REG - Dialight PLC - Final Results
30/07/2024 07:00
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RNS Number : 3106Y Dialight PLC 30 July 2024
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 12-months ended 31 December 2022
US $'m 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
(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 (http://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 12-months ended
31 March 2024 31 December 2022
US $m 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 12-months ended
31 March 2024 31 December 2022
US $m 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 12-months ended
31 March 2024 31 December 2022
US $m 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 31 December 2022
US $m 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 12-months ended
31 March 2024 31 December 2022
(audited) (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 12-months ended
31 March 2024 31 December 2022
(audited) (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 Translation Capital redemption Share premium Own Shares Retained Total Non-controlling interests Total
reserve reserve reserve earnings 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 Total Non-controlling interests Total
earnings 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 31 December 2022 31 December 2021
(audited) (audited) (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 31 December 2022
(audited) (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 paid(2) 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 liabilities(1) (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 12-months ended 31 December 2021
31 December 2022 At balance sheet date 31 December 2021 At balance sheet date
Average rate Average rate
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 Signal & components Total Lighting Signals & components Total
US $'m US $'m US $'m US $'m US $'m 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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (audited)
Transformation project 4.5 -
Impairment of goodwill (note 8) 11.2 -
Impairment of other intangible assets (excluding business disposal impairment) 4.1 1.6
(note 8)
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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 15-months ended 12-months ended 12-months ended
31 March 2024 31 March 2024 31 December 2022 31 December 2022
% US $'m % US $'m
(audited) (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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 12 months ended 31 December 2022
'000 '000
(audited) (audited)
Weighted average number of ordinary shares 35,604 32,575
15 months ended 31 March 2024 12 months ended 31 December 2022
(audited) (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 12 months ended 31 December 2022
'000 '000
(audited) (audited)
Weighted average number of ordinary shares 35,604 33,231
15 months ended 31 March 2024 12 months ended 31 December 2022
(audited) (audited)
Basic earnings per share (91.1) cents 1.5 cents
7. Property, plant and equipment
Land and buildings Plant, equipment and vehicles Total
US $'m US $'m 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, Goodwill Software Development Total
licenses, and US $'m licenses costs US $'m
trademarks US $'m US $'m
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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 Lease-restoration Total
and claims US $'m US $'m
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 31 December 2022
US $'m US $'m
(audited) (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 31 December 2022
US $'m US $'m
(audited) (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 31 December 2021
US $'m US $'m
(audited) (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 Amount drawn as at 31 December 2021
drawn as at 31 (audited)
March 2024
(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 31 March 2024 31 December 2022 31 December 2022
Number US $'m Number US $'m
(audited) (audited) (audited) (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 31 December 2022
US $'m US $'m
(audited) (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 12-months ending 31 December 2022
31 March 2024 At balance sheet date 31 December 2022 At balance sheet date
Average rate Average rate
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 12-months ended
31 March 2024 31 December 2022
US $'m US $'m
(audited) (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 (14.7) 2.8
December
(Loss) from operating activities - 3-month period from January 2024 to March (15.5) -
2024
(Loss)/Profit from operating activities (30.2) 2.8
Underlying profit from operating activities - 12-month period from January to 0.1 6.1
December
Underlying (loss)/profit from operating activities - 3-month period from (4.7) -
January 2024 to March 2024
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, 10.0 (8.1)
trade and other payables) as per Consolidated statement of cash flows
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.
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