Dialight's half yearly financial report

Date Announced: 23 Jul 2012

Highlights

•Group Revenues up 18.2% at £61.1m (2011: £51.7m). Revenue from Continuing Operations up 13.6% at £53.1m (2011: £46.8m).

•Signals/Illumination Revenue up by 25.1% to £42.7m (2011: £34.1m), driven by 65% growth in Solid State Lighting and 40% growth in Obstruction Lights.

•Operating profit growth from Continuing Operations of 21% at £8.2m (2011: £6.8m).

•Decision to dispose of Smart Metering product line. Now treated as Discontinued - Impact of Discontinued Operations reduced to a loss of £0.1m (2011: loss £0.5m).

•Earnings per share from continuing operations (EPS) of 17.2p (2011: 12.7p).

•Closing net cash £8.1m (2011: £6.2m)

•Interim dividend increased to 4.0p (2011: 3.3p)

•Acquisition of Airinet Controls to provide Smart Lighting for the Industrial Market

•Manufacturing facility in Malaysia on track to commence production in Q3 2012

Roy Burton, Group Chief Executive, said:
“Another strong performance from Industrial and Obstruction lighting operations during the first half has contributed to our strong earnings growth and gives further confidence in our ongoing strategy. As we drive adoption of Dialight’s technology into the industrial market place, the benefits for our customers around the world become ever more compelling.”

Chairman and Chief Executive’s statement

We are pleased to report another strong result for the first half of 2012 driven by good performance in our Signals/Illumination Segment and excellent growth in both Solid State Lighting and Obstruction Lighting

Group revenues for the six months ended 30th June 2012 were £61.1m (2011: £51.7m). Group Operating profit including Discontinued operations was £8.1m (2011: £6.2m). Following a strategic review the Group has decided to divest itself from the Smart Metering element of the Electromagnetic Components Segment. We expect that a transaction will be concluded successfully in the near future and therefore the Segment has been classed as held for sale and presented as a Discontinued Operation. Revenue from continuing operations were £53.1m (2011: £46.8m).

Signals/Illumination segment revenue grew by 25.1% with particularly strong growth in sales of both Obstruction and White Industrial Lights with increases in sales of 40% and 65% respectively. Contribution margins in this segment showed a further increase of almost 2% over the prior year to 45.7%, demonstrating once again the continued focus on re-engineering of our products along with ongoing operational improvement.

Earnings per share from continuing operations increased to 17.2p (2011: 12.7p). The Group generated cash from continuing operations of £9.8m and the cash position at the balance sheet date was £8.1m.

Dividend
The Board is pleased to declare an interim dividend of [4.0 p] a share (2011: 3.3p). The interim dividend is covered 4.2 times by Group profit after taxation (2011: 3.4 times) and 4.3 times by profit after tax from continuing operations (2011: 3.8 times).

The interim dividend is payable on 7th September 2012 to shareholders whose names are on the register of Members at close of business on 10th August 2012.

Board Changes
After almost seven years as Chairman and fifteen years as Group Chief Executive before that, Harry Tee CBE has announced his decision to retire before the end of the year. Under his guidance, the Group has successfully implemented its strategy to be a major player in the Solid State Lighting market and Harry leaves a company well positioned for further growth in both sales and profits in the coming years. The rest of the Board would like to express their deep appreciation for his wise counsel and support over the years.

Following an extensive search process, and on the recommendation of the Nominations Committee, the Board has appointed Bill Ronald, currently Senior Independent Director, to succeed Harry on his retirement.

Business Review
Signals/Illumination segment
The first six months of 2012 produced another strong result for the Group’s key growth segment. Revenue grew by over 25% over the same period in 2011 driven by high growth in sales of both Obstruction Lights and White Industrial Lights. Contribution margins in the segment improved once again to over 45% driven by improved product design and aggressive supply chain management. As ever Dialight maintains a microscopic like focus on continuous development of its products to not only bring value to the Group but also to be able to offer enhanced value to its customers.

Solid State Lighting
Once again, the first six months of 2012 have shown continued strong growth in sales of Solid State Lighting. Dialight’s strategy continues to be to focus on the replacement of lights in Heavy Industrial and Hazardous applications. Growth in the period was 65% over the same period in 2011 with increases in both customers and geographical coverage. The reason for this success has been the value proposition which Dialight’s products bring to customers in its chosen markets; markets where not only energy saving but also reliability, maintenance, safety and the ability to withstand rugged environments are important. This value proposition is enhanced by the improvement in the performance of the LEDs which we use, but also more importantly by the expertise that Dialight brings to exploit these ever improving devices. Our development strategy is one of utilising short development cycles to bring enhanced products to market quickly and to enable the earliest use of the most advanced LEDs. This resulted in the development in the early part of this year of a 170 watt 17,000 lumen Highbay Light with an industry leading efficiency of 100 lumens/watt and the ability to replace a 400 watt conventional light.

To date, all of Dialight’s Solid State Lighting has carried a comprehensive 5 year warranty with an expectation of several more years of savings. Improvements in LED technology have opened up the possibility of even longer lifetimes with insignificant changes in light output, the problem being how to ensure that the electronics driving the LEDs are as reliable as the LEDs themselves. Dialight has recently announced its first product with a guaranteed lifetime of 10 years. This has been achieved through unique redesign of the power electronics and the selection of high reliability components for the critical functions of the circuits. Whilst this extended and comprehensive warranty is currently limited to the 17,000 lumen HighBay, this has the potential to be extended to other products in our Lighting range giving our customers not just a short pay back period but the opportunity to enjoy the savings provided by our lights over many more years.

The acquisition of Airinet late in the first half is an important step in our drive to improve the value proposition offered by our products. We estimate that the efficient use of controls can accelerate the payback on a Solid Sate Lighting installation by up to six months. We expect to introduce a comprehensive power line control system to the Industrial Market by the end of this year

The market for our products has been estimated to be several billion dollars globally since we are addressing the installed base of Hazardous and Industrial Lighting. To be successful in bringing the advantages of our Solid State Lighting to this market, we need global sales channels and to that end we have significantly increased our sales forces around the world. Our objective this year is to double the number of sales personnel which we employ and the first half of this year has shown a continuation of that philosophy. We have increased our people in the USA and Mexico and having recently qualified our products to the Brazilian Inmetro standards, we plan to establish a sales force in Brazil to address the oil and gas market. Expansion continues in Europe and the Middle East as well as Australia. The establishment of a new facility in Penang, Malaysia will allow us to better service the Middle East and Australasian markets with lighting products.,

Obstruction Lighting
Sales in the half showed 40% growth compared to the same period last year driven as before by sales of our White Strobe Lights for the US Cellphone Tower market. In addition first sales of High Intensity Strobe Lights for the US Broadcast Tower market helped offset a little softness in the European Offshore Wind market. This newly introduced product addresses very tall towers of which there are more than 1800 in the US. This potential is valued at close to $200m for Dialight and at the time of writing, we are the only qualified supplier of such a light.

Traffic Signals
Traffic Light sales were down over 10% versus 2011 with the North American market suffering more than Europe. Our European sales were helped by one of our customers winning a major retrofit project for the City of Manchester. Budget constraints obviously affect the European market and the sales performance in North America reflects the lack of any major projects in the period. We would expect the second half to show some recovery.

LED Indication segment
Sales in this segment, which now includes £1.3m (2011: £1.5m) of residual Electromagnetic Component revenue which is not being held for sale, were down 17% at £10.4m (2011: £12.6m) compared to 2011 first half but relatively flat to the second half of 2011. This is a cyclical business and the lower revenues reflect lower confidence in our Distributor channels and weakness in the end user markets which are related primarily to Enterprise capital spending such as cloud computing, servers, networking equipment, data storage and internet access equipment .

We do not anticipate any real change to this segment in the near future as sales by our Distributors remain relatively flat.

Electromagnetic Disconnect segment
Our sales of high current switches into the US Smart Metering market were particularly strong in the period. This remains however a business that does not fit with our strategy and the Board has decided to divest with this segment. We expect that will be concluded successfully in the near future and therefore has been treated as an asset held for sale and disposed as a Discontinued operation.

Operations and Engineering
Once again our Operations and Engineering teams have played a major part in the Group’s success. Cost reduction and reengineering programmes have enabled further improvement in contribution margins in Signals/Illumination, the first half returning a result of 45.7% a 1.9% improvement on the full year of 2011.

The establishment of Dialight Malaysia is an important milestone for Dialight. Supply chain efficiency is key to our ability to respond to a growing revenue line and as our sales grow in Asia; our Penang facility will be essential to efficient servicing of that demand.

Current Trading and Outlook
Despite the uncertain prospects for the world economy, our strategy of bringing compelling value propositions to sizeable and regulated markets through the application of LED technology continues to drive strong growth in both revenues and profits.

The future for our White Lighting product line is ever more exciting. The increase in the Group’s sales of these products reflects our ability to focus on appropriate applications and capitalise on the benefits delivered by our Solid State Lights. The results of the first half give the Board confidence in achieving full year results at the higher end of current market expectations. The Board is confident that the Group's strategy will continue to deliver strong results in the current year and beyond.

About Dialight
Dialight plc is leading the lighting revolution for industrial users across the world. Applying leading edge LED technology it produces retro-fittable lighting fixtures designed specifically for hazardous locations, obstruction lighting, traffic and rail signalling to vastly reduce maintenance, save energy, improve safety and ease disposal. Versions of these high specification luminaries are also produced for more general commercial, industrial and outdoor situations.


Dialight comprises the following business segments:

•Signals/Illumination which addresses the increasing demands for Energy Efficient Lighting solutions through the use of high brightness LEDs and utilization of a number of associated technologies. Areas of business include Traffic and Rail Signals, Obstruction Lights and Solid State Lighting products.

•LED Indication components whose sales are primarily Electronic OEMs for status indication; and

•Electromagnetic components which supplies smart meter disconnect switches which are used by utility companies to manage remotely electrical supply to residential and business premises.

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

Contact
Dialight Corporation 1501 Route 34 South, Farmingdale, NJ 07727 Tel: 732-919-3119 Fax: 732-751-5778

E-mail:info@dialight.com

Web Site:www.dialight.com/

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