Final Results

RNS Number : 1742G

Dialight PLC

02 March 2015

 

2 March 2015

Dialight plc

Results for the Year ended 31 December 2014

Dialight plc ("Dialight" or the "Group"), the UK-based leader in applied LED technology, announces its results for the year ended 31 December 2014.

Financial highlights (£'m)	2014	2013	Change	*Change at constant currency
Group revenue	159.8	131.2	+22%	+25%
Lighting segment revenue	99.9	68.5	+46%	+50%
Lighting operating profit	14.5	11.5	+26%	+30%
Obstruction revenue	17.0	14.5	+16%	+22%
Group underlying operating profit	18.1	14.5	+25%	+30%
Underlying EPS (p)	36.8	30.8	+20%	n/a
Basic EPS (p)	29.4	26.2	+12%	n/a
Total dividend per share (p)	15.0	14.4	+4%	n/a

Key points

·     Group revenue up by 22% to £159.8m (2013: £131.2m); an increase of 25% at constant currency

·     Lighting segment revenue up 46% to £99.9m (2013: £68.5m); an increase of 50% at constant currency

·     Lighting operating profit up 26% to £14.5m (2013: £11.5m)

·     Group underlying profit from operating activities up 25% to £18.1m (2013: £14.5m); an increase of 30% at constant currency

·     EPS  - underlying EPS increased by 20% to 36.8p (2013: 30.8p)

 - basic EPS increased by 12% to 29.4p (2013: 26.2p)

·     Recommended final dividend increased to 9.8p (2013:  9.5p) representing a total dividend for the year of 15.0p (2013: 14.4p)

Richard Stuckes, Interim Group Chief Executive, said:

"Dialight delivered strong growth in 2014. Lighting sales were up 50% at constant currency and, within the Signals segment, the Obstruction business achieved sales growth of 22% at constant currency. The results benefited from continued development of our sales channels and new product innovation.

"The adoption of LED lighting in the industrial and hazardous markets is still at an early stage and the opportunity for growth remains significant. We continue to see strong demand for our LED lighting and the Board remains confident in the future prospects of the Group."

Enquiries:

Dialight plc

Richard Stuckes, Interim Group Chief Executive

Fariyal Khanbabi, Group Finance Director

[phone]

Canaccord Genuity Limited

Simon Bridges

Peter Stewart

[phone]

FTI Consulting

Nick Hasell

[phone]

Further information:

There will be an analyst and investor meeting at 09.00 hours this morning at FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

A live audio cast and slide presentation of the event will be available at 09.00 hours on the company's website, www.dialight.com.   Internet users will be able to view this announcement, together with other information about Dialight at the company's web site www.dialight.com

About Dialight

The Group comprises the following business segments:

·     Lighting, which addresses the increasing demands for Energy Efficient Lighting solutions for industrial/hazardous locations;

·     Signals, which covers Traffic, Transportation and Obstruction signals; and

·     Components, whose sales are primarily to Electronics OEMs for status indication.

The company is headquartered in the UK with operating locations in Australia, Brazil, Denmark, Germany, Malaysia, Mexico, Singapore, UAE, the UK and the USA. More information is available at www.dialight.com

Overview

The adoption of LED technology continued through 2014 into many market segments, particularly streetlights and commercial lighting. Dialight has maintained its focus on its niche industrial and hazardous markets where LED technology builds defensible positions and delivers efficient payback to customers. Lighting and the Obstruction business (part of the Signals segment) performed strongly and with the exception of our traffic signals business the balance of the group  also performed well.

Group revenue in the year grew by 22% to £159.8m from £131.2m in 2013. Underlying operating profit increased by 24.6% to £18.1m in the year mainly as a result of the increased profit from Lighting and Obstruction.

Non-underlying net costs of £2.3m (2013: £2.9m) were incurred during the year. Profit before tax was £15.5m (2013: £11.2m).

Underlying earnings per share ("EPS") was 36.8 pence (2013: 30.8 pence) with basic EPS of 29.4 pence (2013: 26.2 pence).

Net cash at 31^st December 2014 was £0.6m (2013: £7.1m). The four year unsecured £25m HSBC Revolving Credit Facility, arranged in the year, financed the working capital to support the significant growth in Lighting.

Dividend

The Board is recommending, subject to approval by shareholders, a final dividend of 9.8p giving a total dividend for the year of 15.0p (2013: 14.4p). This will be paid on 2 June 2015 to shareholders on the register at the 1 May 2015.

Performance review

Lighting Segment

	2014	2013
Revenue	£99.9m	£68.5m	46%
Contribution	£42.3m	£31.3m	35%
Operating profit	£14.5m	£11.5m	26%

The Lighting segment addresses the increasing demands for energy efficient lighting solutions for industrial/hazardous locations.

Lighting revenue grew by over £30m with a contribution margin of over 40%. While this is down on 2014 this was primarily due to product mix and a number of one off items in the second half. However, margins on a product by product basis have continued to be robust and at least in line with our expectations.

Our growth in 2014 was not only in the Americas. Europe is starting to pay back our investment and we ended 2014 with an expanded sales team, with notable additions in mainland Europe. Growth in Asia was a little more modest but we start 2015 with a team that complements that in Australia.

Overall the Group is well positioned in its chosen geographies. However, sales teams are only one element Dialight needs for commercial success. Development of sales channels and the leveraging of major accounts are also important and 2014 has seen a strong increase in our channel strength through agreements with major distributor networks in North America, who in many cases hold the keys to certain markets and customers. Dialight is now considered to be an "anchor" franchise for many of those important networks. At the end of 2014 Dialight had 111 direct sales personnel (2013: 97). 

In addition to using our distributor partners, our approach is to generate demand through the key users. Once again 2014 has shown great progress in this area - the previously announced business with Ford Motor Company was our first major relationship, but during the year we have made significant progress with other major multinational OEMs.

No sales strategy would be successful without the best products and once again we have raised the bar for industrial LED lighting. Our newly announced 140 lumen per watt Vigilant High Bay is significantly better than the competition and our new 60,000 lumen, 1,000 watt metal halide replacement fixture has been well received by both existing and perhaps, more importantly, new customers where we did not previously have an offering that would address their lighting problems.

During the year our Operations and Engineering teams played a significant role in bringing to market ground breaking new products as well as continuing to cost engineer our existing product portfolio. 

Dialight estimates that its products address an installed base of conventional lighting that is somewhere between £70bn and £100bn. Penetration of LED lighting is in the low single digits thus enabling strong potential for growth for some years to come.

With strong demand in Lighting expected to continue in the future, expansion of the manufacturing facilities, is constantly under review to ensure that production capacity does not become a constraint on the Group's growth.

Signals Segment

	2014	2013
Revenue	£40.2m	£41.8m	(4%)
Contribution	£18.0m	£17.5m	3%
Operating profit	£6.0m	£5.2m	15%

Signals comprises the Obstruction, Traffic and Transportation business. The Obstruction business experienced strong sales growth whilst demand for traffic signals fell.

Overall signals sales were down 4% although transportation grew 6% and Traffic revenues were down 20% as expected. Most importantly however, Obstruction showed significant growth and stronger positioning in its chosen markets.

Obstruction

Obstruction revenues grew by 16% to £17.0m, representing an increase of 22% at constant currency. This was driven by increased demand in the US where our new products attracted strong customer interest and reflected gains made in the telecom and broadcast tower retrofit business, including orders from major tower operators. There were no system wide retrofits in 2014 by the major tower operators. There still remain over 70,000 towers to be retrofitted in the US and Dialight's positioning to take a major piece of that business is stronger today than it was a year ago.

European sales, which are principally through products sold for use in the wind turbine market, were at the same levels as the previous year. Long-term demand for obstruction signals in the European market remains favourable and we expect to benefit from new onshore installations and retrofits that are required under local and national legislation and regulation. 

Traffic and Transport

Traffic signals, which remains a small part of the overall group saw no material recovery in the second half of 2014, and overall sales for the year were down 20%.  Market conditions in the short term are expected to remain challenging with anticipated sales largely coming from smaller retrofit projects.

European sales are highly dependent on local authority spend.  Although there is a clear case for the return on investment of switching to efficient LEDs, it can take time for large-scale capital projects to be initiated. The European business may see some decline but remains cash generative and requires little investment. Meanwhile, the US traffic market, which is more highly penetrated by LED signals, is becoming more cost competitive.  The key factors for future success are to leverage our knowledge of the market and product, to engineer cost reductions and offer innovative value propositions to customers through superior performance.

The transport business continued to provide a steady profit and cash contribution.

Components Segment

	2014	2013
Revenue	£19.7	£20.9m	(6%)
Contribution	£9.3m	£9.9m	(9%)
Operating profit	£0.4m	£1.3m	(69%)

This segment supplies small LED indicators into the professional electronics market through a network of distributors with more than 15,000 end users.  Several hundred new customers were introduced in 2014, and it is this diversity and breadth of customers and markets that are a real strength in this mature market.  The segment continues to make a solid contribution to the Group's profitability and cash generation.

Non-underlying items

Non-underlying items for the year were £2.3m (2013: £2.9m).

In December 2014 an agreement was reached with the former owners of Airinet, a business acquired by Dialight in 2012, to settle the amount of contingent consideration that was due to them. This has resulted in a non-underlying credit of £3.1m. Airinet was acquired to boost the development effort aimed at using wireless control technology in the Lighting sector. In addition, at the time of acquisition there was considered to be a prospect of using the Airinet technology to achieve specific sales of street lighting to large municipalities in the USA. These sales were not achieved and this is the major reason for the agreement of a reduced amount of contingent consideration.

The know-how that existed in Airinet at the time of acquisition assisted in developing the wireless control systems now being deployed in the Lighting segment and hence the goodwill arising on the Airinet acquisition has been carried forward unimpaired at cost. The capitalised technology cost arising on acquisition and subsequent costs of developing that technology, which related to the street lighting sales, totalling £0.8m have been written off as non-underlying cost.

The Group operates in an environment where the pace of technological change is ever increasing, presenting a greater risk of obsolete inventory. An inventory provision is calculated to estimate the value of inventory that has become unusable or unsaleable due to obsolescence. Management agreed with the Board to commence a detailed review of the risk of obsolescence during the year. This review was completed by the incoming Group Finance Director and identified that the pace of product change has increased in the Lighting and Obstruction business with the introduction of control based Lighting and the new Vigilant range. The Board concluded that a strict ageing over-ride should be added in addition to the existing usage formula. As a result the Group incurred a one-off charge of £2.8m. As the nature of this charge is non-recurring it has been treated as a non-underlying expense.

As disclosed at the Half Year results, non-underlying items for 2014 include one-off restructuring costs, mainly relating to US and European operations and the closure costs of Dialight Japan KK. These total £1.1m for the year. 
 

Board changes

In June 2014, we announced the appointment of Fariyal Khanbabi as our new Group Finance Director, who started on 8 September 2014. Fariyal has already made an excellent contribution to Dialight.

Roy Burton has stepped down today as Group Chief Executive as we announced on 2 February 2015 due to ill health. We also announced on that date that Richard Stuckes had been appointed as Interim Group Chief Executive.  Richard has been a Non-Executive Director of Dialight since 2009 and has extensive and relevant experience which will fully equip him to lead Dialight at this time.

The process for appointing a new Group Chief Executive is well underway with an external search firm appointed to assist the Board.  The Company will make a further announcement in due course.

The Board wishes to record its thanks to Roy for his outstanding contribution to the development of Dialight during the past 13 years and to take this opportunity to offer its best wishes to Roy for his recovery.  Roy will remain available to provide counsel and assistance.

Outlook

The adoption of LED lighting in the industrial and hazardous markets is still at an early stage and the opportunity for growth remains significant. We continue to see strong demand for our LED lighting and the Board remains confident in the future prospects of the Group.

Bill Ronald and Richard Stuckes

2 March 2015

Consolidated income statement

For the year ended 31 December 2014

			12 months ended 31 December 2014				12 months ended 31 December 2013
	Note		Underlying £'m	Non- Underlying* £'m	Total £'m		Underlying £'m	Non- Underlying* £'m	Total £'m
Continuing operations
Revenue	1		159.8	-	159.8		131.2	-	131.2
Cost of sales			(112.6)	(2.8)	(115.4)		(89.6)	-	(89.6)
Gross profit			47.2	(2.8)	44.4		41.6	-	41.6
Distribution costs			(19.8)	-	(19.8)		(18.1)	-	(18.1)
Administrative expenses			(9.3)	0.5	(8.8)		(9.0)	(2.9)	(11.9)
Profit/(Loss) from operating activities	1		18.1	(2.3)	15.8		14.5	(2.9)	11.6
Financial income	4		-	-	-		-	-	-
Financial expense	4		(0.2)	(0.1)	(0.3)		(0.1)	(0.3)	(0.4)
Net financing (expense) /  income	4		(0.2)	(0.1)	(0.3)		(0.1)	(0.3)	(0.4)
Profit/(Loss) before income tax	1		17.9	(2.4)	15.5		14.4	(3.2)	11.2
Income tax expense	5		(6.0)	-	(6.0)		(4.5)	1.0	(3.5)
Profit/(Loss) from continuing operations after tax	1		11.9	(2.4)	9.5		9.9	(2.2)	7.7
Discontinued operations
Gain from discontinued operations (net of taxes)	2		-	-	-		-	0.7	0.7
Profit/(Loss) for the year	1		11.9	(2.4)	9.5		9.9	(1.5)	8.4
Profit for the period attributable to:
Equity owners of the Company					9.5				8.5
Non-controlling Interests					-				(0.1)
Profit for the year					9.5				8.4
Earnings per share
Basic	6				29.4p				26.2p
Diluted	6				29.2p				25.9p
Earnings per share - continuing operations
Basic	6				29.4p				23.9p
Diluted	6				29.2p				23.7p

Consolidated statement of comprehensive income

For the year ended 31 December 2014

	2014 £'m	2013 £'m
Other comprehensive income
Items that may be reclassified subsequently to profit and loss Exchange difference on translation of foreign operations	2.7	(1.3)
Income tax on exchange difference on translation of foreign operations	(0.3)	-
	2.4	(1.3)
Items that will not be reclassified subsequently to profit and loss
Remeasurement of defined benefit pension liability	(1.0)	0.7
Income tax on remeasurement of defined benefit pension liability	0.2	(0.2)
	(0.8)	0.5
Other comprehensive income for the year, net of tax	1.6	(0.8)
Profit for the year	9.5	8.4
Total comprehensive income for the year	11.1	7.6
Attributable to:
Owners of the parent	11.1	7.7
Non-controlling interest	-	(0.1)
Total comprehensive income for the year	11.1	7.6

Consolidated statement of changes in equity

For the year ended 31 December 2014

		Share capital £'m	Merger reserve £'m	Translation reserve £'m	Capital redemption reserve £'m	Retained earnings £'m	Total £'m	Non- controlling interests £'m	Total equity £'m
Balance at 1 January 2014		0.6	1.4	0.8	2.2	61.8	66.8	(0.1)	66.7
Profit		-	-	-	-	9.5	9.5	-	9.5
Other comprehensive income:
Foreign exchange translation differences, net of taxes		-	-	2.4	-	-	2.4	-	2.4
Remeasurement of defined benefit pension liability, net of taxes		-	-	-	-	(0.8)	(0.8)	-	(0.8)
Total other comprehensive income		-	-	2.4	-	(0.8)	1.6	-	1.6
Total comprehensive income for the year		-	-	2.4	-	8.7	11.1	-	11.1
Transactions with owners, recorded directly in equity:
Share-based payments, net of tax		-	-	-	-	(0.1)	(0.1)	-	(0.1)
Dividends		-	-	-	-	(4.9)	(4.9)	-	(4.9)
Total contributions by and distributions to owners		-	-	-	-	(5.0)	(5.0)	-	(5.0)
Balance at 31 December 2014		0.6	1.4	3.2	2.2	65.5	72.9	(0.1)	72.8
Balance at 1 January 2013		0.6	1.4	2.1	2.2	56.7	63.0	0.0	63.0
Profit		-	-	-	-	8.5	8.5	(0.1)	8.4
Other comprehensive income:
Foreign exchange translation differences, net of taxes		-	-	(1.3)	-	-	(1.3)	-	(1.3)
Remeasurement of defined benefit pension liability, net of taxes		-	-	-	-	0.5	0.5	-	0.5
Total other comprehensive income		-	-	(1.3)	-	0.5	(0.8)	-	(0.8)
Total comprehensive income for the year		-	-	(1.3)	-	9.0	7.7	(0.1)	7.6
Transactions with owners, recorded directly in equity:
Share-based payments, net of tax		-	-	-	-	0.7	0.7	-	0.7
Deferred bonus share scheme		-	-	-	-	(4.6)	(4.6)	-	(4.6)
Total contributions by and distributions to owners		-	-	-	-	(3.9)	(3.9)	-	(3.9)
Balance at 31 December 2013		0.6	1.4	0.8	2.2	61.8	66.8	(0.1)	66.7

At 31 December 2014 the number of shares held by the Group through the Dialight Employees' Share Ownership Plan Trust ("ESOT") trust was 9,606 (2013: 2,514). The market value of these shares at 31 December 2014 was £77,809 (2013: £21,520).

Consolidated statement of total financial position

As at 31 December

	2014 £'m	2013 £'m
Assets
Property, plant and equipment	15.2	13.4
Intangible assets	21.0	21.1
Deferred tax assets	0.2	0.4
Total non-current assets	36.4	34.9
Inventories	32.4	24.2
Trade and other receivables	36.9	27.9
Cash and cash equivalents	7.9	8.8
Total current assets	77.2	60.9
Total assets	113.6	95.8
Liabilities
Trade and other payables	(26.2)	(21.0)
Provisions	(0.7)	(0.3)
Contingent consideration	(0.3)	(0.6)
Tax liabilities	(4.6)	(1.7)
Borrowings	(7.3)	(1.7)
Total current liabilities	(39.1)	(25.3)
Employee benefits	(1.2)	(0.4)
Contingent consideration	-	(2.7)
Provisions	(0.5)	(0.7)
Total non-current liabilities	(1.7)	(3.8)
Total liabilities	(40.8)	(29.1)
Net assets	72.8	66.7
Equity
Issued share capital	0.6	0.6
Merger reserve	1.4	1.4
Other reserves	5.4	3.0
Retained earnings	65.5	61.8
	72.9	66.8
Non-controlling interests	(0.1)	(0.1)
Total equity	72.8	66.7

The accompanying notes form part of the financial statements.

Consolidated statement of cash flows

For the year ended 31 December 2014

	2014 £'m	2013 £'m
Operating activities
Profit for the year	9.5	8.4
Adjustments for:
Financial income	-	-
Financial expense	0.3	0.4
Income tax expense	6.0	3.4
Share-based payments	0.2	0.4
Depreciation of property, plant and equipment	2.5	2.0
Amortisation of intangible assets	2.3	1.1
Impairment losses on intangible assets and goodwill	1.3	0.3
Contingent consideration	(3.1)	-
Gain on sale of discontinued operation, net of tax	-	(1.0)
Operating cash flow before movements in working capital	19.0	15.0
Increase in inventories	(6.9)	(5.2)
Increase in trade and other receivables	(7.4)	(1.5)
Increase/(decrease) in trade and other payables	4.0	(1.2)
Increase/(decrease) in provisions	0.2	0.1
Pension contributions in excess of the income statement	(0.3)	(0.3)
Cash generated from operations	8.6	6.9
Income taxes paid	(3.1)	(2.2)
Interest paid	(0.2)	(0.1)
Net cash generated from operating activities	5.3	4.6
Investing activities
Non-controlling interest	-	0.1
Disposal of discontinued operation, net of cash disposed of	-	1.3
Capital expenditure	(3.7)	(4.9)
Capitalised expenditure on development	(3.5)	(4.4)
Sale of tangible fixed assets	-	0.1
Net cash used in investing activities	(7.2)	(7.8)
Financing activities
Dividends paid	(4.8)	(4.6)
Drawdown of bank facility	7.6	-
Payment of upfront loan facility costs	(0.3)	-
Net cash used in financing activities	2.5	(4.6)
Net increase in cash and cash equivalents	0.6	(7.8)
Cash and cash equivalents at beginning of the year	7.1	15.0
Effect of exchange rates on cash held	0.2	(0.1)
Cash and cash equivalents at end of year (see note 9)	7.9	7.1

Notes to the consolidated financial statements

For the year ended 31 December 2014

1. Operating segments

The Group comprises three 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's Chief Executive.

The three 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.

Signals, which develops, manufactures and supplies highly efficient LED signalling solutions for markets including anti-collision obstruction lighting and traffic signals.

Components, which develops, manufactures and supplies status indication components for electronics OEMs, together with niche industrial and automotive electronic components.

There is no inter-segment revenue.

All revenue relates to the sale of goods. Segment contribution includes items directly attributable to a segment. Overheads comprise general production and selling costs plus corporate costs including share-based payments.

There are no individual customers representing more than 10% of revenue.

Reportable segments

2014	Lighting £'m	Signals £'m	Components £'m	Continuing operations £'m	Electro- magnetic Components (discontinued) £'m	Total £'m
Revenue	99.9	40.2	19.7	159.8	-	159.8
Contribution	42.3	18.0	9.3	69.6	-	69.6
Overheads	(27.8)	(12.0)	(8.9)	(48.7)	-	(48.7)
Segment results	14.5	6.0	0.4	20.9	-	20.9
Unallocated expenses				(2.8)	-	(2.8)
Underlying operating profit				18.1	-	18.1
Non-underlying expenses				(2.3)	-	(2.3)
Operating profit				15.8	-	15.8
Net financing expense				(0.3)	-	(0.3)
Profit before tax				15.5	-	15.5
Income tax expense				(6.0)	-	(6.0)
Profit after tax				9.5	-	9.5

2013	Lighting £'m	Signals £'m	Components £'m	Continuing operations £'m	Electro- magnetic Components (discontinued) £'m	Total £'m
Revenue	68.5	41.8	20.9	131.2	0.5	131.7
Contribution	31.3	17.5	9.9	58.7	0.1	58.8
Overheads	(19.8)	(12.3)	(8.6)	(40.7)	(0.5)	(41.2)
Segment results	11.5	5.2	1.3	18.0	(0.4)	17.6
Unallocated overheads				(3.5)	-	(3.5)
Underlying operating profit				14.5	(0.4)	14.1
Non-underlying expenses				(2.9)	-	(2.9)
Operating profit				11.6	(0.4)	11.2
Net financing expense				(0.4)	-	(0.4)
Profit on sale				-	1.3	1.3
Profit before tax				11.2	0.9	12.1
Income tax expense				(3.5)	(0.2)	(3.7)
Profit after tax				7.7	0.7	8.4

Geographical segments

The Lighting, Signals and Components segments are managed on a worldwide basis but operate in four principal geographic areas: North America, UK, Europe 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	2014 £'m	2013 £'m
North America	96.3	82.8
UK	16.5	12.0
Rest of Europe	23.9	17.5
Rest of World	23.1	19.4
Electro-magnetic components (discontinued)	-	(0.5)
	159.8	131.2

Reconciliations of reportable segment profit or loss

	2014 £'m	2013 £'m
Total profit for reportable segments	20.9	17.6
Elimination of discontinued operations	-	0.4
Unallocated amounts:
Overheads	(2.8)	(3.5)
Non-underlying expenses	(2.3)	(2.9)
Net financing income/(expenses)	(0.3)	(0.4)
Consolidated profit from continuing activities before tax	15.5	11.2

2. Discontinued operations

The Group disposed of the assets of its electromagnetic components business in late 2012.  During the prior year, the Group received contingent consideration of £1.3m (before tax) and sold some residual inventory.  The results of these activities have been presented as discontinued operations.

Results of discontinued operation

	2014 £'m	2013 £'m
Revenue	-	0.5
Expenses	-	(0.9)
Results from operating activities	-	(0.4)
Tax	-	0.1
Results from operating activities, net of tax	-	(0.3)
Gain on sale of discontinued operation	-	1.3
Tax on gain on sale of discontinued operation	-	(0.3)
Profit for the year	-	0.7
Basic earnings per share	-	2.2p
Diluted earnings per share	-	2.5p

The operating loss from discontinued operations of £nil (2013: £0.4m) is attributable entirely to the owners of the Company.

Cash flows from/(used in) discontinued operations

	2014 £'m	2013 £'m
Consideration received, satisfied in cash	-	1.3
Cash paid for redundancy and staff costs	-	-
Cash paid for professional and other fees	-	-
Net cash inflow from investing activities	-	1.3

The net cash used in operating activities for the year ended 31 December 2014 is £nil (2013: £0.1m).

3. Non-underlying expense

From time to time, the Group incurs costs and earns income that is non-recurring in nature or that is otherwise considered to not be reflective of the underlying performance of the business. In the assessment of performance of the components of the Group, management examines underlying performance, which removes the impact of non-underlying costs and income. The results of discontinued operations are also considered to form part of non-underlying operations.

The table below presents the components of non-underlying profit or loss recorded within cost of sales:

	2014 £'m	2013 £'m
Inventory provision	(2.8)	-
Non-underlying costs recorded in cost of sales	(2.8)	-

The Group operates in an environment where the pace of technological change is ever increasing, presenting a greater risk of obsolete inventory. An inventory provision is calculated to estimate the value of inventory that has become unusable or unsaleable due to obsolescence. At the request of the Board a detailed review of the risk of obsolescence was initiated by the incoming CFO. The review identified that the pace of product change has increased in the Lighting and Obstruction business with the introduction of control based Lighting and the new Vigilant range. The Board concluded that a strict ageing over-ride should be added in addition to the existing usage formula. As a result the Group incurred a one-off charge of £2.8m. As the nature of this charge is non-recurring it has been treated as a non-underlying expense.

The table below presents the components of non-underlying profit or loss recorded within administrative expenses:

	2014 £'m	2013 £'m
Contingent consideration	3.1	-
Goodwill and asset write-down	(1.3)	(0.8)
Employee severance and restructuring costs	(1.1)	(0.4)
Intellectual property past-use access fee	-	(1.4)
Other	(0.2)	(0.3)
Non-underlying costs recorded in administrative expenses	0.5	(2.9)

The contingent consideration relates to a reduction in the amount payable on the acquisition of Airinet Inc by the Group's US subsidiary Dialight Corporation in June 2012. Following agreement with the former owners, the remaining consideration payable for the Airinet acquisition has been reduced to £0.3m.

In the current year, intangible assets of £0.8m relating to the Airinet business were written down in full as they were considered to have no future economic benefits. Other intangible assets of £0.5m were also written off as their carrying value was judged to be impaired. During the prior year, the goodwill, intangible assets and certain operating assets related to the Group's Japanese subsidiary, Dialight Japan KK, were written down in full due to deterioration in the Group's projections for that territory.

In the current year, the Group incurred redundancy and termination costs mainly relating to US and European operations and the closure costs of Dialight Japan KK. During the prior year, the Group closed its UK research and development site and engaged in certain other limited restructuring exercises which led to staff redundancies and other termination costs.

The intellectual property past-use access fee related to a one-off payment for access to certain patents and intellectual property over the previous five years.

The table below presents the components of non-underlying profit or loss recorded within finance income/(expense):

	2014 £'m	2013 £'m
Change in fair value of contingent consideration	(0.1)	(0.3)
Non-underlying costs recorded in finance income/(expense)	(0.1)	(0.3)

4. Net financing (expense) / income

Recognised in profit and loss

	Year ending 31 December 2014				Year ending 31 December 2013
	Underlying £'m	Non- underlying £'m	Total £'m		Underlying £'m	Non- underlying £'m	Total £'m
Interest income on bank deposits	-	-	-		-	-	-
Net interest on defined benefit liability	-	-	-		-	-	-
	-	-	-		-	-	-
Interest expense on financial liabilities	(0.2)	-	(0.2)		(0.1)	-	(0.1)
Change in fair value of contingent consideration	-	(0.1)	(0.1)		-	(0.3)	(0.3)
	(0.2)	(0.1)	(0.3)		(0.1)	(0.3)	(0.4)
Net financing expense recognised in the consolidated income statement	(0.2)	(0.1)	(0.3)		(0.1)	(0.3)	(0.4)

5. Income tax expense

Current tax expense

Recognised in the income statement

	2014 £'m	2013 £'m
Current tax expense
Tax expense from continuing operations	6.0	3.5
Tax from discontinued operations (excluding gain on sale)	-	(0.1)
	6.0	3.4
Tax on gain on sale of discontinued operation	-	0.3
Income tax expense	6.0	3.7

	2014 £'m	2013 £'m
Current tax expense
Current year	6.1	3.5
Adjustment for prior years	(0.3)	(0.1)
Utilisation of previously unrecognised losses	-	(0.2)
	5.8	3.2
Deferred tax expense
Origination and reversal of temporary differences	0.3	0.7
Adjustment for prior years	(0.1)	0.1
Reduction in tax rate	-	0.2
Recognition of previously unrecognised losses	-	(0.7)
Change in recognised deductible timing differences	-	0.2
Income tax expense	6.0	3.7

Reconciliation of effective tax rate

	2014 %	2014 £'m	2013 %	2013 £'m
Profit for the year		9.5		8.4
Total income tax expense		6.0		3.7
Profit excluding income tax		15.5		12.1
Income tax using the UK corporation tax rate	21.5	3.3	23.3	2.8
Effect of tax rates in foreign jurisdictions	10.3	1.6	8.3	1.0
Reduction in tax rate	1.3	0.2	1.7	0.2
Non-deductible expenses	4.5	0.7	1.7	0.2
Current year losses for which no deferred tax is recognised	1.3	0.2	4.1	0.5
Recognition of tax effect of previously unrecognised losses	-	-	(7.7)	(0.9)
Adjustment for prior years	(2.6)	(0.4)	-	-
Changes in recognised deductible timing differences	-	-	1.7	0.2
Research and development credits	(0.6)	(0.1)-	(0.8)	(0.1)
Other	3.0	0.5	(1.7)	(0.2)
	38.7	6.0	30.6	3.7

Tax recognised directly in equity

	2014 £'m	2013 £'m
Employee benefits	-	0.3
Other	0.2	-

Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013) were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the Company's future current tax charge accordingly. The Group effective rate will continue to be impacted by the tax rates enacted in the various jurisdictions in which it trades. The deferred tax assets/(liabilities) at 31 December 2014 have been calculated based on a rate of 20% substantively enacted at the balance sheet date. Deferred tax assets/(liabilities) have not been recognised in respect of tax losses amounting to £0.3m because it is not probable that future taxable profits will be available against which the Group can use the benefits therefrom.

6. Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 31 December 2014 was based on the profit for the year of £9.5m (2013: £8.5m) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2014 of 32,479,364 (2013: 32,248,312).

Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2014 was based on profit for the year of £9.5m (2013: £8.5m) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2014 of 32,675,772 (2013: 32,602,867) calculated as follows:

Weighted average number of ordinary shares (diluted)

	2014 '000	2013 '000
Weighted average number of ordinary shares	32,479	32,248
Effect of share options in issue	197	355
Weighted average number of ordinary shares (diluted)	32,676	32,603

Underlying earnings per share are highlighted below as the Directors consider that this measurement of earnings give valuable information on the performance of the Group.

	2014 Per share	2013 Per share
Basic earnings	29.4p	26.2p
Underlying basic earnings*	36.8p	30.8p
Continuing operations basic earnings	29.4p	23.9p
Diluted earnings	29.2p	25.9p
Underlying diluted earnings*	36.6p	30.5p
Continuing operations diluted earnings	29.2p	23.7p

*    Underlying earnings excludes non-underlying items as explained in note 3 and discontinued operations as explained in note 2 and allocates tax at the appropriate rate (see note 5).

7. Dividends

After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided for and there are no income tax consequences for the Company.

Final proposed dividend	2014 £'m	2013 £'m
9.8 pence per ordinary share (2013: 9.5 pence)	3.2	3.1

During the year the following dividends were paid:

	2014 £'m	2013 £'m
Final - 9.5 pence (2013: 9.5 pence) per ordinary share	3.1	3.1
Interim - 5.2 pence (2013: 4.9 pence) per ordinary share	1.7	1.5
	4.8	4.6
Dividends accrued on shares awarded under the PSP and deferred share scheme but not yet vested	0.1	-
Total (amount shown in the statement of changes in equity)	4.9	4.6

8. Principal exchange rates

The following significant exchange rates applied during the year:

	2014 Average rate	2014 At balance sheet date	2013 Average rate	2013 At balance sheet date
US Dollar	1.63	1.56	1.57	1.66
Euro	1.24	1.29	1.18	1.20
Mexican Peso	21.89	22.92	19.97	21.70

9. Cash and cash equivalents

	2014 £'m	2013 £'m
Cash and cash equivalents in the statement of total financial position	7.9	8.8
Bank overdraft used for cash management purposes	-	(1.7)
Cash and cash equivalents in the statement of cash flows	7.9	7.1

10. Principal Risks and Uncertainties

The principal risks and uncertainties which could affect the Group comprise four distinct categories- strategic, operational, financial and compliance. The Group maintains a risk management framework which ensures that all risks are identified, evaluated and mitigated. These have been subject to a detailed review in 2014, resulting in the establishment of a Corporate Risk Register which incorporates the principal risks described below. There may be other risks and uncertainties as yet unknown, or which are currently considered immaterial which may result in a material impact. Some of the areas set out below will be outside of the Company's influence or control. Should any risk actually materialise, then Dialight's business, financial condition, prospects and share price could be materially adversely affected.

Area of Risk	Description	Mitigating Activity
Macro-economic conditions. (Strategic)	Ø The Group's sales and profits may be impacted by spending slowdowns and/or increasing inflationary pressures in key territories. Ø A spending slowdown, for example in North America, could adversely impact profitability for example in the Components segment. Also, the current adverse conditions for public organisations to reduce or defer capital spend may impact sales volumes. Ø Cost inflationary pressures e.g. on raw materials may have adverse impact on operating margins across the business. This could also result in customers defaulting on payment terms, supply chain risks, and a higher risk of inventory obsolescence.	Ø We closely monitor the general electronics demand index as well as industry forecasts so as to become aware of market trends. Ø Monthly data provided by distributors in America is examined, documented and reviewed as this also provides valuable information on market demand. Ø This information is used to update strategic plans and financial forecasts, which are subject to formal review by the Board. Ø The Group has a broad base of customers, with no single customer exposing the Group to a disproportionate level of risk. Group policies ensure customers are given an appropriate level of credit based on their trading history and financial status. Our ability to mitigate risks arising from supply chain issues e.g. single source supply has in 2014 been enhanced by the appointment of a dedicated supply chain manager.
Changes in government legislation or policy. (Compliance)	Ø National and local policies with regard to energy savings in a number of areas such as transport and communication, are constantly evolving. This should favour Dialight's efforts in growing sales in some key niche current and potential opportunities identified by the Signals segment. Ø Additionally, legislation may introduce new higher and more exacting specifications for existing products which will require product re-design and regulatory re-certification. Therefore, changes in product specifications should favour Dialight in giving it an advantage over competition.	Ø Dialight's policy is to operate in highly regulated markets which require suppliers to achieve compliance with demanding product standards. Ø Our design and engineering functions have a proven track record in introducing new products and maintaining a portfolio of registered intellectual property, through strong working relationships with customers and regulatory bodies.
Area of Risk	Description	Mitigating Activity
Competitive Environment (Strategic)	Ø We operate in competitive markets. In our niche industrial lighting segment, new entrants may attack our market share by offering cheaper products as the market becomes more commoditised. Ø The threat may also come from an extremely aggressive pricing policy for larger traffic contract bids in North America and Europe.	Ø We have a successful track record of quickly introducing new product to customers, offering better performance and functionality to our customers. Ø Maintaining strong customer relationships, remaining competitive through engineering "cost down" initiatives and cost efficient manufacturing plants are key Dialight strengths in protecting market share.
Laws and Regulations (Compliance)	Ø The Group's operations are subject to a wide range of laws and regulations including employment, environment and health and safety legislation.	Ø Internal policies and procedures are routinely reviewed and updated to incorporate current legislation. Governance policies have been integrated into a single framework document in 2014. Business Control Unit management are required to certify compliance with governance policies on a quarterly basis. Ø Employees are issued with handbooks detailing employment practices and staff receive appropriate training and support to perform their roles. Ø The Group's Risk Committee provides an advisory and oversight service on compliance to the Board and Executive Committee.
Business Continuity (Operational)	Ø Continuation of our success is partly dependent upon the continued operation of our manufacturing facilities across the world, supported by bespoked computer systems. The occurrence of major operational problems could have a material adverse effect on the Group. These may include risks of fire, flood or major IT outage.	Ø Manufacturing sites have developed business continuity/ disaster recovery plans to minimise the impact of any disruption to its operations. Process controls and proactive maintenance programmes are designed to prevent problems arising. The plans will be fully reviewed in 2015 as part of the Group's risk oversight framework, to ensure they remain effective and "fit for purpose". Ø Insurance cover provides financial protection where appropriate.
Growth strategy (Strategic)	Ø Achievement of our growth strategy is dependent on growing sales in our chosen markets for industrial white lighting. The adoption by the market of LEDs for new applications continues to depend on increased efficiency and reduced cost compared with existing technologies such as fluorescent and high-intensity discharge. The achievability of the Group's longer term growth would be at significant risk if the rate and timeliness of development of LED functionality by third parties did not meet the progress required to deliver new applications to the market. Ø Failure to protect, maintain and enforce our current intellectual property may result in the loss for the Group of the exclusive right to use technologies and processes which are used in our business. Development and ownership of intellectual property is critical to the growth strategy of the Group. Ø Additionally with fast changing technology, there is a possibility of a replacement technology being developed.	Ø Group engineers are actively contributing with their presence on industry related boards, attendance and presentations at industry seminars which ensure we keep abreast of developments on a regular basis, and remain proactively involved. Ø Good progress has been made during 2004 in enhancing our NPI programme, including continued expansion of our patent portfolio.
Product Liability. (Operational)	Ø Products should conform to approved specifications. Ø If a Group product does not conform to approved specifications, or is otherwise defective, the Group may be subject to claims by its customers arising from end product defects or other such claims.	Ø The Group carries product liability insurance proportionate with the expected level of failure and terms of warranty. On certain products the term of warranty has been extended to ten years. Ø The Group has a well-developed quality control system to help identify any defects before they are sold to customers.
Area of Risk	Description	Mitigating Activity
Funding (Financial)	Ø The Group, like many other companies, is dependent on its ability to both service its existing debts and to access sufficient funding to re-finance its liabilities when they fall due, and to provide sufficient capital to finance its growth strategy. Ø The Group needs to operate within the covenant conditions of its borrowing facility.	Ø The Group manages its capital to safeguard its ability to continue as a going concern, to optimise its capital structure and to provide sufficient liquidity to support its operations and the Board's strategic plans. Ø The Group has a four year unsecured £25m borrowing facility and had drawn £7.6m at the balance sheet date. Covenant compliance is monitored regularly to ensure there is no breach of borrowing conditions.
Currency Exchange. (Financial)	Ø The Group is exposed to both translation and transaction risk. Ø A significant proportion of the Group's net assets are denominated in foreign currency which, when translated into sterling, are subject to exchange risk. Ø In addition, transactions are carried out in currencies other than UK Sterling leading to transactional foreign exchange risk.	Ø Group policy is to net such exposures wherever possible. Ø The Group utilises currency borrowing facilities in order to hedge currency risk. Ø There is a strict Group policy which forbids any form of forward speculation using Group funds or facilities.
Cyber Risk (Strategic).	Ø Disruption to or penetration of our information technology platforms could have a material adverse impact on the Group.	Ø The Group has business continuity measures in place, such as penetration testing procedures, to minimise the impact of any disruption to its operations. Technology resources are continuously monitored by appropriately trained staff, who provide and maintain process controls aimed at securing our networks and data.

Basis of preparation

The summary financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments which are carried at fair value.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the registrar of companies, and those for 2014 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Full financial statements for the year ended 31 December 2014, will be posted to shareholders on 12 March, and delivered to the registrar after the Annual General Meeting on 15 April 2015.

Changes in accounting policies

Except for the changes below, the Group has consistently applied the accounting policies set out in this note to all periods presented in these consolidated financial statements.

The Group has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 January 2014. There was no material impact on the financial performance or position of the Group.

·      Amendments to IFRS 10: Consolidated Financial Statements

·      Amendments to IFRS 12: Disclosure of Interests in Other Entities

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.

 

END

 

 

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