Dialight Regulatory News (DIA)

27 July 2015

Dialight plc

Half Yearly financial report

Dialight plc ("Dialight" or the "Group"), the UK-based leader in applied LED technology, announces its results for the six months ended 30 June 2015.

Key points

• Lighting revenue increased 24% (17% at constant currency) to £53.4m (H1 2014: £43.0m)

• Lighting operating profit down 51% (54% at constant currency) to £3.5m (H1 2014: £7.1m)

• Group underlying operating profit decreased 74% (75% at constant currency) to £1.7m (H1 2014: £6.5m)

• Group statutory operating profit decreased 96% to £0.2m (H1 2014: £5.4m)

• Underlying earnings per share 5.4p (H1 2014: 14.2p)

• Closing net debt £8.0m (31 December 2014: net cash £0.6m)

• Significant headroom on banking covenants, maintaining financial flexibility

• The Board is not declaring an interim dividend (H1 2014: 5.2p)

Michael Sutsko, Group Chief Executive, said:

"I am pleased to have joined Dialight and believe that we have a huge opportunity ahead and are well positioned to capture significant value in our markets. We are clearly disappointed by the half year results for the Group, which reflect the adverse impact of operational inefficiencies and the impact of the oil and gas sector on lighting revenue growth in Q2 2015.

I have commenced a strategic review to identify the best opportunities in current and potential markets, products and geographies. We will report back with the findings of this review in October."

Further information:

There will be an analyst and investor meeting at 09.00 hours this morning at FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

A live audiocast and slide presentation of the event will be available at 09.00 hours on the company's website, www.dialight.com. Internet users will be able to view this announcement, together with other information about Dialight at the company's web site www.dialight.com

Chief Executive's statement

The business experienced a downturn in profitability in the first half of 2015 due to operational inefficiencies which resulted in excess costs. This was compounded by a reduction in lighting revenue growth primarily in the oil and gas sector and a £2.0m order deferred into the second half of the year. We have maintained lighting contribution margins and we continue to invest in product development.

We have taken immediate actions to address the operational issues and have identified opportunities to streamline our production processes which will transform the operations within the next twelve to eighteen months.

Finance review

H1 2015 saw Group revenue grow by 14% (9% at constant currency) to £80.6m (2014: £70.9m). Lighting revenue, the Group's main driver for long term growth, increased 24% (17% at constant currency) to £53.4m (2014: £43.0m) whilst lighting contribution margin was slightly lower than the same period last year at 44% (2014: 45%). During H1 the Group's underlying operating profit decreased 74% (75% at constant currency) to £1.7m and Underlying EPS decreased 63% to 5.4p (2014: 14.2p).

After charging non-underlying costs of £1.5m and finance costs of £0.2m, profit before tax was £0.0m (2014: £5.2m).

Net debt at 30 June 2015 was £8.0m (31 December 2014: £0.6m net cash). Operating cashflow before working capital was £3.0m (2014: £7.3m). Working capital cash outflow was £0.6m (2014: outflow of £3.2m). Tax paid was £3.9m (2014: £1.8m) and cash used in investing activities was £3.6m (2014: £3.3m). Dividends paid were £3.2m (2014: £3.1m).

The Group has a four-year £25.0m Revolving Credit Facility with HSBC with the option to borrow a further £25.0m under an accordion feature. As at 30 June 2015 there was £13.5m drawn against the facility and the Group remains compliant with all its debt covenants and has significant headroom.

Dividend policy

The Board is not declaring an interim dividend. Future dividend policy will be considered as part of the strategic review.

Business Review

Lighting Segment

The Lighting segment addresses the increasing demands for energy efficient lighting solutions for industrial and hazardous locations. The estimated available market for industrial and hazardous LED lighting products is between £60bn and £90bn and is still less than 2% penetrated. Dialight has maintained its leading share within this market.

Lighting revenue grew by 24% to £53.4m (2014: £43.0). We experienced strong growth in Q1 2015 and subsequent slowdown in May and June. The slowdown is primarily attributed to the oil and gas sector where our revenue was £3.0m lower than H1 2014. We also had a large automotive order of £2.0m delayed to H2 2015.

A number of new products have been launched during H1 2015. These include an industry first 140 lumens per watt fixture which further enhances energy efficiency, a new 60,000 lumen fixture than can be placed at extreme height and a 480 volt power supply that is designed specifically to operate in heavy industrial plants . These new additions continue to place Dialight at the forefront of product innovation.

Signals Segment

Signals comprises the Obstruction, Traffic and Transportation business.

Obstruction

Total revenue grew by £0.6m to £7.3m (2014: £6.7m).

The US Obstruction business serves the US cell phone and broadcast tower market. This business saw revenue growth of 24% despite no major contracts being awarded in the period. The potential in the US markets remain strong with a large number of tower retro fit opportunities still outstanding.

The European Obstruction business serves the onshore and offshore wind turbine markets, which are project-based and where the timing of orders can be uneven and difficult to predict. Revenue of £2.7m was down 9% due to a lower number of projects being commissioned by our main customers; contribution margins were lower due to the impact of a stronger USD on raw material costs.

Other Signals

The US Traffic business continues to experience a decline in revenue owing to price erosion and reductions in local municipal budgets. The European traffic business also declined resulting in an overall reduction of 22% in Traffic revenue. Municipalities continue to be cash constrained, meaning that capital upgrades including traffic lighting upgrades are often deferred or cancelled, despite the clear ongoing savings they deliver.

Components Segment

Components supplies small LED indicators into the professional electronics market through a network of distributors with more than 15,000 end users. It operates in a mature market with significant price competition.

Operations

The Group has previously reported during H1 2015 that it was incurring a number of operational inefficiencies at our principal plant in Mexico. We have also identified issues with platform product design, design for manufacturing and global commodity management. A team has been selected from the best operations resource within the Group to relocate to Mexico to remedy the issues identified.

Strategic review

The focus of the review will be on confirming a strategy to deliver long term value to all the Group's stakeholders. It includes an assessment of prioritisation of the available market opportunities by reviewing all market sectors, geographies and product groups. We would anticipate the review to confirm the industrial and hazardous LED lighting market potential and identify which other markets have attractive growth opportunities. The Group's product portfolio will be reviewed for non-performance and appropriate action will be undertaken.

We shall consider all future options for the Group's operations and aim to recruit and retain the best available talent.

In the short term the business requires some stability following a difficult trading period and senior management changes. Full details of the results of the strategic review will be provided in October at a date to be confirmed.

Board changes

Roy Burton stepped down as Group Chief Executive on 2 March 2015. The Board is sad to report that Roy recently passed away after his illness.

Richard Stuckes, formerly one of Dialight's Non-Executive Directors, acted as Interim Group Chief Executive during the period 2 February to 30 June 2015 when he resigned from the Board.

Michael Sutsko was appointed Group Chief Executive with effect from 1 June 2015.

David Blood was appointed as a Non-Executive Director on 1 July 2015.

Bill Ronald has informed the Board of his intention to step down as Chairman. Bill will continue to serve as Chairman until his successor has been appointed. The search for a new Chairman is being led by Stephen Bird, Senior Independent Director, and has now commenced.

Bill expressed to the Board his view that, having completed the process of recruiting a permanent Group Chief Executive, and with Dialight entering the next stage of its development, it is now the right time for him to move on.

Current Trading and Outlook

There is an increase in the number of new sales opportunities in our H2 2015 pipeline, however there is uncertainty remaining on the timing of projects. We are not anticipating any recovery from the oil and gas sector in the balance of the year. The focus for the sales teams will be on our other target vertical markets. Operational issues remain in the Group, although a number of actions have begun to remedy them.

Dialight has a very strong brand, notably in the US market that has been built on products that stand apart from the competition and there is still an immense global market opportunity.

Michael Sutsko

Group Chief Executive

Condensed consolidated income statement

For the period ended 30 June 2015

* Underlying profit measures exclude non-underlying items, which are analysed in note 3.

** Underlying earnings per share excludes non-underlying items (analysed in note 3), and allocates tax at the appropriate rate (see note 5).

The accompanying Notes form an integral part of these interim financial statements.

Condensed consolidated statement of comprehensive income

For the period ended 30 June 2015

The accompanying Notes form an integral part of these interim financial statements.

Condensed consolidated statement of changes in equity

For the period ended 30 June 2015 (Unaudited)

Condensed consolidated statement of changes in equity continued

For the period ended 30 June 2014 (Unaudited)

Condensed consolidated statement of total financial position

As at 30 June 2015 (Unaudited)

Condensed consolidated statement of cash flows

For the period ended 30 June 2014 (Unaudited)

Notes to the financial statements

For the period ended 30 June 2014 (unaudited)

1. Basis of preparation and principal accounting policies

Dialight Plc (the "Company") is a company domiciled in the UK. The condensed set of financial statements as at, and for, the six month period ended 30 June 2015 comprises the Company and its subsidiaries (together referred to as the "Group"). The Directors have a reasonable expectation that the Group has sufficient resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing financial statements.

The Group financial statements as at, and for, the year ended 31 December 2014 prepared in accordance with IFRSs as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, are available upon request from the Company's registered office at Exning Road, Newmarket CB8 0AX.

The comparative figures for the year ended 31 December 2014 are not the Company's statutory accounts for that year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified (ii) did not include any reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The condensed set of financial statements for the six month ended 30 June 2015 is unaudited but has been reviewed by the auditors. The Independent review report is set out at the end of this report.

Statement of compliance

The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. The condensed set of financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the Group's financial statements as at, and for the year ended 31 December 2014.

This condensed set of financial statements was approved by the Board of Directors on 27 July 2015.

Adoption of new and revised standards

No changes to new or revised accounting standards have had a material impact on the consolidated financial statements of the Group.

Estimates and judgements

The preparation of a condensed set of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

2. Operating segments

The Group comprises three 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's Chief Executive.

The three 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.

· Signals, which develops, manufactures and supplies highly efficient LED signalling solutions for markets including anti-collision obstruction lighting and traffic signals.

· Components, which develops, manufactures and supplies status indication components for electronics OEMs, together with niche industrial and automotive electronic components.

There is no inter-segment revenue.

All revenue relates to the sale of goods. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated expenses comprise corporate costs including share-based payments.

There are no individual customers representing more than 10% of revenue.

2. Operating segments continued

Note: Contribution is revenue less direct material, direct labour, freight and external sales commissions.

2. Operating segments continued

Geographical segments

The Lighting, Signals and Components segments are managed on a worldwide basis, but operate in four principal geographic areas, North America, UK, Europe 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

3. Non-underlying items

From time to time, the Group incurs costs and earns income that is non-recurring in nature or that is otherwise considered to be not reflective of the underlying performance of the business. In the assessment of performance of the components of the Group, management examines underlying performance, which removes the impact of non-underlying costs and income. The results of discontinued operations are also considered to form part of the non-underlying operations.

The table below presents the components of non-underlying profit or loss recorded within cost of sales:

The table below presents the components of non-underlying profit or loss recorded within administrative expenses

4. Net financing expense

5. Income tax expense

The tax charge on continuing operations of Nil for the half year to 30 June 2015 reflects the anticipated effective tax rate on underlying earnings of 37.1% for the year ending 31 December 2015. Non-underlying items have been taxed using the relevant tax rates. The effective tax rate is higher than the current UK tax rate of 20.25% due to the level of Group profits in the US which has an effective tax rate of 38.0%. The effective tax rate at the period ended 30 June 2014 was 33.7% and for the year ended 31 December 2014 was 38.8%.

6. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 30 June 2015 was based on profits for the period of £nil (2014: £3.4m) and a weighted average number of ordinary shares outstanding during the six months ended 30 June 2015 of 32,503,258 (2014: 32,503,258).

Weighted average number of ordinary shares

Underlying earnings per share are highlighted below as the Directors consider that this measurement of earnings give valuable information on the performance of the Group.

* Underlying earnings excludes non-underlying items as explained in note 3 and allocates tax at the appropriate rate (see note 5)

7. Dividends

During the period the following dividends were paid:

* Relates to shares awarded under the PSP and deferred share bonus plan.

The Directors have not declared an interim dividend (2014: 5.2p per share including dividends on shares awarded under the PSP and deferred share bonus plan but not yet vested). The prior year interim dividend was £1.7m

8. Debt facilities

On 30 April 2014, the Company signed a 4-year unsecured £25m multi-currency Revolving Credit Facility with HSBC Bank plc. Under the terms of the facility, the Group also has a £25m "accordion" facility, by which further facilities may be made available by HSBC under the current terms to support significant investment opportunities that may arise. At 30 June 2015, £13.5m was drawn on the facility.

9. Principal exchange rates

10. Related party transactions

There have been no changes in the nature of related party transactions to those described in the 2014 Annual Report that could have a material effect on the financial position or performance of the Group in the period to 30 June 2015.

 11. Principal risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group for the next six months of 2015 remain as listed on pages 16 to 19 of the Annual Report for the year ended 31st December 2014 (which can be found at www.dialight.com). In addition, the principal emerging risk in the first half of 2015 has primarily been identified as the impact of the economic downturn in the oil and gas sector and additionally in the Group's operational and planning processes. This and the other principal risks will continue to be evaluated, monitored and managed through the remainder of 2015.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

27 July 2015

Independent review report to Dialight plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the Condensed consolidated income statement, Condensed consolidated statement of comprehensive income, the Condensed consolidated statement of changes in equity, the Condensed consolidated statement of financial position, the Condensed consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

About Dialight  

Dialight plc is leading the lighting revolution for industrial users across the world. Applying leading edge LED technology it produces retro-fittable lighting fixtures designed specifically for hazardous locations, obstruction signals and traffic signalling to vastly reduce maintenance, save energy, improve safety and ease disposal.

Dialight comprises the following business segments:

· Lighting which addresses the increasing demands for energy efficient Lighting solutions through the use of high brightness LEDs and utilisation of a number of associated technologies. Areas of business are Solid State Lighting products for Hazardous and Non-Hazardous Industrial application.

· Signals which addresses the increasing demands for energy efficient Signalling solutions through the use of high brightness LEDs and utilisation of a number of associated technologies. Areas of business include Traffic Signals and Obstruction Signals

· Components whose sales are primarily to Electronics OEMs for status indication and residual disconnect components for automotive and niche industrial application

The company is headquartered in the UK and listed on the London Stock Exchange (LSE:DIA.L,GB0033057794) with operating locations in the UK, USA, Germany, Denmark, Australia, Singapore, Brazil, Malaysia and Mexico. More information is available at www.dialight.com.

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.