Dialight Regulatory News (DIA)

2 Mar 2009 07:00



DIALIGHT PLC

Preliminary Results for the year to 31 December 2008 and Board Change

Dialight plc, the UK based leader in Applied LED Technology, announces its Preliminary results for the year ended 31 December 2008.

Dialight consists of two business segments:-

Highlights

Signals/Illumination sales up 30% (21% at constant currency)

Group sales up 23% (16% at constant currency)

Operating Profit up 37% to £5.3m - in line with market expectations

Profit before tax up 26% to £5.6m

Earnings per share up 27% to 11.2p (2007:8.8p)

Strong operating cash flow of £6m (2007:£5.8m)

The recommended final dividend increased to 3.9 pence

Roy Burton, Group Chief Executive, said

"We are pleased to report that our strategy of identifying and then servicing large niche markets for LED based products continues to deliver strong growth. Our increasing range of Ultra Efficient Lighting not only brings energy savings to our customers but enables them to reduce their carbon footprint. In addition to the "green " nature of our products, the recently announced United States stimulus package addresses many of the markets and applications served by Dialight and we should be well placed to take advantage of this package as it is implemented in the coming months."

Financial results

Dialight performed well in the year ended 31 December 2008 and recorded a 26% increase in profit before tax to £5.6 million (2007: £4.5 million), with turnover up 23% to £77.9 million (2007: £63.4 million ) and earnings per share up 27% to 11.2 pence per share (2007: 8.8 pence per share). Two-thirds of the Group's sales are denominated in US$ and the strengthening of the US Dollar against Sterling has had a positive influence on Dialight's results. The average USD: £ rate improved in 2008 compared with 2007 from 2.0 to 1.85. At constant currency, Group sales increased by 16% to £73.3 million and profit before tax increased by 16% to £5.2 million. 

This year it is pleasing to report that sales in our Signals/Illumination segment grew by 30% (21% at constant currency). Over the last three years this segment has grown by 47%. Within Signals/Illumination all major product lines delivered strong growth driven by a combination of increased market share and new products. 

In addition, the continuing process of reducing material costs in the Signals/Illumination business has resulted in improved contribution.

Investment has continued in Sales and Engineering personnel to drive future growth in Solid State Lighting products and to open up new market opportunities within this emerging market.

The Group continues to generate positive net cash flow from operations this year totalling £6.0million (2007: £5.8 million) representing 113% of operating profit. 

At the year end the cash balance was £4.1 million and the Company has no debt on the balance sheet following the £2.2 million redemption of the final B Shares during the year. 

Dividend

The Board is recommending a final dividend of 3.9 pence per share (2007:3.8 pence). The dividend will be paid on 15 May 2009 to shareholders on the register at close of business on 13 March 2009. The full year dividend is 6 pence per share and the dividend cover is 1.85 times.

Board change

Bill Whiteley has decided to retire as a non-executive director at the forthcoming Annual General Meeting. We thank Bill for his significant contribution to the Group over the last eight years. We are currently recruiting to replace Mr Whiteley and further announcements will be made in due course.

Operating Review 

Dialight's strategy is to address large niche markets which have some measure of regulation or other barriers to entry. Whilst there are many areas where LEDs can be used, Dialight has been careful to select those markets which fit its strategy and allow defensible and profitable growth. 

The Signals/Illumination segment addresses the increasing demands for Energy Efficient Lighting solutions. Through the use of high brightness LEDs and utilisation of a number of associated technologies Dialight creates and delivers compelling value propositions to our customers. Dialight continues to work closely with LED developers to identify and bring to market Solid State Lighting and Signalling Products which deliver value to its customers through savings in energy and significantly improved product lifetimes and reliability.

Overall this segment grew at 21% for the year at constant currency.

Traffic

Our Traffic Light Business once again showed growth with an increase of 20% year on year in constant currency with both Europe and North America contributing to that growth. Whilst we would normally expect North American sales to be relatively flat due to the relative maturity of that market, major contracts in Florida, the Gulf Coast and other areas and the success of our range of ultra energy efficient ITE Standard Traffic Lights helped Dialight to grow market share. Dialight was the first company to introduce Traffic Lights using phosphor converted LEDs, fully compliant to the new standard and giving a significant energy saving versus the older LED technology.

As reported last year, we had been awarded a contract to supply Traffic Lights to Miami Dade County in Florida, the majority of which shipped in the early part of 2008 and in the latter half of the year, we shipped significant volumes of Traffic Lights to the Gulf Coast area to replace lights damaged by Hurricane Ike and a number of other city retrofits.

With the exception of major contracts, the US Traffic Business will continue to be serviced  through our extensive and exclusive network of Traffic Dealers who allow us to maintain our market share in North America. With a majority of the installed base of traffic lights now converted to LEDs, the earliest installed LED lights are coming to the end of their useful life, after well over five years in service. The cycle of replacement of these traffic lights with newer technology should sustain this business for the foreseeable future. In the immediate term however, the economic climate makes funding unsure and we would expect to see some deferral of discretionary spending by the Municipalities and States who buy our Traffic Lights absent specific incentives from the Federal Government.

Growth of European traffic lights was a healthy 32% driven by increased adoption of LED Traffic Lights in the European Market and continued expansion of our OEM partnerships throughout the region. This market has been targeted by Dialight as a major growth opportunity due to the current low adoption of LED traffic lights in the region. Emphasis on global warming and reduction in carbon footprints should motivate continued adoption of LED Traffic Lights.

Our partnerships with Traffic Systems OEMs remain sound and our relationship with Siemens continues to grow. The UK market has been somewhat slower in the adoption of LED traffic Lights but 2008 saw the first significant shipments of our high brightness products to this country.

It is our policy to work where possible, in regulated markets where we do not have to compete against inferior or low grade products. Nevertheless, it is important for Dialight to be cost competitive and to offer the most attractive value propositions to its customers in order to drive LED adoption. During 2008, we invested in further vertical integration in our manufacturing facilities in both North America and the United Kingdom. We have converted almost all of our Traffic products to the latest high brightness LEDs and moved where possible to lower cost materials. These efforts have improved our supply chain effectiveness and allowed us to increase margins in the product line.

Obstruction Lights

Dialight is the clear leader in the market for LED based Obstruction Lights. These lights are used to warn aircraft of tall structures such as broadcast towers, telecommunications and cellphone towers, tall buildings and wind turbines. These lights are subject to strict regulation by the FAA in the United States and by ICAO elsewhere. Failure to comply may result in fines and sanctions for the operators of these tall structures and therefore reliability and long life is important. Suffice to say that having to climb to the top of a tall tower to change a light bulb is both expensive and potentially dangerous.

2008 saw a surge in the installation of Wind Turbines in the United States which generated good growth in the sales of our Red LED Beacon. It is estimated that for every 3 turbines, there is a demand for two such beacons and we saw a significant increase in sales of this product during the year.

Over the past five years, Dialight has been supplying LED based products for the aircraft obstruction light market using red LEDs, the colour red being used as a warning in a number of these applications. Dialight has been the global innovator in LED applications and in early 2007 introduced a strobe light using white LEDs which addressed a substantial and new segment of this market. A white flashing strobe light is used in many installations of cellphone towers in North America, the white light being generated by a xenon strobe tube. These xenon lights have issues with reliability, robustness and the potential to interfere with cellphone transmissions. Over the last two years Dialight has been shipping small quantities of the new LED Strobe lights, whilst simultaneously improving and developing the product in response to user inputs. 

The product which started out weighing over 40 Kg has been most recently qualified in a version which weighs a mere 20 kg and uses significantly fewer but much brighter LEDs. We appear to have reached the "tipping point" in the adoption of this product and in 2008, we shipped over 300 of these units and more importantly, have now shipped to almost all of the major cell tower operators in North America. The installed base for white strobes is estimated to be over $300m in North America. Current calculations show a payback period of less than two years for our product, which has a potential life of up to ten years and a guaranteed life of at least five.

Overall growth in sales for this product line was 47% at constant currency with penetration of the White Strobe market at less than 5% of the available annual needs.

Solid State Lighting

Once again 2008 saw rapid development in the performance of white LEDs from a number of semiconductor manufacturers, opening up yet more applications for Solid State Lighting. Whilst there is much noise made about LEDs revolutionising the world of lighting, at this stage of development the "revolution" will occur in specific market niches where all the attributes of LEDs can be brought to bear in creating a real value proposition for the user. To date much of the use of LEDs has been for coloured lighting, where the objective is to create effect rather than useful illumination. Dialight successfully markets a range of products for coloured lighting but the major potential is envisaged in white applications.

One of Dialight's first developments into white lighting has been with products for hazardous location and industrial markets. In late 2007, we introduced Safesite, an LED based downlight which has been qualified for use in areas where explosive gases and dust may be present. In 2008, Safesite was bought for initial trials by many users in the oil and petrochemical industries, in mining, chemical, food processing and other industries where long life and high reliability, the ability to withstand extremes of shock and vibration and inherent safety are valuable attributes in a lighting system. The original Safesite is designed to replace a 150 watt H.I.D. downlight, whilst using only 90 watts to achieve the same illumination. 

The product has been well received and we registered sales of almost 1500 units in 2008, most of which were for initial trials. The product has been well received by many key customers such as BP, Valero, Dow Chemical, Rio Tinto Mining and many others. Recently an extension to the Safesite range has been introduced called Safesite 250. This new light, using essentially the same amount of power as its earlier counterpart, is designed to replace a 250 watt High Pressure Sodium light and offers our customers a 60% power saving over the conventional alternative. 

We believe the value proposition provided by our LED lights is such that users can get a return on their investment, due to power saving and maintenance, in less than 18 months. Having successfully "seeded" the market in 2008, we expect Safesite to take further share in 2009 from conventional lighting in the Hazardous and Industrial Lighting Market.

Following the Lumidrives acquisition in 2006, Dialight has developed and introduced new products for the Architectural Market using both coloured and white LEDs. Due to the fragmented nature of this market, we have chosen to partner with Lighting OEMs who will add the Dialight LED range to their conventional lighting portfolio. In 2008, we signed partnership agreements with Juno Lighting in the USA and Illuma Lighting in the UK. This activity is ongoing as we open up these OEM channels to more geographies and more lighting segments.

Our activities within the Traffic market have opened up relationships with municipalities and Departments of Transport who also have needs for lighting in tunnels, for bridges, illuminated road signs and so on. Dialight is a known brand in this market, with a reputation for state of the art LED products delivering great savings and with high reliability. We are now in discussions with a number of potential users for LED applications other than just Traffic Lights. In December 2008, we delivered almost 5000 feet of lighting to the State of New Jersey for a major bridge in Atlantic City. These lights are for illuminating a pedestrian walkway and will replace fluorescent tubes which had proved to be a significant maintenance headache. The LED fixtures are warranted to last at least seven years and will result in significant savings for the State.

At the end of 2008, Dialight introduced "Street Sense" - a range of LED Street lights. A number of towns and cities have resorted to turning off their street lights at night in order to save energy - an expedient which somewhat defeats the purpose of having street lights in the first place! LED lights offer a number of potential benefits to a city or town council. They give a significant energy saving, they can be dimmed in order to save more energy when no-one is present and the light can be more precisely directed, avoiding light pollution and the "orange glow" that hovers over many of our cities at night. The adoption of LED street lights is at a very early stage but Dialight has been chosen to install a trial in a major UK city. It is expected that this will be operational by the middle of 2009.

White LED Lighting is in the early phases of development and Dialight is well place to address new applications as they reach viability and to continue to drive significant revenue growth for the foreseeable future.

In order to progress these new developments, Dialight employs teams of Engineers and Scientists in North America and Europe, using the most up to date software tools and techniques to design new optical, electronic, thermal and communications solutions for its Ultra Efficient Lighting products. In 2008 we filed 13 patents and had 7 patents granted with 72 pending. Our R&D spend was over £3 million representing 7% of Signals/Illumination Revenues.

Dialight's Components business comprises two product areas: LED Indication Components - LED indicator lights supplied to the OEM market; and Electromagnetic Disconnects - 'smart' meter disconnect switches which are used by utility companies to manage remotely electrical supply to residential and business premises.

Dialight's LED Indication business services a mature niche in the electronics market place which, whilst it will exhibit modest growth over the long term, will fluctuate with the general electronics marketplace. Whilst the first half of 2008 was strong, demand in the market place softened late in the second half and was down by approximately 7% versus the first half. Orders from both our Distributors and Contract Manufacturers have continued to reduce due to inventory reduction in the channel and further business deterioration. The last three months trading would indicate a decline of almost 35% in volumes. Other than the current economic downturn, there has been no fundamental change to the business and relationships with both OEM customers and Distributors continue to be strong. There was some minor erosion of margin in the year due primarily to product mix.

The Electromagnetic Disconnects product line grew by 37% in 2008 driven by demand for Dialight's 200 amp Disconnect Switch. The US Advanced Meter Infrastructure programme is at the initial stages of its roll out and has the potential for 130 million smart meters to be installed, each incorporating a high current switch. Dialight has been shipping switches to three of the major suppliers of these smart meters and is working with others to qualify its switch and therefore increase its customer base. Whilst the timescale for implementation of this programme is uncertain, the latest stimulus bill in the United States contains a significant sum for this smart meter initiative.

As previously reported, the Dialight switch is a high reliability device, not easy to replicate and is the subject of a number of patents.

Current Trading & Outlook

In present economic circumstances forecasting is particularly difficult. Whilst the sustained weakness of sterling is likely to benefit our reported results and the group's funding position is a continued source of strength, other factors are mixed.

Reduced LED Indication Component product line demand will have a significant adverse impact on the performance on this part of the Group even after taking action on costs. Prospects for US Meter Disconnect however should support the Electromagnetic Disconnect product line performance over the year.

Indications continue to be positive for our Signals/Illumination product lines although after an excellent 2008 less is expected in 2009 from US Traffic sales. Sales of both Safesite Lights for the industrial market and Strobes for the Aircraft Obstruction market should show good increases due to the low penetration of these products. European Traffic Light sales should once again show an increase but perhaps less aggressively than 2008 as Europe feels the pinch of weak economies. We expect our Vehicle sales in the US to grow over 2008 due to continued Federal funding of Transit Programmes and military spending.

The proposed economic stimulus package in the US details a wide range of initiatives a number of which could potentially have significant impact in accelerating and increasing the take up of Dialight's products. It is however too early to judge what impact may in practice arise although any impact is likely occur predominantly in the latter part of the year.

The Board remains confident that the Company will continue to perform robustly through its strategy of pursuing growth market niches to which our Ultra Efficient Lighting solutions bring superior value. 

Roy Burton Harry Tee CBE

Chief Executive Chairman

2 March 2009

Safe Harbour 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.

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2008

CONSOLIDATED BALANCE SHEET

As at 31 December 2008

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2008

Consolidated statement of recognised income and expense

For the year ended 31 December 2008

Notes to the consolidated financial statements

for the year ended 31 December 2008

The consolidated financial statements of the Company for the year ended 31 December 2008 comprise the Company and its subsidiaries (together referred to as the "Group"). 

Statement of compliance

The consolidated financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The Company has elected to present its parent company financial statements in accordance with UK GAAP. 

Basis of preparation

The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments which are carried at fair value.

The financial information contained in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2008 and 2007. Statutory accounts for 2007 have been delivered to the registrar of companies, and those for 2008, will be delivered in due course. The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. Full financial statements for the year ended 31 December 2008, will shortly be posted to share holders, and after adoption at the Annual General Meeting on 13 May 2009 will be delivered to the registrar.

1. Segment reporting

Business segments

The Group comprises the following business segments: -

All revenue relates to the sale of goods. The primary format used for segmental reporting is by business segment as this reflects the internal management structure and reporting of the Group. Segment results, assets and liabilities 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 and unallocated assets and liabilities comprise cash, borrowings, and pension fund liabilities. 

Business segments

Geographical segments

The Components and Signals/Illumination segments are managed on a worldwide basis, but operate in three principal geographic areas, UK, Europe and North America. 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

2. Income tax expense

Reconciliation of effective tax rate

3. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 31 December 2008 was based on the profit for the year of £3,469,000 (2007:£2,729,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2008 of 31,017,000 (2007:31,084,000).

Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2008 was based on profit for the year of £3,469,000 (2007:£2,729,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2008 of 31,769,000 (2007:31,619,000) calculated as follows: -

Weighted average number of ordinary shares (diluted)

4. Dividends

The following dividends were paid in the year:

After the balance sheet date the following dividends were recommended by the Directors. The dividends have not been provided for and there are no corporation tax consequences.

- ENDS -