2018 FULL YEAR RESULTS 25 FEBRUARY 2019
KEY POINTS Results in line with revised expectations Text Here All product assembly now back in-house, full exit from 02 Text Here Former manufacturing partner by end of H1 2019 Expanded market opportunity, 3 new products in 2019 03 Text Here 04 Regional development centres Text Here Two new manufacturing facilities 05 Text Here Board’s expectations of further progress in 2019 unchanged, with usual H2 weighting 06 Private and confidential 2
FINANCIAL REVIEW Fariyal Khanbabi
FINANCIAL SUMMARY Statutory PBT Revenue Underlying EBIT £181.0m £169.6m £9.7m £7.4m £8.0m £3.0m 2017 2018 2017 2018 2017 2018 36% £2.9m 16.4p Underlying Net debt Statutory EPS (2017: Net cash £12.8m) (2017: 4.8p) gross margin (2017: 37%) Private and confidential 4
UNDERLYING EBIT BRIDGE Impact of revenue decrease (£2.0m) (£0.7m) Gross margin £3.1m (£2.1m) £9.7m £8.0m Operating costs 8.0 $ Foreign exchange £ 2017 2018 Private and confidential 5
LIGHTING Lighting Reported currency Constant currency £m 2018 2017 Variance 2017 Variance Revenue 125.0 137.5 (9%) 133.0 (6%) Gross Profit 47.1 54.3 (13%) 52.4 (10%) Gross margin 37.6% 39.5% 39.4% Overheads (38.6) (43.1) 11% (41.7) 8% EBIT 8.5 11.2 (24%) 10.7 (21%) Gross margin bridge Increased freight Duplicate plant Skilled labour force Raw material charges running costs handling fees retention (20bps) 90bps (110bps) (150bps) Private and confidential 6
LIGHTING ORDER INTAKE The Americas • Operational issues impacted lead times • Large projects not bid for (14%) • Lower distributor inventory due to supply constraints EMEA • Narrow product range served from inventory on hand • Order intake Project driven business (15%) • Increased distribution partners APAC £142m • Narrow product range served from inventory on hand £124m • Strong sales team +21% • Increased distribution partners OBSTRUCTION 2017 2018 • Project driven business • Large customers deferred orders (31%) • Updates to product line Private and confidential 7
SIGNALS AND COMPONENTS Revenue Underlying EBIT Gross margin £44.6m £4.5m 30% £43.5m 29% £3.9m 2017 2018 2017 2018 2017 2018 3% 100 bps 15% Revenue growth Improvement in gross margin Improvement in EBIT 6% 23% At constant currency At constant currency Private and confidential 8
CASH BRIDGE Operating cash (£19.6m) £3.9m Inventory increase £12.8m Inventory increase, mainly raw material, due to termination of manufacturing partnership Expect to unwind in 2019 (£2.9m) as utilised 2017 2018 Private and confidential 9
2019 PLANNING ASSUMPTIONS Net interest Broadly in line with 2018 INCOME STATEMENT Tax rate c25% c.£8-10m new facilities Capex c.£8-9m product development CASH FLOW Working capital Inventory levels to unwind in 2019 H2 weighting as in previous years Private and confidential 10
BUSINESS REVIEW Marty Rapp
OUR PRIORITIES INCREASED CAPACITY FOR SCALEABLE MARKET NEW PRODUCT OPERATIONS EXPANSION DEVELOPMENT Private and confidential 12
OPERATIONAL HIGHLIGHTS • All final assembly in house • Manufacturing partnership terminated on 27 September 54 % 2018 % improvement in level of late • Machinery to be transferred orders by end of H1 2019 • New plants in Mexico and Malaysia 1 * 70% • Remaining inventory at 1 former manufacturing 48% partner under negotiation On time delivery • Targeting 95% on time 2017 2018 delivery * On time delivery includes overdue order backlog transferred from former manufacturing partner 1 Lighting on time delivery at the end of the year Private and confidential 13
OPERATIONAL IMPROVEMENTS New plant in Tijuana, Mexico, augmenting Ensenada New plant in Penang, Malaysia Upgraded leadership Hybrid model - local sub-assembly supply, internal assembly Enhanced global supply chain management Establish new plant and distribution centre in Europe in the future Private and confidential 14
HYBRID MANUFACTURING IN PLACE External/Internal Regional suppliers to support sub-assembly requirements: • Suppliers expertise in specific process/products • Competitive prices Cables Machining & painting • PCBAS Risk Managed supply chain Internal • Regional assembly facilities • Global purchasing with local delivery • Fulfilment from regional hubs • Regional customer service Final assembly & supply chain Distribution Competitive pricing Improved margins Reduced lead times Private and confidential 15
OPERATIONAL FOOTPRINT Roxboro, US Copenhagen, Denmark Injection molding Obstruction and wind ⁻ 79,000 sq ft systems ⁻ All products Europe (proposed) Tijuana, Mexico New facility for final Distribution, molding, CNC assembly, molding, CNC & & Painting painting & distribution 100,000 sq ft All products Penang, Malaysia Ensenada, Mexico New facility for final assembly, molding, CNC & Final assembly painting 162,000 sq ft 90,000 sq ft All products All products Private and confidential 16
OUR PRIORITIES MARKET EXPANSION Private and confidential 17
EXPANDED MARKET OPPORTUNITY Leverage existing sales channel Current market Existing channel partners £0.5 bn to support Target current customer base Focus on lighter duty applications in current customer facilities Expanded market New products for £2.0 bn large niches Reduce need to discount price of established high performance products Product customisation Improved alignment of pricing with features Private and confidential 18
EXPANDED ADDRESSABLE MARKET Potential expanded market – per annum Market size by major product £560m £750m £1,023m £134m £324m £42m £521m £305m £210m £780m High bay Linear Flood light Area light Expanded market Current market Americas APAC EMEA Competitive 3 rd Party Internal SAM Channel Results Results Workshops Market Data Reporting Reporting Private and confidential 19
OUR PRIORITIES INCREASED CAPACITY FOR NEW PRODUCT DEVELOPMENT Private and confidential 20
REGIONAL FOCUS Engineering Installation • Global technology leadership deployed regionally • Dialight design rules Voltage • Increase speed to market Product management Form factor • Globally coordinated • Regionally focused Certification • Regionally specified products Increase capacity for new product development Private and confidential 21
NEW PRODUCT DEVELOPMENT CAPACITY Current team New regional External support teams Improve efficiency New teams set up in Use of ODMs and and output by process London and Penang design firms optimisation 22 new platform products targeted over the medium term Investment funded through growth Private and confidential 22
SUMMARY • Primary focus on improving service levels to our customers • New facilities in Mexico and Malaysia • Improved go to market approach centred on technical and product innovation regionally • Upgrade of existing products and new product launches to significantly expand served market 23 Private and confidential
OUTLOOK 2018 was a challenging year for Dialight but one in which we made considerable progress to address the operational issues we faced at the start of the year, reducing late orders significantly during the year. This improvement is primarily due to moving manufacturing under our hybrid model back in-house and terminating the relationship with our manufacturing partner. Further improvement in our operations remains a priority for us. With a strong focus on product development and expansion of the available market, we have laid the foundations to drive growth and restore market share. We are planning to launch three major products in 2019 that will significantly expand the Group’s served market. We have two new facilities, in Mexico and Malaysia, to provide us with sufficient capacity to meet our growth aspirations. Our market proposition remains compelling, with the sustainability benefits of reduced energy usage, lower carbon emissions, reduced maintenance and improved safety offering real value to our customers. We remain excited by the Group’s prospects over the medium to long term and are confident of delivering future growth. The Board’s expectations of further progress in 2019 remain unchanged, again with a second half weighting. 24 Private and confidential
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