)
|
1.0
|
16.7
|
0.1
|
Adjustment for prior
years
|
(1.5)
|
0.5
|
(16.7)
|
(0.1)
|
Research and development
credits
|
0.3
|
(0.1)
|
(16.7)
|
(0.1)
|
Foreign taxes incurred
|
(3.5)
|
1.2
|
(16.7)
|
(0.1)
|
|
5.2
|
(1.8)
|
16.7
|
0.1
|
The effective tax rate for the
period is 5.2% compared with 16.7% in the prior year and the
standard rate of 23.8% (2022: 19.0%) in the UK. During the period,
the Group made a loss before tax of US $34.3m (2022: profit of US
$0.6m) which resulted in a tax credit in the period of US $1.8m
(2022: tax charge of US $0.1m).
The normalised tax rate for the
Group in the period is 23.8% (tax rate before adjustments) and
based on a pre-tax loss of US $34.3m this would generate a tax
credit of US $8.2m. The Group's overall tax rate was 5.2% which is
significantly lower than the normalised tax rate as a result of the
following major adjustments:
· Non-deductible current year expenses of US $2.9m arising
predominantly on foreign exchange movements relating to the Group's
goodwill and expenses incurred in the UK.
· Unrecognised losses in the European Lighting business
resulting in US $1.0m of tax credits not being recognised in the
period.
· Mexican taxes of US $1.0m.
Tax (credit)/charge recognised directly in
equity
|
15-months
ended
31 March
2024
US
$'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
Employee benefits
|
(0.1)
|
0.1
|
Current tax
Current tax is calculated with
reference to the profit or loss of the Company and its subsidiaries
in their respective countries of operation. Set out below
are details in respect of the significant jurisdictions where the
Group operates and the factors that influenced the current and
deferred taxation in those jurisdictions.
UK
The UK companies are subject to a
corporate tax rate of 23.8% (2022: 19.0%).
Group
The majority of the Group's profits
arise in the US where the corporation tax rate is 24%, including
21% federal tax and 3% state tax (2022: 24%, including 21% federal
tax and 3% state tax).
6.
Earnings per share
Basic earnings per share
The calculation of basic earnings
per share ("EPS") at 31 March 2024 was based on a loss for the
period of US $32.5m (2022: US $0.5m profit) and the weighted
average number of ordinary shares outstanding during the year of
35,603,515 (2022: 32,574,668).
Weighted average number of ordinary shares
|
15 months ended 31 March
2024
'000
(audited)
|
12
months ended 31 December 2022
'000
(audited)
|
Weighted average number of
ordinary shares
|
35,604
|
32,575
|
|
15 months ended 31 March
2024
(audited)
|
12
months ended 31 December 2022
(audited)
|
Basic (loss)/earnings per
share
|
(91.1)
cents
|
1.5
cents
|
Diluted earnings per share
The calculation of diluted
earnings per share ("EPS") at 31 March 2024 was based on a loss for
the period of US $32.5m (2022: US $0.5m profit) and the weighted
average number of ordinary shares outstanding during the year of
35,603,515 (2022: 33,231,301).
Where a loss has been recognised
the same number of shares are used in both the basic and diluted
loss per share calculation so there is no dilutive effect when the
Group is in a loss-making position.
Weighted average number of ordinary shares
|
15 months ended 31 March
2024
'000
(audited)
|
12
months ended 31 December 2022
'000
(audited)
|
Weighted average number of
ordinary shares
|
35,604
|
33,231
|
|
15 months ended 31 March
2024
(audited)
|
12
months ended 31 December 2022
(audited)
|
Basic earnings per
share
|
(91.1)
cents
|
1.5
cents
|
7.
Property, plant and equipment
|
|
|
Land and
buildings
US
$'m
|
Plant,
equipment and vehicles
US
$'m
|
Total
US $'m
|
Net book value at 1 January 2023
|
|
|
-
|
16.8
|
16.8
|
Additions
|
|
|
-
|
1.4
|
1.4
|
Transfers
|
|
|
1.0
|
(1.0)
|
-
|
Depreciation expense
|
|
|
(0.2)
|
(4.1)
|
(4.3)
|
Impairment
|
|
|
-
|
(1.1)
|
(1.1)
|
Effects of foreign exchange
movements
|
|
|
0.4
|
(0.5)
|
(0.1)
|
Net book value at 31 March 2024
|
|
|
1.2
|
11.5
|
12.7
|
During the period a review of
property, plant, and equipment was performed where it was
identified that certain assets relating to the Malaysian facility
are no longer in use following the planned vacation of the existing
Malaysian site. As a result, an impairment loss has been recognised
within non-underlying items (note 3) given it relates to the
transformation plan.
8.
Intangible assets
|
Patents,
licenses, and
trademarks
US
$'m
|
Goodwill
US
$'m
|
Software
licenses
US
$'m
|
Development
costs
US
$'m
|
Total
US $'m
|
Net book value at 1 January 2023
|
2.4
|
11.1
|
0.9
|
11.5
|
25.9
|
Additions
|
1.2
|
-
|
0.3
|
3.9
|
5.4
|
Amortisation charge
|
(1.2)
|
-
|
(0.5)
|
(6.0)
|
(7.7)
|
Impairment
|
(0.6)
|
(11.2)
|
-
|
(4.0)
|
(15.8)
|
Effects of foreign exchange
movements
|
(0.2)
|
0.1
|
-
|
0.4
|
0.3
|
Net book value at 31 March 2024
|
1.6
|
-
|
0.7
|
5.8
|
8.1
|
Goodwill impairment
The Group has two CGUs, Lighting
and Signals & Components, which are the smallest identifiable
independent groups of assets that generate cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets.
Where assets and costs are shared
between the two CGUs a reasonable apportionment of these is made
for the purpose of the impairment calculation. The goodwill balance
has been fully allocated to the Lighting CGU.
As a result of under performance
of the Lighting CGU a review for impairment was performed at 31
December 2023 which has resulted in an impairment of goodwill of US
$11.2m being recognised. The underperformance can be attributed to
lower than forecast sales. The recoverable amount of the Lighting
segment based on value in use was calculated as US $66.7m. The
impairment charge is material, non-cash, and non-operational
related items and has therefore been excluded from underlying
results (note 3).
The basis of the recoverable
amount is the value in use using was management's latest 5-year
forecast as at 31 December 2023. This forecast reflects the growth
opportunities inherent in the business in the medium term,
including the revenues and 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:
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'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%
|
Other intangible asset impairment
Development costs relating to the
traffic business (Signals & Components) of US $0.5m have been
fully impaired as they relate to projects that will no longer be
pursued.
In addition a further US $3.0m of
development costs and US $0.6m of concessions, patents, licences
and trademarks costs relating to the Lighting segment have been
impaired during the period. An impairment review of other
intangible assets was performed as at 31 March 2024 following the
preparation of revised 5 year cashflow forecasts which showed
reduced growth. The basis of the recoverable amount is the value in
use using the revised 5-year forecast. A 1% increase in the
discount rate increases the impairment charge by US $60k. The value
in use of the Lighting CGU is disclosed above in the goodwill
section.
9.
Provisions
|
Warranty
and claims
US $'m
|
Lease-restoration
US $'m
|
Total
US $'m
|
Balance at 1 January 2023
(audited)
|
2.4
|
0.2
|
2.6
|
Provisions made during the
period
|
0.2
|
0.4
|
0.6
|
Provisions used during the
period
|
(0.4)
|
-
|
(0.4)
|
Effects of foreign exchange
movement
|
-
|
-
|
-
|
Balance at 31 March 2024 (audited)
|
2.2
|
0.6
|
2.8
|
The warranty provision relates to
sales made over the past nine years. The warranty provision has
been estimated based on historical warranty data with similar
products. The Group expects to settle the majority of the liability
over the next two to three years. The table below provides a
breakdown of the provisions into their short-term and long-term
portions:
|
31 March
2024
US $'m
(audited)
|
31
December 2022
US
$'m
(audited)
|
Due within one year
|
1.2
|
0.7
|
Due within one and five
years
|
1.3
|
1.5
|
Due after five years
|
0.3
|
0.4
|
|
2.8
|
2.6
|
10. Inventories
|
31 March
2024
US $'m
(audited)
|
31
December 2022
US
$'m
(audited)
|
Raw materials and
consumables
|
18.8
|
27.5
|
Sub-assemblies
|
13.4
|
14.4
|
Finished goods
|
16.7
|
22.7
|
|
48.9
|
64.6
|
Spare parts
|
0.2
|
0.2
|
|
49.1
|
64.8
|
Inventories to the value of US
$90.8m (2022: US $97.7m) were recognised as expenses in the
period.
The inventory reserve at the
balance sheet date was US $6.6m, which represents 11.8% of gross
inventory (2022: US $5.0m representing 7.2% of gross inventory).
Additional reserves of US $4.4m were booked in the period with an
increase of US $0.1m due to foreign exchange movements, being
offset by utilisation of US $2.9m, resulting in a net increase in
the reserve of US $1.6m. As at 31 March 2024, management's best
estimate of the amount of inventory that will not be used within
the next 12 months is c. US $8.1m (2022: US $5.8m).
In 2022 the Group revised its
basis for estimate to calculating the inventory reserve to provide
for raw and sub-assembly inventory that is over 24-months old at
the balance sheet date. The new basis for estimate reduces
estimation subjectivity whilst allowing for the adverse impact from
component shortages that have led to high inventory levels and some
components being held for longer than expected. Two years is felt
to be appropriate as the components have a long shelf life,
continue to be used in production and the product demand mix
between project and MRO business has been skewed during
COVID-19.
The review of finished goods
inventory was based on all inventory over 365 days old. Inventory
on hand was compared to historical sales, current orders, sales
pipeline and whether the product had been recently launched.
Management judgement was then applied to determine whether there
was a reasonable probability that the inventory would be sold, with
a provision being required for any inventory that failed this
assessment.
11. Dividends
There were no dividends declared
or paid in the 15-month period ended 31 March 2024 or 12-month
period ended 31 December 2022.
12. Cash and cash equivalents
|
31 March
2024
US $'m
(audited)
|
31
December 2021
US
$'m
(audited)
|
Cash and cash
equivalents
|
11.5
|
2.0
|
|
|
|
13. Borrowings
The Group's funding includes a
revolving credit facility (RCF) of US $34.0 million from HSBC which
was extended on 14 June 2024 to 21 July 2026 on the same terms as
the original agreement. Aligned with the Group's robust commitment
to environmental, social, and governance (ESG) principles, the RCF
facility operates as a sustainability-linked loan.
The RCF facility is subject to
quarterly covenants encompassing maximum leverage and minimum
interest cover. The covenants for the quarter ending 30 September
2023 were temporarily reset from a leverage ratio maximum target of
less than 3x to 4.5x, and an interest cover minimum target of a
maximum 4x to 2.5x. The covenants reverted to the original hurdles
from quarter ending 31 December 2023 onwards.
A retrospective review of covenant
calculations for the 15-month period to 31 March 2024 was performed
by management as part of the year-end audit after certain matters
came to the attention of the Board. This retrospective review
identified that breaches of the covenants had and/or may have had
occurred when also retrospectively applying finalised year-end
accounting adjustments. These waiver requests were communicated to
HSBC who have agreed to issue retrospective covenant waivers for
the relevant quarters. The waivers are subject to legal
finalisation at the date of this report. Given the covenants were
and/or may potentially have been breached before and at 31 March
2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date,
the outstanding borrowings under the RCF of US $27.9m have been
classified as a current liability.
Please refer to note 1(c) for
details of how this has been considered as part of the going
concern assessment.
As agreed, the Group has repaid
the £10 million Covid-19 Large Business Interruption Loan (CLBIL),
with the final £2 million repaid in the first half of
2023.
|
Loans
US $'m
|
At 1 January 2022
(audited)
|
22.8
|
Facility drawdown (RCF -
USD)
|
18.1
|
Facility repayment (RCF -
USD)
|
(8.0)
|
Facility drawdown (RCF -
GBP)
|
0.5
|
Facility repayment (RCF -
GBP)
|
-
|
Facility repayment (CBILS)
|
(5.0)
|
Foreign exchange movements
|
(1.0)
|
At 31 December 2022
(audited)
|
27.4
|
Facility drawdown (RCF -
USD)
|
5.8
|
Facility repayment (RCF -
USD)
|
(1.0)
|
Facility drawdown (RCF -
GBP)
|
0.4
|
Facility repayment (RCF -
GBP)
|
(2.4)
|
Facility repayment
(CBILS)
|
(2.5)
|
Foreign exchange
movements
|
0.2
|
At 31 March 2024 (audited)
|
27.9
|
Details of the facilities
|
Tenure
|
Interest
rate per annum*
|
Maturity
date
|
Amount
drawn as at
31
March
2024
(audited)
|
Amount
drawn as at 31 December 2021
(audited)
|
|
Years
|
%
|
|
US
$'m
|
US
$'m
|
$34m revolving credit
facility
|
3
|
8.31%*
|
July
2026
|
27.9
|
25.0
|
£8m CLBILS
|
3
|
6.50%**
|
June
2023***
|
-
|
1.9
|
£2m commercial loan
|
3
|
7.02%**
|
June
2023***
|
-
|
0.5
|
* Indicative rate as at March
2024
** Indicative rate as at June
2023
*** Loans were repaid in equal
instalments over three years from January 2021
Covenant test
|
|
Every
quarter
|
Ratio
|
Calculation
|
Threshold
|
Leverage ratio
|
Net debt/Adjusted
EBITDA
|
<3.0x
|
Interest cover
|
Adjusted EBITDA/Interest
expense
|
>4.0x
|
Debt service
ratio*
|
Net operating income/Total debt
service
|
>1.2x
|
* The debt service cover ratio does not apply to the
revolving credit facility and has been waived from June 2022 to the
end of the loan.
14. Share capital
|
31 March
2024
Number
(audited)
|
31 March
2024
US $'m
(audited)
|
31
December 2022
Number
(audited)
|
31
December 2022
US
$'m
(audited)
|
Authorised:
|
|
|
|
|
Ordinary shares of 1.89p
each
|
39,828,141
|
1.2
|
32,946,371
|
1.0
|
|
|
|
|
|
Issued and fully paid:
|
|
|
|
|
At beginning of the
period
|
32,946,371
|
1.0
|
32,610,025
|
1.0
|
Issued during the
period
|
6,881,770
|
0.2
|
336,346
|
-
|
Own shares acquired in the
period
|
-
|
-
|
-
|
-
|
At end of the period
|
39,828,141
|
1.2
|
32,946,371
|
1.0
|
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 US $12.9 million. Share issue costs of US $0.9m have
been netted off against the share premium arising on the new share
issue (see note 15).
15. Share premium
|
31 March
2024
US $'m
(audited)
|
31
December 2022
US
$'m
(audited)
|
At beginning of the
period
|
1.2
|
-
|
Minority interest
purchase
|
-
|
1.2
|
Issued during the year
|
12.7
|
-
|
Share issues costs
|
(0.9)
|
-
|
At end of the period
|
13.0
|
1.2
|
16. Principal exchange rates
|
15-months
ending
31 March
2024
Average
rate
|
31 March
2024
At balance sheet
date
|
12-months ending
31
December 2022
Average
rate
|
31
December 2022
At
balance sheet date
|
Pound sterling
|
0.8010
|
0.7925
|
0.8086
|
0.8271
|
Euro
|
0.9240
|
0.9264
|
0.9510
|
0.9338
|
Canadian dollar
|
1.3491
|
1.3540
|
1.3015
|
1.3541
|
Mexican peso
|
17.5790
|
16.5558
|
20.1025
|
19.4663
|
17. Related party transactions
The ultimate parent company of the
Group is Dialight plc.
Transactions between the Company
and its subsidiaries have been eliminated on
consolidation.
18. Reconciliation to non-GAAP performance
measures
Certain financial information set out in this
statement is not defined under International Financial Reporting
Standards ("IFRS"). These key Alternative Performance Measures
("APMs") represent additional measures in assessing performance and
for reporting both internally and to shareholders and other
external users. The Group believes that the presentation of these
APMs provides useful supplemental information which, when viewed in
conjunction with IFRS financial information, provides readers with
a more meaningful understanding of the underlying financial and
operating performance of the Group.
None of these APMs should be considered as an
alternative to financial measures drawn up in accordance with
IFRS.
12-month comparatives
|
15-months
ended
31 March
2024
US $'m
(audited)
|
12-months ended
31
December 2022
US
$'m
(audited)
|
Revenue - 12-month period from
January to December
|
185.0
|
209.8
|
Revenue - 3-month period from
January 2024 to March 2024
|
41.0
|
-
|
Revenue
|
226.0
|
209.8
|
|
|
|
Gross profit - 12-month period
from January to December
|
58.4
|
67.4
|
Gross profit - 3-month period from
January 2024 to March 2024
|
8.7
|
-
|
Gross profit
|
67.1
|
67.4
|
|
|
|
Underlying gross profit - 12-month
period from January to December
|
58.4
|
67.4
|
Underlying gross profit - 3-month
period from January 2024 to March 2024
|
11.7
|
-
|
Underlying gross profit
|
70.1
|
67.4
|
|
|
|
(Loss)/Profit from operating
activities - 12-month period from January to December
|
(14.7)
|
2.8
|
(Loss) from operating activities -
3-month period from January 2024 to March 2024
|
(15.5)
|
-
|
(Loss)/Profit from operating activities
|
(30.2)
|
2.8
|
|
|
|
Underlying profit from operating
activities - 12-month period from January to December
|
0.1
|
6.1
|
Underlying (loss)/profit from
operating activities - 3-month period from January 2024 to March
2024
|
(4.7)
|
-
|
Underlying (loss)/profit from operating
activities
|
(4.6)
|
6.1
|
|
|
|
Non-underlying items - 12-month
period from January to December
|
(14.8)
|
(3.3)
|
Non-underlying items - 3-month
period from January 2024 to March 2024
|
(10.8)
|
-
|
Non-underlying items
|
(25.6)
|
(3.3)
|
Other non-GAAP performance measures
|
|
|
Gross profit
|
67.1
|
67.4
|
Non-underlying items
|
3.0
|
-
|
Underlying gross profit
|
70.1
|
67.4
|
|
|
|
(Loss)/Profit from operating
activities
|
(30.2)
|
2.8
|
Non-underlying items (see note
3)
|
25.6
|
3.3
|
Underlying (loss)/profit from operating
activities
|
(4.6)
|
6.1
|
|
|
|
(Loss)/profit from operating
activities
|
(30.2)
|
2.8
|
Non-underlying items (see note
3)
|
25.6
|
3.3
|
Depreciation of property, plant
and equipment
|
4.3
|
3.6
|
Amortisation of intangible
assets
|
7.7
|
5.4
|
Underlying EBITDA
|
7.4
|
15.1
|
|
|
|
(Loss)/profit from operating
activities
|
(30.2)
|
2.8
|
Non-underlying items (see note
3)
|
25.6
|
3.3
|
Depreciation of property, plant
and equipment
|
4.3
|
3.6
|
Amortisation of intangible
assets
|
7.7
|
5.4
|
Share based payments
|
1.5
|
0.6
|
Net movement on working capital
(Inventories, trade and other receivables, trade and other
payables) as per Consolidated statement of cash flows
|
10.0
|
(8.1)
|
Underlying operating cash flow
|
18.9
|
7.6
|
Underlying profit from operating
activities and underlying EBIT referred to in the earlier sections
of the Annual Report are the same measures. Underlying operating
cash flow and adjusted operating cash flow are the same
measures.
Net debt
Net debt is defined as total Group
borrowings (excluding lease liabilities recognised under IFRS 16)
less cash. Net debt of $16.4m at the period end (2022: $25.4m)
consisted of borrowings of $27.9m (2022: $27.4m) less cash of
$11.5m (2022: $2.0m).
19. 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 20
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 March 2024, Dialight has not made any provision
for future legal costs.
The claim filed by Dialight that
Dialight is now pursuing, alleges that Dialight suffered
significant costs and losses (with total potential damages of
approximately US $92.8m) as a result of: (a) Sanmina's fraudulent
inducement of Dialight to enter into the MSA; (b) Sanmina breaching
the terms of the MSA and engaging in willfull misconduct while
doing so. If Sanmina's claim is successful, the range of outcomes
could include the payment by Dialight to Sanmina of between US $0
and US $8.3m (plus legal costs and standard judicial / contractual
interest at the rate of 1% per month from the date of the alleged
breach), 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 US $0 and c. US $92.8m (excluding legal costs and judicial
/ contractual interest). The fraudulent misrepresentation
element of the damages could attract judicial interest of 9% per
annum backdated to the date of signing of the MSA in March
2016. The upper amount recoverable by Dialight was reduced
from c. $220m (excluding legal costs and interest) to c. $159.6m
(inclusive of interest but excluding legal costs) as a result of
decisions by the court on pre-trial motions that excluded evidence
relating to loss of market capitalisation but allowed Dialight's
remaining arguments and evidence relating to loss of profit
damages.
Sanmina lodged a motion for
summary judgement 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 judgement 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 US $5.3m accounts
receivable claim. The Court's ruling on Sanmina's motion for
reconsideration was released under seal on 28 November 2023 and
stated that: (a) 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) otherwise Sanmina's motion for
reconsideration was denied; and (c) affirmed its prior opinion
denying Sanmina's motion for summary judgement on its accounts
receivable claim.
Dialight's fraudulent inducement
and willful misconduct in the breach of contract claims, together
with Sanmina's claims relating to excess and obsolete inventory and
accounts receivable, and Dialight's defences to these claims, will
now proceed to trial, and Dialight will continue to rigorously
pursue its claims. A trial date was originally set for 15 July 2024
and anticipated to last for 10 days. As announced on 23 July 2024,
that trial was declared a mis-trial (as a result of the excusing of
2 jurors for medical-related reasons) and re-scheduled for 9
September 2024.
Open court documents, including
the ruling and pleadings in respect of the motion for summary
judgement, 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/. An overview of the key facts in
the case by found at
www.dialight.com/ir/shareholder-information/sanmina-litigation/sanmina-litigation-faqs/.
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.
20. Post balance sheet events
The Group's multicurrency
revolving credit facility of $34.0m with HSBC was extended on 14
June 2024 to 21 July 2026 on the same terms as the original
revolving credit facility agreement.
On 29 July 2024 the Group
announced that it has entered into an agreement for the sale of its
business manufacturing signal lights used in traffic, pedestrian
and railroad management in North America (the Traffic Business) to
Leotek Electronics USA LLC and realising gross cash proceeds of US
$5.8m. After transaction and other costs, net cash proceeds are US
$5.5m which will be used to reduce group indebtedness. The Business
had previously been identified as non-core.
21. Principal and emerging risks and
uncertainties
The Board has conducted a robust
assessment of the Company's principal and emerging risks. The risks
outlined in this section are the principal risks that we have
identified as material to the Group. They represent a
"point-in-time" assessment, as the environment in which the Group
operates is constantly changing and new risks may always
arise.
Risks are considered in terms of
probability and impact and are based on residual risk rating of:
high, medium and low. Mapping risks in this way helps not only to
prioritise the risks and required actions but also to direct the
required resource to maintain the effectiveness of controls already
in place and mitigate further where required.
The risks outlined in this section
are not set out in any order of priority, and do not include all
risks associated with the Group's activities.
Additional risks not presently
known to management, or currently deemed less material, may also
have an adverse effect on the business.
· Intellectual property
- Intellectual property infringement
risk - by Dialight or against Dialight. Security of protectable
intellectual property.
· Growth (Current offering,
customer requirements and markets) - Risk of stagnation of addressable market of current product
portfolio, product portfolio management efficiency, and execution
risk on current sales/route to market. Understanding customer
requirements regarding product function and price. Risk from
failure to recognise emerging markets and focus concentrated on
North America.
· 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 and/or workforce 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. Capital and debt funding servicing and adequacy, also having
regard to compliance with our banking covenants. A retrospective
review of covenant calculations for the 15-month period to 31 March
2024 was performed by management as part of the year-end audit
after certain matters came to the attention of the Board. This
retrospective review identified that breaches of the covenants had
and/or may have had occurred when also retrospectively applying
finalised year-end accounting adjustments. These waiver requests
were communicated to HSBC who have agreed to issue retrospective
covenant waivers for the relevant quarters. The waivers are subject
to legal finalisation at the date of this report.
· Cyber and data integrity
- Disruption to business systems
would have an adverse impact on the Group if our systems suffered
cyber-attacks (including ransomware, phishing, DDOS attack). The
Group also needs to ensure the protection and integrity of its
data. There can be additional risk if internal data management
processes are not mapped and improved. With the Group's dispersed
international footprint, increasing automation there is greater
risk of impact on IT infrastructure/communications between
employees.
· Talent and diversity
- Group performance is dependent on
attracting and retaining high-quality staff across all functions.
Risk in the labour market hardening in all markets (especially
Mexican wage inflation risk) and age profile of key staff
increasing.
· Geo-political and
macro-economic impacts - There is
risk attaching to macroeconomic performance in North America. Risk
of macro-economic shocks (including inflation) has increased
globally, and geopolitical risk has increased across Europe and
Asia.
· Product risk -
Risk relating to commercial obligations (including
warranty), legal, product recall and reputational risks arising
from under-performance or non-performance of product against
contracted specification and/or product malfunction.
· Product development strategy
- Inability to translate market
requirements into profitable products. Failure to deliver
technologically advanced products and to react to disruptive
technologies. Emerging pressure to innovate ESG-friendly and less
carbondense products.
· 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.
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.