# Dialight plc expect further strong progress driven by revenue growth and improved margins

- Link: https://www.directorstalkinterviews.com/dialight-expect-further-strong-progress-driven-by-revenue-growth-and-improved-margins/4121058484
- Published: 2022-03-28T07:11:22+01:00
- Author: Giles

**Dialight plc** ([LON:DIA](https://www.directorstalkinterviews.com/company/dialight-plc/dia.l)),
the global leader in sustainable LED lighting for industrial applications, has announced
its full year results for the year ended 31 December 2021.

| Financial summary | 2021£m |  2020£m | 
| Revenue | 131.6 | 119.0 | 
| Underlying profit (loss) from operating activities | 4.5 | (6.4) | 
| Profit (loss) from operating activitiesProfit (loss) for the year | 2.10.3 | (8.8)(7.8) | 
| Statutory EPS – basic | 0.9p | (24.0)p | 
| Net debt | (15.7) | (11.4) |

**Key points**

·      Strong order growth of 24% at constant currency, closing order book higher

·      Revenue up 11% (17% at constant currency) driven by robust MRO activity, 
project activity remains subdued although seeing more quoting activity

·      Underlying operating profit of £4.5m, up £10.9m on 2020

·      Ongoing robust operational performance, despite headwinds of cost, material
availability and logistical constraints that are expected to continue

·      Net debt at £15.7m reflecting improving EBITDA and inventory build to maintain
uninterrupted supply

·      2022 has started well with a substantial order book and good pipeline

> **Fariyal Khanbabi, Dialight Group Chief Executive, said:**
> “We have made a good start to the year, with order intake ahead of the same period
> last year and a strong order pipeline. Our expectation for 2022, despite current
> headwinds including supply chain constraints and inflation, is for further strong
> progress driven by revenue growth and improved margins.
> Our products meet the needs of our customers to enhance safety, reduce energy 
> and maintenance costs and critically will help them achieve net zero carbon.  
> The market opportunity is substantial and Dialight is well positioned to deliver
> its growth strategy.”

**Overview**

Dialight made important financial and operational progress in 2021, reflecting the
benefits of our growth model, strong culture and leading position within the industrial
markets. The Group returned to profitability and has taken steps operationally which
should ensure the business can deliver long-term profitable growth. The strength
of our product portfolio and the agility of our business model enabled us to respond
to changing conditions in our end markets, disruption in the supply chains and labour
markets.

Overall orders grew by 24% which reflects some recovery in our end markets and reclaiming
of market share. Orders have run ahead of revenue. We continue to see a robust MRO
market and are starting to see larger projects come online, despite a backdrop of
escalating construction costs which have a dampening impact. COVID 19 has also brought
severe supply chain disruption, driving significant cost inflation. We navigated
these challenges well, adjusting inventory levels, production and prices proactively.
Cost pressures are expected to continue in the near‐term and we are working hard
to offset these pressures. Due to operating leverage and our operational excellence
initiatives, we expect further operating margin improvement going forward.

Our primary goal remains to accelerate revenue growth across our global industrial
markets. We continue to focus on developing new routes to market as well as leading
the market in innovation. Our next generation of technology is heavily focused on
the [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
needs of our customers. Our customers are increasingly seeking more environmentally
friendly products to help meet their net zero commitments. As market leader we are
at the forefront of providing the solutions.

**Results**

Overall group revenues in 2021 were 17% higher than the prior year at constant currency(
11% higher at reported currency). Revenue growth reflects some recovery in our end
markets but has been impacted by supply chain disruption. We are pleased to report
an Underlying EBIT of £4.5m for 2021 compared to a loss of £6.4m in 2020. This was
driven by increased revenue and gross margins improving to 36% compared with 2020
where gross margins were 29%. The improvement in revenue and gross margin resulted
in a profit after tax of £0.3m, compared with a £(7.8)m loss in the prior year, 
a £8.1m turnaround. 

Lighting gross margins rose to 37% in 2021, showing strong year on year progress
despite the cost pressures in the global supply chain.

Lighting order growth was 23% at constant currency. The majority of Lighting order
growth was generated in our core US market which had an increase of 27% compared
to the prior period. This region has a very solid foundation, with a well-established
channel strategy and a strong sales team. We believe the US-market remains a significant
growth opportunity for Dialight.

Orders in our EMEA business were 2% ahead on a constant currency basis compared 
to the prior period. This region continued to be impacted by the lockdowns and travel
restrictions imposed by COVID-19. Our APAC region was 17% ahead on a constant currency
basis, driven by a strong performance in Australia from the buoyant mining sector.

Included within the Lighting segment is Obstruction which provides marker lights
for communication towers, mainly in North America. This business grew revenue by
44% in 2021, moved back into profit and saw customer orders up 53% in a very concentrated
end-user market.

Signals & Components is a high-volume business operating within highly competitive
markets. The resurgence of this division that we saw in 2020 continued in 2021 with
order growth of 27% at constant currency. Within this division, opto-electronic 
component sales were fueled by increased demand in the electronics market related
to home-working. In addition, demand for Traffic Lighting continued to be strong.
Raw material shortages impacted conversion of orders to revenue, but the division
enters 2022 with a strong order book.

We entered 2022 with an order book higher than usual due to the supply constraints,
but we have been able to achieve Group on-time delivery at 71%, above current industry
standard. The supply constraints are not expected to significantly improve this 
year, but we are expecting an improvement in on-time delivery based on targeted 
production improvements.

To mitigate the impact of on-going challenges of the availability of raw materials
coupled with extended lead times, we increased our inventory of critical components
by £9.6m at constant currency during 2021. We have actions underway to reduce underlying
stock levels, however, we will continue to maintain above average raw material and
finished good safety stocks until shipping and lead times for raw materials return
to more normal levels.

We remain focused on further improving our operation performance. We accelerated
our manufacturing transformation initiative, improved efficiency and added capacity
for the future. We have continued to invest in our supply chain development, implementing
dual sourcing strategies, localising some key components and implementing more efficient
working practices.

The Group operates with a high level of focus on safety at all sites. The extensive
range of measures to support and ensure our teams’ safety continue to be applied
despite many regions lifting COVID-19 restrictions.

Our commitment to product development remains unchanged. We launched two new major
products in 2021. We added the 200 LPW High Bay to our best-selling High Bay portfolio.
This fixture is the ultimate solution for sustainable lighting for industrial environments,
offering a faster return on investment up to a full year sooner than previous Dialight
High Bay models. This best-in-class fixture will help companies achieve carbon-neutral
operation goals faster while saving money on lighting related energy costs. This
product is available with an adjustable-range microwave occupancy sensor option 
to activate the lights only when necessary. Microwave sensors are uniquely suited
for industrial applications, since they can detect movement over and around obstructions
such as boxes, shelving and other barriers that commonly hamper other sensors. Design
improvements helped reduce fixture weight of the wireless model by up to 57%.

We also launched our new ProSite Flood light for mounting heights of up to 100 feet.
This product provides superior visibility to worksites with crisp, near daylight
illumination. The ProSite Flood features Dialight’s hallmark dependability and efficiency
in an innovative, compact new design that provides a brighter, safer and more secure
work environment.

We made significant progress in strengthening our sales platform and expanding multi-
channel access to markets. As part of this initiative, we recognised our current
product portfolio covers approximately 80% of a typical customer lighting schedule.
The remaining 20% of the schedule is for products that are not highly specified 
but are required to fulfil the customer’s applications. To address this 20%, we 
are taking a ‘Source & Sell’ approach. We are exploring options to purchase these
products or partner with companies that can provide them. This initiative protects
our market leading position within key strategic accounts and increases our relevancy
to the large accounts we are targeting.

**Strategy**

Dialight’s core strengths centre around our products and a long history of innovation
within the industrial lighting markets. Our fixtures meet the needs of our customers
to enhance safety, reduce energy and maintenance costs and critically, help them
achieve the objective of net zero carbon. Our products also provide the best cost
of ownership to industrial customers, with paybacks based on energy savings and 
maintenance cost avoidance. Our in-house custom designed power supply is the key
to our market leading 10- year warranty and field reliability. Our optimised optics
ensure improved light illumination, providing uniformity and quality whilst enabling
our customers to use fewer lights to illuminate the target area. Their integrated
design significantly reduces the burden of installation and maintenance. Our products
have the ability to withstand extreme environmental conditions such as very high
or low temperatures, humidity, high vibration and corrosive environments. The addition
of sensors and controls brings an additional element to the value proposition for
our customers.

Our overall strategy is focused on organic growth supported by product innovation.
We have three key objectives:

•       **Convert our core heavy and harsh industrial markets** – which has low 
levels of LED conversion. We believe that sustainability will be a major driver 
in the conversion to LED and this has accelerated post COVID-19. Dialight has a 
leading position within this space to continue to grow through market share gains
in MRO together with capex project recovery.

•       **Expand our market reach** – by leveraging corporate sustainability goals
and our differentiated products. We have made progress in identifying and engaging
key accounts in addition to developing new routes to market. This consists of targeting
the EPC/engineering firms and electrical contractors. We are continuing to work 
on strengthening our branding and focusing on vertical market applications.

•       **Product innovation** – we continue to lead the market in innovation. Our
next generation of technology is heavily focused on building on the sustainability
needs of our customers, with the goal to have the first fully recyclable industrial
LED lighting fixture. Our source and sell initiative will further protect our market
leading position.

Purpose and sustainability

We are actively working to accelerate the industrial evolution to greener solutions
through our cutting-edge technology. As a company we are committed to being net 
zero by 2040. Creating a safer, cleaner, healthier future for everyone is the cornerstone
of our approach to sustainability. We are focused on ensuring we can continue to
serve our markets in a sustainable way over the long-term. Our products are well
positioned to play a positive role in society, addressing issues which are fundamental
to human wellbeing, are long-term in nature, and of global reach: ensuring safety
in industrial environments while addressing key environmental challenges. We believe
that lighting has a critical role to play in helping businesses’ journey to become
net zero.

Our sustainability strategy has dovetailed into our operational ethos and therefore
has not caused a fundamental change of direction. This, coupled with a business 
purpose that has always been centred on climate change, means that it is a natural
extension of our existing strategy. Over the past year we engaged with SBTi, CDP
and ISS ESG.

In November 2021, we launched our first ESG Report which outlines some of the key
areas underscoring our approach to Environmental, Social and Governance issues. 
This will be prepared annually going forward.

We are rethinking every aspect of our products from material science and supply 
chain to product assembly to end of life. Part of this analysis includes conducting
Environmental Product Declaration (EPD) evaluations for each of our major product
lines to identify the carbon footprint of materials used in our products. This information
has already informed our material choices for our next generation of products. To
date we have had nine EPD’s issued covering seven product lines.  

We are also concentrating on the end of life of our products and how we recycle 
them. This is in two parts: firstly, partnering with companies that can recycle 
the product, and secondly using recyclable materials. The level of recycling that
can be achieved varies across recycling processes, but our UK partner can recycle
up to 96% of the components of the fixture. There are no similar schemes in the 
Americas or Australia currently, but nonetheless, we have recycling partners that
can process the aluminium in these locations. Given the long life of our products
we expect that this ability will be enhanced over the coming years and programs 
like Waste from Electrical and Electronic Equipment (WEEE) will be introduced globally
by the time many of our long-life fixtures reach end of life.

We performed a full Green House Gas (GHG) inventory for 2021 in addition to our 
baseline in 2020. Dialight processes are not very resource hungry therefore Scope
1 and 2 usage is low compared with Scope 3 customer usage, upstream materials and
logistics. We have a target to reduce Scope 1 & 2 by 3% per annum (per £m of revenue)
in the short-term but this will be superseded by the Net Zero targets that will 
be agreed with SBTi.

People are at the heart of our business. We recognise that the skill and commitment
of our employees plays a large part in the success of our company, and we recognise
that each person has their own individual contribution to make. It is through our
people that we will progress our strategy and ensure that we realise the potential
for growth. Developing a high performing and inclusive culture is a key enabler 
in our ability to deliver strategic growth. Engaged, motivated, empowered and appropriately
skilled employees are integral to our success. We support all our people by creating
a safe, inclusive environment, where every individual can work and contribute to
the development of the business.

We are very proud of our Dialight Foundation, which was started in June 2020, a 
non-profit arm of our company dedicated to helping the communities we operate within,
with a focus on supporting children and women’s causes. It is governed by the Dialight
Foundation Board, comprised of employees from around the globe. This group was carefully
selected to bring diverse perspectives based on a variety of job functions, cultural
backgrounds, and charitable expertise. The overwhelming support from our employees
around the world has made a meaningful difference in the lives of so many and we
look forward to continuing to build on this initiative.

In celebration of Dialight’s 50th year of LED-only innovation, the Dialight Foundation
provided a $25,000 donation to the Women’s Earth Alliance as the sole sponsor of
their COVID-19 and Climate Relief Program in Tijuana, Mexico. This area has been
hit hard by COVID-19 as well as an influx of vulnerable asylum seekers looking to
cross the border. We were able to provide food and information to thousands of vulnerable
asylum seekers. Additionally, our donation provided comprehensive support for 67
people so far consisting of food, shelter, and legal services.

Full year guidance for 2022 and longer term

We have made a good start to the year, with order intake ahead of the same period
last year and a strong order pipeline. Our expectation for 2022, despite current
headwinds including supply chain constraints and inflation, is for further strong
progress driven by revenue growth and improved margins.

Our products meet the needs of our customers to enhance safety, reduce energy and
maintenance costs and critically will help them achieve net zero carbon. The market
opportunity is substantial and Dialight is well positioned to deliver its growth
strategy.

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