Dialight plc (LON:DIA), the global leader in LED lighting for heavy industrial applications, has published the following trading and operational update.
Trading update
Demand trends and operating conditions in the Group’s end markets through the latter part of 2023 remained consistent with those we reported in the half year results announced in September 2023. Despite ongoing softness in a number of segments, the Group continued to take market share through benefitting from improved service and availability as a result of the actions taken over the previous 18 months.
Following a 9% reduction in H1 (down 13% at constant currency (“CCY”)), Group revenue for the full 12-month period to 31 December 2023 (the “Period”) reduced by 12% to £148.8m (down 12% at CCY). Lighting revenues were down 7% on a reported basis (CCY 6%) in the Period, with Signals & Components revenues down 25% (CCY 25%). Whilst Lighting revenue improved sequentially in the second six-months of the Period, Signals & Components sales were particularly impacted by weak trading within Opto Electronics. Order intake within the Lighting business for the 12-month period was down 2% on the prior period (CCY reduction of 2%) which represented a relative outperformance against industry-wide end market weakness, especially for capex projects.
As expected, profit performance was appreciably stronger in the latter part of 2023, benefiting from both increased revenue and lower costs. Following an underlying operating loss of £2.5m in the six months to 30 June 2023, the Group returned to underlying operating profitability in the six months to 31 December 2023, resulting in a broadly breakeven position for the Period (before financing and non-underlying costs).
Net debt at 31 December 2023 was in line with the Board’s expectations at £12.3m (June 2023 £22.7m) including the benefit of the £10.6m equity fundraising completed in October 2023.
Outlook
Dialight demonstrated resilience in the latter part of 2023, returning the business to run rate operating profitability, despite subdued demand, and taking decisive action to reinforce its financial position. As a result, and whilst markets are expected to remain challenging into 2024 with ongoing uncertainty around the timing of capex projects, the Board is confident in the Group’s ability to sustain this momentum. Supported by an encouraging aftermarket sales backdrop and further self-help initiatives, we expect to make progress over the course of 2024.
Transformation plan update
The Board has established a formal Board committee, chaired by Steve Blair, Senior Independent Director, which has strategic oversight of the implementation of the Group transformation plan announced in September 2023 (the “Transformation Plan”), and which meets on a regular basis with senior executives.
The Group has made good progress on the Transformation Plan including the securing of the land for the new production site in Mexico which is expected to be opened and operational in 2025. The Group has also placed an initial capex order to implement the first phase of our automation programme in Mexico, with delivery of equipment expected in the first half of 2024. In addition, a lease has been signed for a smaller OE-focused production facility in Penang, Malaysia with the reconfiguration of production already underway following the transfer of Malaysian Lighting production to the Group’s Mexican manufacturing facilities.
The Transformation Plan includes an ongoing review of the Group’s businesses, with a view to streamlining operations and narrowing focus on Dialight’s core competencies. The Board continues to believe that value can be extracted from the portfolio through small divestments of non-core assets and will update the market as appropriate regarding any developments.
Sanmina litigation update
Dialight confirms that a trial date has been set for 15 July 2024, subject to any further motions, appeal processes and/or mediation, and is anticipated to last for 10 days. Further details of Dialight’s claim against Sanmina can be accessed at www.dialight.com/ir/shareholder-information/sanmina-litigation/. If Dialight’s claims are successful at trial, the range of outcomes could include the payment by Sanmina to Dialight of between $0 and c. $220m (excluding legal costs and judicial interest). If Sanmina’s claim is successful at trial the range of outcomes could include the payment by Dialight to Sanmina of between $0m and $8.3m (excluding legal costs and judicial interest).
Change of accounting year-end
As set out in the interim results, Dialight has been reviewing its statutory accounting period with a view to better aligning the Group’s reporting calendar with its trading seasonality. The three months to 31 December is typically the Group’s busiest trading quarter, with a significant number of short-notice orders placed for immediate delivery, especially in the final month. Uncertainty over the extent and timing of these orders creates difficulty in managing and forecasting the business. In light of this, the decision has been taken to change the Group’s financial year-end to 31 March in order to finish the reporting year with the quietest trading quarter. The change to its accounting year-end will be effective immediately and impact near-term reporting as follows:
· the Group will publish additional unaudited interim results for the 12-month period ending 31 December 2023, on 19 February 2024; and,
· final, audited results for the 15-month period ended 31 March 2024 are expected to be published in July 2024.
The accounting reference date of all subsidiaries will be aligned with that of Dialight to the extent permissible in each relevant jurisdiction. Additionally, for historic reasons the Group has presented its financial results in Pounds sterling despite most of the revenues, costs, and financing being denominated in US dollars. As a result, movements in foreign exchange rates can result in major translational differences in the reported results. To mitigate this, the Board is currently reviewing whether it remains appropriate to continue to report the Group’s results for the 15-month period ending 31 March 2024 in UK sterling. A final decision on this matter will be confirmed by the Board on or before 31 March 2024.
