Dialight : Half Yearly financial report

Dialight plc

Half Yearly financial report

Dialight plc ("Dialight" or the "Group"), the UK-based leader in applied LED technology, announces its unaudited results for the six months ended 30 June 2014.

·     Lighting revenue increased 46% (53% at constant currency) to £43.0m (H1 2013: £29.3m)

·     Lighting operating profit up 60% to £7.1m (H1 2013: £4.4m)

·     Underlying operating profit increased 18% (26% at constant currency) to £6.5m (H1 2013: £5.5m)

·     Statutory operating profit increased 7% to £5.4m (H1 2013: £5.1m)

·     Underlying earnings per share 14.2p (H1 2013: 11.6p)

·     Closing net cash £2.8m (31 December 2013: £7.1m) with new £25m 4-year committed bank facility signed

·     Interim dividend increased 6.1% to 5.2p (H1 2013: 4.9p)

Roy Burton, Group Chief Executive, said:

"Our continued focus on addressing the LED lighting needs of the hazardous and heavy industrial markets has produced considerable growth in both sales and underlying operating profits.  This is a very significant market where our sales have been very strong but the market penetration is still limited.  The opportunity for growth is substantial and the Board remains confident that the Group is well positioned to capitalise on this opportunity.

For the current year the Group continues to trade in line with the Board's expectations despite the continuing currency headwinds."

Enquiries:

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 sitewww.dialight.com

Chief Executive's statement

Finance review

Group revenue increased 18% (25% at constant currency) to £70.9m (2013: £59.9m).  Lighting revenue increased 46% (53% at constant currency) to £43.0m (2013: £29.3m). Lighting contribution margin was higher at 44.9% (2013: 44.0%).  Group underlying operating profit increased 18% (26% at constant currency) to £6.5m.  Underlying EPS increased 22% to 14.2p (2013: 11.6p).

Non-underlying operating costs related to employee severance and restructuring were £1.1m.  After charging non-underlying operating costs of £1.1m and finance costs of £0.2m, profit before tax was £5.2m (2013: £4.9m).

Net cash at 30 June 2014 was £2.8m (31 December 2013: £7.1m).  Operating cashflow before working capital was £7.3m (2013: £6.6m).  Working capital cash outflow was £3.2m (2013: outflow of £3.6m).  Tax paid was £1.8m (2013: £1.4m) and cash used in investing activities was £3.3m (2013: £2.4m).  Dividends paid were £3.1m (2013: £3.1m).

On 30 April 2014, the Group 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 under the current terms.  This ensures that the Group has access to funds to continue its growth.

The Board has declared an interim dividend of 5.2p per ordinary share (2013: 4.9p). The interim dividend is payable on 6 October 2014 to shareholders whose names are on the register of Members at close of business on 5 September 2014.

Business Review

Lighting Segment

Once again the Lighting segment has demonstrated strong growth in both revenues and segment profit.  Revenues grew by 53% at constant currency with growth in all regions. Lighting segment profit grew by 60% to £7.1m including the costs of the previously announced Philips licence agreement.  Contribution margin grew from 44.0% to 44.9%.

Our focus on cost, performance and rapid and continuous product development has sustained our leadership in our chosen markets. The introduction of our industry leading Vigilant product line has been highly successful and over 30% of HighBay sales in the first half were Vigilant.

Expansion of our sales channels progressed in 2014. Recruitment of direct sales personnel continued at a more modest pace than previous periods as we work to leverage the strengths of our Distribution and Agent partners around the world. Sales headcount at the end of the half increased to 108 after the withdrawal from both the Japanese and Russian markets.   As we enter the second half of 2014, ongoing expansion of the salesforce is being implemented on a region by region basis to ensure continued growth. The market is still significantly underpenetrated and the potential for significant growth will exist for a substantial period of time.

The majority of our business continues to be retrofit projects where we are replacing existing lighting installations, although good progress is being made with the major engineering companies who are responsible for the design of substantial new projects, in particular in the oil and gas markets. To date revenues from this sector have been minimal. Our market focus has been replacement of lights in Heavy Industrial and Hazardous applications on a site by site basis. Although there is no change to our market strategy, it would appear that as the use of LED technology becomes more prevalent, there is more interest from our customers at a corporate level. Revenues from this shift in market were small in the first half but we hope to see some more traction in the coming months and accordingly we have applied some sales resource to address this potential change.

Signals Segment

The Signals segment comprises our Obstruction, Traffic and Transportation businesses.  During the half, we have seen encouraging growth in Obstruction, offset by some challenging conditions in Traffic with Transportation remaining stable.

Obstruction Signals

Sales in the first half showed an increase of 23% at constant currency compared to the same period last year. The US posted a particularly pleasing recovery even though no major contracts were awarded in the half. Sales to a major US tower operator for repair and maintenance were encouraging and confirms we are a viable candidate for any future contracts. We continue to position this business as a monitoring and control business rather than an LED Signalling business. We are in the process of trialling our cloud based monitoring systems for more parameters than just the LED lights thus providing significant savings for the tower operators versus their current systems.

The available market remains very significant and while it is important to recognise that timing is difficult to predict, as we enhance the value proposition for our customers, a major retrofit by our customers becomes more probable.

Although our European business has a slightly different market focus to the US, being more oriented to offshore wind turbines, the technologies used are similar and we remain encouraged by its long term growth prospects.  Our flexible solutions enable turbine manufacturers to tackle the challenging and varied regulatory requirements.

Traffic Signals

Traffic Light sales were down 24% at constant currency versus the same period last year with softness in both the North American and European markets. Bad weather in the US in the early part of the year clearly had some effect on sales and we saw some recovery in the second quarter. Europe was adversely affected by the conclusion of the Manchester retrofit project in the early part of the year. While we have seen some good acceptance of our new 15 year Traffic product, we expect market conditions to remain challenging.

Components Segment

Sales in this segment were down 8% (broadly flat at constant currency) at £9.6m (H1 2013: £10.4m). Business conditions remain relatively stable and the outlook for the rest of the year looks to remain so based on input from our channels to market. We do not anticipate any material change in the performance of this segment in the near future. Contribution margin is down against 2013 due mainly to one-off costs incurred in securing efficient channel access through our distributor partners.

Operations and Engineering

Our Operations and Engineering teams once again performed an invaluable role in the successful execution of our strategy. Growth of more than 50% in Lighting revenues in the half was achieved while at the same time introducing multiple new products. As ever, continuous improvement in our product performance and value to our customers is paramount to our continued market leadership. Our groundbreaking 125 lumens per watt products have been supplemented by a 60,000 lumen fixture which will replace a 1000 watt metal halide fixture using less than 40 % of the power and with an unmatched 10 year warranty.

Board changes

As announced on 27 June 2014, Fariyal Khanbabi will join Dialight's Board as Group Finance Director with effect from 29 September 2014.  Kevin Higginson, who has been Dialight's Interim CFO since 21 January 2014, leaves the Group as of today.  Pending Fariyal's appointment, the senior finance role at Dialight has been assumed by Paul Haworth, Group Financial Controller.

Current Trading and Outlook

Our continued focus on addressing the LED lighting needs of the hazardous and heavy industrial markets has produced considerable growth in both sales and underlying operating profits.  This is a very significant market where our sales have been very strong but the market penetration is still limited.  The opportunity for growth is substantial and the Board remains confident that the Group is well positioned to capitalise on this opportunity.

For the current year the Group continues to trade in line with the Board's expectations despite the continuing currency headwinds.

Roy Burton

Group Chief Executive

Condensed consolidated income statement

For the period ended 30 June 2014

* Underlying profit measures exclude non-underlying items, which are analysed in note 4.

** Underlying earnings per share excludes non-underlying items (analysed in note 4), discontinued operations (analysed in note 3) and allocates tax at the appropriate rate (see note 6).

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

Condensed consolidated statement of comprehensive income

For the period ended 30 June 2014

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 2014 (Unaudited)

Condensed consolidated statement of changes in equity continued

For the period ended 30 June 2013 (Unaudited)

Condensed consolidated statement of total financial position

As at 30 June 2014 (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)

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 2014 comprises the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for, the year ended 31 December 2013 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 2013 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 2014 is unaudited but has been reviewed by the auditors. The Independent review report is set out at the end of this report.

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 2013.

This condensed set of financial statements was approved by the Board of Directors on 21 July 2014.

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.

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.

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.

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

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.

The Group disposed of the assets of its electromagnetic components business in late 2012.  In 2013, the Group received contingent consideration of £1.3m (before tax) and sold some residual inventory.  The results of these activities have been presented as discontinued operations.

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 administrative expenses:

5. Net financing expense

The tax charge on continuing operations of £1.8m for the half year to 30 June 2014 reflects the anticipated effective tax rate on underlying earnings of 33.7% for the year ending 31 December 2014.  Non-underlying items have been taxed using the relevant tax rates.  The effective tax rate is higher than the current UK tax rate of 21.5% 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 2013 was 31.0% and for the year ended 31 December 2013 was 30.9%.

Basic earnings per share

The calculation of basic earnings per share at 30 June 2014 was based on profits for the period of £3.4m (2013: £4.1m) and a weighted average number of ordinary shares outstanding during the six months ended 30 June 2014 of 32,503,258 (2013: 32,148,923).

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 4 and discontinued operations as explained in note 3 and allocates tax at the appropriate rate (see note 6)

During the period the following dividends were paid:

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

The Directors have declared an interim dividend of 5.2p per share (2013: 4.9p) costing £1.7m (including dividends on shares awarded under the PSP and deferred share bonus plan but not yet vested) (2013: £1.5m). It is payable on 6 October 2014 to shareholders whose names are on the Register of Members at close of business on 5 September 2014.

As the dividend was declared after the end of the period being reported and in accordance with IAS 10 "Events after the Balance Sheet Date", the interim dividend has not been accrued for in these financial statements. It will be shown as a deduction from equity in the financial statements for the year ending 31 December 2014.

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 2014, £8.0m was drawn on the facility.

10. Principal exchange rates

11. Related party transactions

There have been no changes in the nature of related party transactions to those described in the 2013 Annual Report that could have a material effect on the financial position or performance of the Group in the period to 30 June 2014.

The principal risks and uncertainties affecting the business activities of the Group for the next six months of 2014 remain those that are described on pages 34 to 37 of the Annual Report for the year ended 31 December 2013 (which can be found at www.dialight.com).

These include the impact of wider macro-economic conditions, changes in government legislation/policy, changes in the competitive landscape, worldwide regulatory and legal compliance, problems with LED development or introduction of superior or preferred technology, failure to protect intellectual property portfolio, product liability, uncertain financial markets, the impact of foreign exchange rates and a failure to identify and integrate suitable acquisition targets.

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

21 July 2014

Independent review report to Dialight plc

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 2014 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.

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 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.

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.

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 2014 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Graham Neale

Senior Statutory Auditor

for and on behalf of KPMG LLP

Statutory Auditor

Chartered Accountants

One Snowhill

Snow Hill Queensway

Birmingham

B4 6GH

21 July 2014

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 atwww.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.