Final Results

Dialight PLC 05 March 2007 Date: Embargoed until 07:00 am Monday 5 March 2007 Contacts: Roy Burton - Group Chief Executive Cathy Buckley - Finance Director Dialight PLC Tel: 01480 447490 Alistair Mackinnon-Musson Nicola Savage Hudson Sandler Tel: 020 7796 4133 Email: dialight@hspr.com DIALIGHT PLC Preliminary results for the year to 31 December 2006 Dialight plc, the UK based leader in Applied LED Technology, announces its preliminary results for the year ended 31 December 2006. Dialight consists of two business segments: • Components comprising indication products and electromagnetic disconnects • Signals / Illumination which includes Traffic and Rail Signals, Obstruction Lights and the new Solid State Lighting products of the Group Highlights O Sales increased by 11% to £62.3m O Contribution margins maintained O Strong year end balance sheet O Recommended Final Dividend increased by 17% to 3.5 pence O Successful integration of Lumidrives Roy Burton, Group Chief Executive, said: 'Dialight is very well placed to benefit from the adoption of Solid State technology into a wide range of industrial and architectural applications. We see opportunities in European Traffic, Obstruction Lighting and the emerging markets for both Colour and White Lighting and demand for these products continues to be encouraging. Demand for our Components business is lower than last year primarily due to destocking by distributors however as their own customer demand has remained reasonably stable we expect demand for our Components product to return to 2006 levels by the second quarter'. Following the reconstruction of the Group in 2005, this is the first full year of Dialight reporting as a standalone business focused entirely on Applied LED Technology and the emerging Solid State Lighting market. Over the past 12 months the Board has been implementing the strategy of the Group, which has the overall objective of growing sales by a compound double digit rate with the requisite increase in profitability. The Board sees particular opportunities in European Traffic where there has been very little adoption until now; Obstruction Lighting; and the emerging markets for both Colour and White Lighting. Forecasts by industry commentators estimate that by the year 2010 the High Brightness LED market will have worldwide sales of $1 billion and Dialight seeks to realise opportunities within this sector. During 2006 there were two events which are key initiatives in achieving our strategic objectives. Firstly, we acquired Lumidrives in January 2006 giving the Company a position in the European Lighting Market. Secondly, we signed a licence with Color Kinetics Inc., eliminating the potential conflict with this company and providing our customers with Dialight's enhanced product range. Financial results On a continuing operations basis, sales in 2006 increased by 11% to £62.3 million and profit before tax as reported increased by 30% to £5.8 million. Profit before tax increased by 7% compared with 2005 profit on a pro forma basis * of £5.4 million. Earnings per share showed a gain of 17% to 11.8 pence per share. Margins for the Group remained good with an improved contribution percentage in the Signals/Illumination segment and a constant margin by product line in the Components Segment. The Group generated net cash inflow from Operations of £2.2 million (2005 £4.9 million) representing 41% of operating profit. During the year the Group used £2.5 million cash in acquiring Lumidrives Limited and a further £309,000 in buying 156,000 ordinary shares for the Share Trust. The Group absorbed £4.1 million of cash into Working Capital which was principally the build of inventory to support product transition. At the year end the Group had a cash balance of £4.3 million (2005 £9.8 million). * the proforma basis is extracted from the 2005 Financial Statements adjusted for reduced corporate costs of £1 million following the disposal of the Solartron businesses. Dividend As stated in our Interim report, following the disposal of the Solartron businesses, the dividend policy would be designed to reflect the new profile and growth potential of the continuing Group. The Board is recommending a final dividend of 3.5 pence per share, an increase of 16.7% over last year's final dividend. The dividend will be paid on 12 May 2007 to shareholders on the register at close of business on 24 March 2007. The full year dividend is 5.25 pence per share and the dividend cover is 2.2 times. Operating Review 2006 2005 Continuing Business Sales £62.3m £56.1m Profit before tax £5.8m £4.5m Dialight's business is reported in two segments:- • Components comprising indication products and electromagnetic disconnects • Signals/Illumination which includes Traffic and Rail Signals, Obstruction Lights and Solid State Lighting Components 2006 2005 Sales £32.0m £26.6m Contribution* £14.8m £13.3m *Contribution is defined as sales less material, direct labour costs and sales commissions. Although we have characterised our Components Business as being relatively low growth, 2006 saw sales increase over 20%. The general electronics market was favourable and Dialight's position continues to be strong both through its Distribution channel and through its preferred status with many of the world's OEMs in the professional electronics market. In December we experienced a slowdown in order intake as a number of customers reduced their inventory. This slower order rate has continued through the first two months of 2007 being a 20% reduction on the same two months last year. We see no market reason for this to continue and expect that demand will recover to the prior year levels in the second quarter. In 2006, revenues benefited from one off major contracts for the meter disconnect products of Dialight BLP. For the first time we have seen significant US sales for BLP and the Company is well positioned to take advantage of the growing North American market for 'smart meters'. Signals/Illumination 2006 2005 Sales £30.3m £29.6m Contribution * £10.6m £9.9m *Contribution is defined as sales less material, direct labour costs and sales commissions. Lighting In January we completed the acquisition of Lumidrives, a UK based supplier of Solid State Lighting for the architectural market. Lumidrives provides not only a platform for the European Lighting Market but also a ready made range of fixtures and modules that we have introduced to the North American market. Our sales of Solid State Lighting grew by almost 30% when compared to 2005 (including Lumidrives in both years) and we signed agreements with a number of global distributors who have recognized the potential of the Solid State Lighting market. In June, we signed a licence agreement with Color Kinetics in the USA allowing Dialight to provide 'pass through' licences to our OEM customers in North America. The Lumidrives acquisition addresses mostly coloured lighting for architectural applications. Solid State White Lighting remains expensive and is not yet efficient enough to replace conventional light sources across the board. There are, however, areas where LEDs provide a strong value proposition today. In the early part of the year, Dialight introduced a white downlight for use in Hazardous Locations. Due to the inherent safety of LED lights and their long life and robustness, areas like offshore rigs and petrochemical establishments are ideally suited as applications for these lights. There exists around the world a large installed base of conventional Hazardous Location Lights for which LEDs would make an ideal replacement, bringing strong value to the users. We continue to look at the use of LEDs in other industrial applications where robustness and long life are important. It is expected that areas such as street lighting, parking garage and tunnel and bridge lighting will be viable areas for LED lighting in the next two to three years. Obstruction In 2002 Dialight introduced a range of red LED lights qualified for use as Aircraft Obstruction Lights on Broadcast Towers, Wind Turbines, Cellular Towers and tall buildings. During the last three years the products have been refined and improved and although still quite low, adoption is accelerating. In 2005 the Company benefited from some large orders in Poland which did not repeat in 2006.Underlying growth, however, is still good and the introduction in early 2006 of the third generation of our L864 Beacon with even lower power consumption, has significantly improved the value proposition for users of these lights. In November 2006, Dialight once again proved itself to be the innovator in LED Lighting with the introduction of a white LED strobe light. This product is designed for the Cellular Tower Market in North America and the Wind Turbine Market in Europe. Products are in test at customers for Wind Turbines in Europe and we expect to ship products for trial in the US shortly. Dialight has extended its product range through the qualification of a number of products for use in the petrochemical industry where their use is not only as aircraft warning lights but also as signal lights to indicate the location of safety appliances. Traffic Dialight has been a leader in the LED Traffic Light market since the introduction of the first products in the late 1990's. Most of the sales to date have been in North America. Adoption in Europe has been low to this point but 2006 saw an acceleration in the use of these products across many European countries which helped grow our sales. In addition, Dialight's position as a supplier to Traffic Systems OEMs has enabled us to take market share through a number of key customers. We are pleased with the relationship established with Siemens and the development of new products in conjunction with them. Siemens is the largest supplier of Intelligent Traffic Systems in Europe. Sales of Traffic Lights in North America declined in 2006. Although the base business continued to be steady, timing of some major contracts affected the sales in the year. In 2006 Dialight introduced a new range of products that conform to the newly released Institute of Traffic Engineers' Standards. This was a major undertaking to conform to a particularly stringent standard and to date Dialight is the only supplier that has fully conforming product for all three of red, yellow and green signals. This new standard whilst not mandatory is gaining adoption throughout North America and inventory has been increased to support this transition. Transport Although we are not a major player in the automotive market, Dialight is a significant supplier to US City Transit Authorities for their bus programmes. So far this has been for brake, rear and turn indicator lights using red and yellow LEDs. As white LEDs become more efficient the possibility of replacing interior fluorescent lighting becomes more of a reality. First trials of an LED interior light have taken place. The market potential for white lights is in fact greater than for exterior bus lighting and we will continue to work with our existing customer base to expand our product range. Outlook Dialight has strong margins and will continue to focus on increasing market share in its chosen markets whilst maintaining tight control on costs. Demand for Signals/Illumination Products continues to be encouraging and in particular the prospects for Solid State Lighting, Obstruction and European Traffic remain good. The demand for our Components business is lower than the same period last year by approximately 20%, primarily as a result of destocking by distributors. The distributors' own customer demand has remained reasonably constant and consequently we expect demand for our Components products to return to the levels of 2006 by the second quarter. Taking this and the translation impact of the currently weak US Dollar, the Board takes a cautious view of the outlook for the first half. The Board remains confident of the longer term prospects in 2007 and beyond. Roy Burton Harry Tee Chief Executive Chairman Safe Harbour 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. CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2006 Note 2006 2005 £'000 £'000 Continuing operations Revenue 1 62,302 56,129 Cost of sales (46,202) (41,432) Gross profit 16,100 14,697 Distribution expenses (5,126) (4,485) Administrative expenses (5,650) (6,266) Operating profit 1 5,324 3,946 Financial income 2,154 2,201 Financial expense (1,665) (1,691) Net financing costs 489 510 Profit before tax 5,813 4,456 Income tax expense 2 (2,145) (1,403) Profit after tax from continuing operations 3,668 3,053 Profit from discontinued operations, net of tax - 24,945 Profit for the year attributable to equity holders of the parent 3,668 27,998 Earnings per share Basic earnings per share 3 11.8p 92.2p Diluted earnings per share 3 11.7p 92.2p Continuing operations Basic earnings per share 3 11.8p 10.1p Continuing operations Diluted earnings per share 3 11.7p 10.1p CONSOLIDATED BALANCE SHEET As at 31 December 2006 2006 2005 £'000 £'000 Assets Property, plant and equipment 5,557 5,983 Intangible assets 7,495 4,321 Deferred tax assets 1,249 2,405 Total non-current assets 14,301 12,709 Inventories 10,397 6,742 Trade and other receivables 14,629 16,685 Cash and cash equivalents 4,346 9,829 Total current assets 29,372 33,256 Total assets 43,673 45,965 Liabilities Current liabilities Interest-bearing loans and borrowings (2,184) (2,213) Trade and other payables (8,478) (7,477) Tax liabilities (765) (3,364) Total current liabilities (11,427) (13,054) Non-current liabilities Employee benefits (1,671) (3,104) Provisions (802) (890) Deferred tax liabilities (83) (53) Total non-current liabilities (2,556) (4,047) Total liabilities (13,983) (17,101) Net assets 29,690 28,864 Equity Issued share capital 591 587 Merger reserve 546 - Other reserves (1,842) 29 Retained earnings 30,395 28,248 Total equity 29,690 28,864 CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2006 Note 2006 2005 £'000 £'000 Operating activities Profit for the year 3,668 27,998 Adjustments for: Financial income (2,154) (2,399) Financial expense 1,665 1,993 Income tax expense 2,145 2,742 Gain on disposal of discontinued operations (net of tax) - (22,022) Depreciation of property, plant and equipment 1,154 1,423 Amortisation of intangible assets 658 567 Operating cash flow before movements in working capital 7,136 10,302 Increase/(decrease) in inventories (4,152) 1,017 Increase in trade and other receivables (2,062) (3,115) Increase/ (decrease) in trade and other payables 1,634 (168) Decrease in pension liabilities (849) (418) Transfer from 'Restricted Cash' 485 - Cash generated from operations 2,192 7,618 Income taxes paid on profit on ordinary activities (1,623) (2,777) Income tax paid on gain on disposals (2,559) (5,237) Interest paid (1,665) (1,986) Net cash from operating activities (3,655) (2,382) Investing activities Interest received 2,154 2,399 Disposal of discontinued operations - 65,689 Acquisition of subsidiary (net of cash received) (2,449) - Capital expenditure (1,207) (2,228) Expenditure on development (976) (1,505) Sale of tangible fixed assets 82 44 Net cash (used)/ generated in investing activities (2,396) 64,399 Financing activities Dividends paid (1,484) (3,341) Proceeds from the issue of shares - 2,089 Transfer to 'Restricted Cash' 5 2,559 (4,000) Special contributions to pension funds - (7,374) Preference shares redeemed (29) (67) Own shares acquired (308) - Return to shareholders following disposal of businesses - (46,524) Net cash generated/(used) in financing activities 738 (59,217) Net (decrease)/ increase in cash and cash equivalents (5,313) 2,800 Cash and cash equivalents at 1 January 9,829 6,768 Effect of exchange rates on cash held (170) 261 Cash and cash equivalents at 31 December 4,346 9,829 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 2006 2005 £'000 £'000 Exchange difference on translation of foreign operations (1,900) 1,100 Exchange realised on disposal of businesses - (13) Actuarial losses on defined benefit pension schemes 303 (1,266) Tax on items taken directly in equity (133) 424 Income and expense recognised directly in equity (1,730) 245 Profit for the period 3,668 27,998 Total recognised income and expense for the period attributable to 1,938 28,243 equity holders of the parent Effect of change in accounting policy Impact of adoption of IAS32 and 39 (net of tax) to - retained earnings: Cash flow hedges 190 - share capital: Reclassification of preference shares (2,280) Attributable to members (2,090) Notes to the consolidated financial statements for the year ended 31 December 2006 The consolidated financial statements of the Company for the year ended 31 December 2006 comprise the Company and its subsidiaries (together referred to as the 'Group'). Statement of compliance The consolidated financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'). The Company has elected to present its parent company financial statements in accordance with UK GAAP. Basis of preparation The 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 contained in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 December 2006 and 2005. Statutory accounts for 2005 have been delivered to the registrar of companies, and those for 2006, will be delivered in due course. The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. Full financial statements for the year ended 31 December 2006, will shortly be posted to share holders, and after adoption at the Annual General Meeting on 9 May 2007 will be delivered to the registrar. 1. Segment reporting The primary format used for segmental reporting is by business segment as this reflects the internal management structure and reporting of the Group. Intra group trading is determined as an arm's length basis. Business segments The Group comprises the following business segments: - • Components comprising the indication business and electromagnetic disconnects. • Signals/Illumination which includes Traffic and Rail Signals, Obstruction Lights and the new Solid State Lighting products. The business segment, Solartron, was sold during 2005 and is shown as discontinued operations below. All revenue relates to the sale of goods. The 2005 segment results and assets and liability allocations have been restated for the continuing operations between Components and Signals/Illumination to reflect the reporting structure of the Group going forward. The contribution shown below for the continuing operations represents sales less direct costs incurred by each business segment. All indirect costs including production overheads, sales and marketing, and administration costs are included in unallocated expenses as due to the shared nature of these functions any allocation would be arbitrary. Business segments 2006 Components Signals/ Illumination Total £'000 £'000 £'000 Revenue 32,015 30,287 62,302 Contribution 14,779 10,602 25,381 Unallocated expenses from continuing operations (20,057) Operating profit from continuing operations 5,324 Net financing income 489 Profit before tax from continuing operations 5,813 Income tax expense (2,145) Profit after tax from continuing operations 3,668 2005 Components Signals/ Illumination Total £'000 £'000 £'000 Revenue 26,564 29,565 56,129 Contribution 13,313 9,902 23,215 Unallocated expenses from continuing operations (19,269) Operating profit from continuing operations 3,946 Net financing income 510 Profit before tax and sale of discontinued operations 4,456 Income tax expense (1,403) Profit after tax from continuing operations 3,053 Other Information Components Signals/ 2006 Illumination Total £'000 £'000 £'000 Capital Additions 553 654 1,207 Depreciation and amortisation 749 1,020 1,769 Other Information Components Signals/ Discontinued 2005 Illumination Operations Total £000 £'000 £'000 £'000 Capital Additions 458 839 931 2,228 Depreciation and amortisation 941 1,017 32 1,990 Balance Sheet - Assets 2006 Components Signals/ Illumination Total £'000 £'000 £'000 Segment assets 13,934 23,828 37,762 Unallocated assets 5,911 Consolidated total assets 43,673 Balance Sheet - Liabilities 2006 Components Signals/ Illumination Total £'000 £'000 £'000 Segment liabilities (3,221) (5,455) (8,676) Unallocated liabilities (5,307) Consolidated total liabilities (13,983) Balance Sheet - Assets 2005 Components Signals/ Illumination Total £'000 £'000 £'000 Segment assets 11,937 17,376 29,313 Unallocated assets 16,652 Consolidated total assets 45,965 Balance Sheet - Liabilities 2005 Components Signals/ Illumination Total £'000 £'000 £'000 Segment liabilities (2,892) (4,307) (7,199) Unallocated liabilities (9,902) Consolidated total liabilities (17,101) Geographical segments The Components and Signals/Illumination segments are managed on a worldwide basis, but operate in three principal geographic areas, UK, Europe and North America. 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 Continuing Discontinued Total Operations Operations 2006 2005 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 North America 36,386 35,201 7,630 36,386 42,831 UK 10,896 7,523 8,276 10,896 15,799 Rest of Europe 7,690 7,435 13,242 7,690 20,677 Rest of world 7,330 5,970 9,875 7,330 15,845 62,302 56,129 39,023 62,302 95,152 Continuing operations Segmental assets Capital expenditure 2006 2005 2006 2005 £'000 £'000 £'000 £'000 North America 22,394 23,996 899 1,016 UK 15,248 15,412 259 198 Rest of Europe 6,031 6,557 49 83 43,673 45,965 1,207 1,297 2. Income tax expense Recognised in the income statement 2006 2005 £'000 £'000 Current tax expense Current year 1,838 2,335 Adjustment for prior years (209) (308) 1,629 2,027 Deferred tax expense Origination and reversal of temporary differences 505 616 Adjustment for prior years 11 99 Total income tax expense excluding tax on sale of discontinued 2,145 2,742 operations in income statement Income tax from continuing operations 2,145 1,403 Income tax from discontinued operations (excluding gain on sale) - 1,339 2,145 2,742 Reconciliation of effective tax rate 2006 2006 2005 2005 % £'000 % £'000 Profit for the period 3,668 27,998 Total income tax expense 2,145 11,704 Profit excluding income tax 5,813 39,702 Income tax using the UK corporation tax rate of 30.0 1,744 30.0 11,911 30% Effect of tax rates in foreign jurisdictions 6.0 346 0.9 354 Effect of lower rate on gain on sales of discontinued operations - (0.8) (334) Non-deductible expenses 0.6 37 0.1 40 Research and development credit (0.7) (41) - - Unrecognised losses 4.4 257 0.7 302 Deduction for gain on share options - - (0.9) (360) Over provision in prior years (3.4) (198) (0.5) (209) 36.9 2,145 29.5 11,704 Deferred tax recognised directly in equity 2006 2005 £'000 £'000 Relating to pension accounting (133) 424 3. Earnings per share Basic earnings per share The calculation of basic earnings per share at 31 December 2006 was based on the profit for the year of £3,668,000 (2005:£27,998,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2006 of 31,150,000 (2005:30,369,000). Diluted earnings per share The calculation of diluted earnings per share at 31 December 2006 was based on profit for the year of £3,668,000 (2005:£27,998,000) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2006 of 31,367,000 (2005:30,371,000) calculated as follows: - Weighted average number of ordinary shares (diluted) 2006 2005 '000 '000 Weighted average number of ordinary shares 31,150 30,369 Effect of share options on issue 217 2 Weighted average number of ordinary shares (diluted) 31,367 30,371 Earnings per share for continuing and discontinued operations 2006 2005 Pence Pence Continuing operations 11.8 10.1 Profit from discontinued operations - 82.1 11.8 92.2 In 2005 earnings per share for continuing and discontinued operations has been calculated using the same figures as the basic earnings per share except that the profit for the period used in the calculation is the profit relating to continuing operations of £3,053,000 and the one relating to discontinued operations of £2,923,000. The calculation of the earnings per share from the gain of discontinued operations is calculated using the weighted average number of shares shown above and the gain after tax on the disposals of £22,022,000. 4. Dividends The following dividends were paid in the year: 2006 2005 £'000 £'000 Inteim-1.75p per ordinary share (2005:3.4p) 547 1,053 2005 Final-3.0p per ordinary share (2004:7.6p) 937 2,288 1,484 3,341 After the balance sheet date the following dividends were proposed by the Directors. The dividends have not been provided for and there are no corporation tax consequences. 2006 2005 £'000 £'000 Final proposed dividend 3.5p per ordinary share (2005:3.0p) 1,093 937 5. Restricted cash As part of the Capital Reduction in 2005 the Court required certain cash to be set aside into a separate bank account 'Creditors Account' for the protection of actual, prospective or contingent liabilities of the Company. The movement in the restricted cash during the year relates principally to payment of tax due on the 2005 disposal of the Solartron businesses together with certain other liabilities due at the time of the Capital Reduction held in other creditors. This information is provided by RNS The company news service from the London Stock Exchange FLLLBDXBBBBE

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