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

Dialight Plc

Dialight plc (LON:DIA), the global leader in sustainable LED lighting for industrial applications, has announced its full year results for the year ended 31 December 2021.

Financial summary2021£m 2020£m
Revenue131.6119.0
Underlying profit (loss) from operating activities4.5(6.4)
Profit (loss) from operating activitiesProfit (loss) for the year2.10.3(8.8)(7.8)
Statutory EPS – basic0.9p(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 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.

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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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