Dialight Dialight plc 2011 Preliminary Results 27 February 2012 1 Highlights Dialight • Underlying Profit before tax of £15.1m (2010: £11.3m) – 33.6% Growth • Full year Revenues grew 14.4% to £113.5m (2010: £99.2m) • Signals/Illumination segment revenues increased 29.0% to £78.8m (2010: £61.1m) • Lighting sales more than doubled to £26.3m (2010: £11.6m) • Strong operating cash flow leading to net cash of £13.7m (2010: £10.4m) • Final dividend of 6.7 pence (2010: 5.2 pence) an increase of 28.8% 2 2 Dialight Mark Fryer Group Finance Director 3 2011 Financial Results Dialight £m 2010 EBIT 11.2 OE Volume – Exceptional Q1 2010 (0.4) Signals & Illumination 10.1 Foreign Currency Translation (0.8) Increased Production Costs – Volume Related (2.1) Development investment and capitalisation (0.4) Investment in Additional Sales & Marketing (2.0) Lower Administration Costs 4 0.4 Increased Bonus Provision (0.7) Other costs (0.2) 2011 EBIT 15.1 4 LED Indication Components Dialight • Niche with over 15,000 customers – strong profit and cash generator • Revenues decrease 11.5% as expected • Slow H2 as predicted • Fundamentals of the business unchanged • Margins good • Expect flat performance in 2012 with sales to rise or fall with the general market 5 5 Electromagnetic Components Dialight • Plan for disposal • Impact £10.7m sales reduction and £1.6m contribution reduction and transfer of £0.75m of overhead to remaining segments. • Assets involved circa £1.0m 6 6 Signals/Illumination Revenue Total Contribution % 7 Dialight £78.8m £61.1m 43.7% 42.2% 7 Signals/Transportation Dialight • Comparison affected by non-repeat of European Rail order • US Transit bus business steady but affected by currency • No change to business for the future 8 8 Signals/Traffic Dialight • Dialight is the world’s largest manufacturer of LED Traffic Lights • European traffic weak especially in Southern Europe • US traffic flat but down 5% with currency • Margins improved • Single digit growth for the future driven by further adoption of LED traffic lights – Market size c €750M 9 9 LED Obstruction Lighting 10 Dialight 10 Signals/Obstruction Dialight • 45% year on year growth versus continued guidance of 30-50% • Margin improvement driven by new Beacon and Strobe designs • More than 7000 White Strobes supplied to US Cell Tower market since 2007 – 73000 to go! Only FAA approved supplier • Sales to 9 of the top 10 tower operators now • Acquisition of BTI to address European Offshore Wind Market performing well and strong 2012 expected • Introduced High Intensity Strobe for Broadcast Market 11 11 New Products – High Intensity Strobe Dialight First LED high intensity strobe to market Vigilant™ LED High Intensity Strobe - 270,000 candelas of white light - Towers above 500’ - FAA certified - Replaces Xenon technology with a 2 year life - Reduces massive maintenance costs Scale of opportunity - ~1,800 towers with high intensity systems in US - Average 9 flash heads per tower • Total US tower opportunity - ~$150M 12 12 Illumination 13 Dialight 13 Vertically Focused – Hazardous & Industrial Dialight Regulated Primary Markets Oil & Gas Power Gen Mining Chemical Pharmaceutical Water & Sewage Food & Beverage Secondary Markets Manufacturing Warehousing Cold Storage Data Centers 14 14 Signals/Illumination Dialight • Revenues up over 128% versus guidance of 100% • 75,000+ Industrial White Lights shipped in the year • High Bay Light major success • Sales to many new customers in 2011 • Pipeline of new/improved products • 2012 starting strongly 15 15 Cash flow 2011 £M 2010 £M EBIT 15.1 11.2 Operating cash 17.7 15.1 Working capital (2.5) 0.2 Pension contribution (inc non-recurring) (2.8) (1.3) Cash from operations 12.4 14.0 Tax/financing (1.7) (4.7) Investing activities (4.2) (3.9) Dividend (2.7) (2.2) Acquisition (0.4) (2.1) 3.4 1.1 13.7 10.4 Net cash generated Closing net funds 16 Dialight 16 Cash Flow Dialight • Inventory – higher – equal to December sales • Working capital to sales constant despite higher inventory • Cash - Continuing strong cash flow from Operations with debt free balance sheet • Pension deficit sold off at cost of £2.3m • Two acquisitions for £0.4m 17 17 Dialight Roy Burton Chief Executive Officer 18 Dialight What is Dialight’s advantage? First mover advantage, constant technical improvement 19 Dialight • We are currently the largest industrial & hazardous LED lighting company • Our goal is to be the largest lighting company in these markets, regardless of technology 20 20 Dialight’s LED Lighting Fixtures – Broadest in the Industry Linear Fixture Power Consumption: 123-170W Replaces: 400W HID Energy Savings: 65% Typical Payback: 1-3 years Power Consumption: 50-100W Replaces: 200W Fluor Energy Savings: 50% Typical Payback: < 2 years Power Consumption: 80W Replaces: 150W HID Energy Savings: 50% Typical Payback: < 2 years 21 Area Light High Bay Low Bay Dialight Power Consumption: 43-70W Replaces: 200W Fluor Energy Savings: 50% Typical Payback: < 2 years Wallpack / Bulkhead Power Consumption: 11-24W Replaces: 70W HID Energy Savings: 70% Typical Payback: 2-4 years 21 Evolution of Energy Efficient Lighting 22 Dialight 22 Improving our LED High Bay Dialight So how does Dialight provide value to LEDs? Mechanical design / thermal heatsinking Key to longevity of LED fixtures is proper heat management Electrical design Highly efficient universal power supplies built custom for each luminaire, tailored to meet specific certifications, extreme temperatures and rugged environments. LED optical design Concentrate light to the targeted area, rather than wasted on walls, the tops of shelves or into the night sky. Highly durable & efficient lenses Extremely durable lens options for a range of indoor and outdoor applications. 23 23 Dialight LED High Bay Dialight • 60,000+ units – total installed base • Multiple award winning luminaire • Fixture efficiency – 100 lm/W (*industry avg – 77 lm/W) • Mounting options for any application • 200 different variations - Certifications - Lumen output, power consumption - Light distribution patterns - Color temperatures - Voltages - Occupancy sensors - Dimmable *Based on DesignLights Consortium QPL 08/2/2012 24 24 LED Progression Dialight Here’s what we were able to accomplish with our high bay PRESENT 2011 2010 2009 14,000 lumens 12,000 lumens 8,000 lumens 17,000 lumens 100 lm/W 90 lm/W 80 lm/W 53 lm/W 25 25 LED Progression Dialight And if you remember what we were able to do with our strobe 2007 26 2008 2009 2010 26 Dialight How do we Sustain Growth? 27 How big is the market, is the opportunity real? Dialight • Freedonia says Industrial Lighting is approx., $5Bn Annually • We address the installed base which is probably 10 times that size • Hazardous and Heavy is about 20% of that • Dialight has achieved between 0.1 and 0.5% penetration • Major investment in channel expansion Source: Freedonia IMS 2010 Global Industrial Sales: $5.25 billion 28 28 Case Study: Top US Refinery Dialight Total Plant Opportunity (20,000+ fixtures) • 19 GWh Energy Savings / yr • 16,000 tons CO2 Reduced • Equivalent savings of powering 2,000 households and removing 2,750 cars from the road Current Installed Base • (335) 150W High Bay replacing up to 400W HID • (300) 70 & 100W Area Light replacing up to 250W HID • (30) 8W Area light replacing up to 150W Incandescent • 1 GWh Energy Savings / yr • 815 tons CO2 Reduced 29 29 Refinery Lighting Opportunity Dialight Scale of opportunity ~ 660 refineries worldwide ~ 6,700 lights per refinery • Total opportunity: $2.5Bn • Opportunity per refinery: $4M Typical Lighting Applications: Process Areas Our Customers: 30 Steam Rooms Catwalks 30 Power Generation Opportunity Dialight Scale of opportunity Total opportunity for coal and nuclear plants: $2.7Bn ~ 1,700 Coal plants worldwide ~ 2,000 lights per coal plant • Opportunity per coal plant: $1.5M Typical Lighting Applications: Conveyor Belts Our Customers: 31 193 Nuclear plants worldwide ~ 1,100 lights per nuclear plant • Opportunity per nuclear plant: $625K Coal Bunkers Turbine Decks 31 Steel Processing Opportunity Dialight Scale of opportunity ~ 2,300 steel mills worldwide ~ 1,500 lights per refinery • Total opportunity: $1.7Bn • Opportunity per steel mill: $750K Typical Lighting Applications: Cranes Our Customers: 32 Blast Furnaces Process Areas 32 Surface Mining Opportunity Dialight Scale of opportunity ~ 90,000 surface mines worldwide ~ 500 lights per surface mine • Opportunity per mine: $225K Typical Lighting Applications: Conveyor belts Our Customers: 33 Cranes 33 Geographically Focused Dialight 34 34 Gulf Coast Lighting Focus • • • • • 35 Dialight $300Bn EPC projects worldwide over next 10 yrs $220M opportunity at 32 refineries $645M opportunity at 113 offshore rigs and 3,533 offshore platforms 9% of world’s oil production 400+ chemical manufacturing sites 35 Europe Lighting Focus Dialight Target Regions: • • • • • • • • 36 Germany UK Benelux France $600M opportunity at ~150 refineries across Europe $50M opportunity at 80 nuclear plants across Europe $90M opportunity at ~500 platforms in North Sea $12M opportunity at 16 major steel facilities in Germany 36 Middle East Lighting Focus Dialight Target Regions: • • • • • • • • • 37 UAE Saudi Arabia Qatar Oman Kuwait $160M opportunity at 40 refineries $100M opportunity at 25 new refineries in Saudi Arabia over next 5 yrs $5.5M opportunity for 121 offshore rigs Energy savings focus - Deficit in Saudi Arabia 37 ASEAN Lighting Focus Dialight Target Regions: • • • • • • • • • 38 Indonesia Malaysia Philippines Singapore Thailand $100M opportunity at 40 refineries $65M opportunity at 43 coal power plants $6.5M opportunity at 144 offshore rigs across Asia Petronas - $76.9Bn - #86 on Forbes 500 list 38 Australia Lighting Focus • • • • • • 39 Dialight $1.25Bn opportunity at ~565 surface mining operations $28M opportunity at 8 refineries $45M opportunity at 30 coal power plants $13M opportunity at 69 offshore platforms and 10 rigs ~ 6% of worldwide coal production 17.5% of worldwide iron ore production 39 How do we maintain margins? Dialight LED prices are coming down, how do we maintain margins? • We do not sell lighting- we sell ROI • Most of our sales will be against conventional lighting installations – installed base is 10 times new sales • The sell is not price sensitive, it is payback sensitive • Once the payback is achieved, the price is not the focus • Superior payback – lumens per Watt – supports higher price 40 40 The Future Dialight • Multi-Billion Dollar Market • Low penetration • Improving paybacks for the customer base as Dialight’s products improve with LED efficiency and internally driven innovation • Lighting Revenues expected to double year on year 41 41 The Future Dialight Dialight Signals & Illumination Leverage Base % Fixed % Variable % Revenue 100 Direct Material 45% 0 100 Direct Labour 6% 0 100 Sales Commission 2% 0 100 Freight 2% 0 100 45% 0 100 8% 50 50 Contribution Margin Production Cost Gross Margin 37% Development 6% 75 25 Sales & Marketing 9% 0 100 Administration 7% 95 5 EBIT 15% • Operational leverage and maintained/improving contributions will drive the Groups operating Income • Continued doubling lighting through ’14 would triple the size of the Group 42 42 Dialight Dialight Challenging the status quo in the lighting industry 43 Dialight Q&A 44 Dialight Financial Appendix 45 Summary Profit & Loss 2011 £m 2010 £m 113.5 99.2 Gross Profit 33.4 27.3 Gross Profit % 29.4 27.7 Overhead costs (18.3) (16.5) Operating profit 15.1 11.2 Net financing income / (cost) – non-underlying (0.8) 0.1 Profit before tax 14.3 11.3 Tax (4.7) (3.8) 9.6 7.5 Revenue Net Profit 46 Dialight 46 Five Year History 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m 113.5 99.2 77.3 77.9 63.4 Profit before tax 15.1 11.3 5.3 5.6 4.5 Operating Cash flow 17.7 15.1 11.0 6.0 5.8 Net Cash 13.7 10.4 9.1 4.1 4.4 Shareholders Funds 54.7 46.2 40.1 37.5 30.8 Return on Sales % 13.3 11.4 6.9 7.2 7.1 Return on Capital % (Exc Cash) 36.5 31.6 17.1 17.7 17.0 Turnover 47 Dialight 47 Lighting - Five Year History 48 Dialight 2011 £m 2010 £m 2009 £m 2008 £m 2007 £m 2006 £m Turnover 78.8 61.1 46.4 43.3 33.4 28.6 Operating Profit 13.8 8.7 3.3 1.7 0.1 (0.5) Return on Sales % 17.5 14.2 7.1 3.9 0.3 n/a % of Group Profit 91.3 77.7 62.2 30.4 2.2 n/a 48 Revenues 49 Dialight 49 2011 Segment Result Components £M LED Indication £M Signals/ Illumination £M Total £M 13.9 20.8 78.8 113.5 Contribution 2.4 11.6 34.5 48.5 Contribution % 17.1 55.6 43.7 42.7 Overheads (2.5) (7.0) (20.7) (30.2) Segment profit (0.1) 4.6 13.8 18.3 Revenue 50 Dialight Unallocated Expenses (3.2) PBIT 15.1 50 Dividends and Earnings Per Share 2011 2010 Dividends per share 10.0p 8.0p Basic EPS 30.3p 23.8p Dividend cover 3.0 times 3.0 times Underlying EPS 31.7p 23.8p 3.2 times 3.0 times Adjusted Dividend cover 51 Dialight 51 Taxation Dialight • Reduced effective tax rate in 2011 was 33.0%, reduced from 34.0% in 2010, 37.5% in 2009 and 38.5% in 2008 • Profit in high tax locations • Increased mix of lower tax UK profit going forward • Lower UK corporate tax rates • Continue to marginally lower effective tax rate 52 52 Banking Dialight • Transferred 2011 banking relationship to Barclays • £10m initial facilities with fees paid for £3m overdraft only • Discussions with regard to additional £13m facility • $10m facility in US with Wells Fargo which can be increased up $25m • £40m of cash and potential facilities for corporate initiatives excluding equity funding • SME Eurofinance and Capital One arrangements for Europe and US to finance customer orders with no Group guarantee 53 53 Summary Balance Sheet 2011 £M 2010 £M Non current assets 23.8 22.3 Cash 13.7 10.4 Other current assets 38.7 28.0 (20.9) (12.2) Non current liabilities (0.5) (2.3) Net Assets 54.8 46.2 Current liabilities 54 Dialight 54 Working Capital 2011 £M 2010 £M Inventories 15.8 9.2 Trade and other receivables 22.8 18.9 (19.1) (11.3) 19.5 16.8 17.2% 17.0% Trade and other payables Working Capital Working Capital / Sales % 55 Dialight 55 Pensions Dialight • Group deficit eliminated through sale of US deficit for £2.3m • UK surplus £0.8m (2010: £0.4m) • Premium paid tax allowable – c 9month payback after tax! 56 56