Dialight plc 2010 Preliminary Results 14 February 2011 Agenda ● ● ● Business review and outlook Financial results Q&A Highlights ● Profit before tax of £11.3m (2009: £5.3m) ● Full year Revenues grew 28.3% to £99.2m (2009: £77.3m) ● Signals/Illumination segment revenues increased to £61.1m (2009: £46.4m) ● Lighting sales more than doubled to £11.6m (2009: £5.5m) ● Two international initiatives completed ● Strong operating cash flow leading to net cash of £10.4m (2009: £9.1m) ● Final dividend of 5.2 pence (2009 Second Interim: 4.3 pence) Revenues 2010 2009 Revenue £99.2m £77.3m Signals/Illumination £61.1m £46.4m Electromagnetic Components £14.6m £13.3m LED Indication Components £23.5m £17.6m Contribution Margins 2010 2009 Signals/Illumination 42.2% 38.8% Electromagnetic Components 17.2% 23.8% LED Indication Components 52.9% 52.7% LED Indication Components ● Niche with over 15,000 customers – strong profit and cash generator ● Revenues increase over 33% versus 2009 ● Strong growth in H1 with consequent inventory build up ● Slower H2 as predicted ● Fundamentals of the business unchanged ● Margins good ● Expect flat performance in 2011 with sales to rise or fall with the general market Electromagnetic Components ● Revenues up £1.3m versus 2009 with growth coming from US smart meter manufacturers selling to US utilities ● New contract win expected to drive higher future growth with 100m US homes still to adopt smart meters ● Rest of the world is also moving towards mass conversion to smart metering ● Prospects for Disconnect still promising but on thin margins and lumpy by nature Signals/Illumination Revenue 2010 2009 £61.1m £46.4m Traffic £27.4m £23.6m Obstruction £12.3m £7.0m £9.8m £10.2m £11.6m £5.5m Revenue: Transportation Lighting Signals - Traffic ● European traffic up 34% with strong performance both in the UK and the rest of Western Europe ● US Traffic up 9% in spite of no large projects ● Margins improved ● Some interest in street lights from customers in both US and Europe Obstruction Lighting Global Markets Served Telecom Markets • Cellular • Private Microwave networks • Private Pager networks Utilities • Stacks, Chimneys & Cooling Towers • Catenary Systems Wind Markets • Onshore • Offshore Marine • Offshore Platforms • Fixed & Seasonal Aids Broadcast Market • 500-2,200 Ft. Towers Tall Structures • Buildings • Bridges • Cranes Signals - Obstruction ● 76% year on year growth – 50% excluding BTI acquisition ● Margin improvement driven by new Beacon and Strobe designs ● More than 2400 White Strobes supplied to US Cell Tower market in 2010 – 76000 to go! ● Sales to 8 of the top 10 tower operators in 2010 ● Acquisition of BTI to address European Offshore Wind Market New Products High Intensity Strobe (270,000 cd) W-ROT Beacon Catenary Strobe System Onshore Wind Tall Turbine Market (100,000 cd) Demonstration of 100,000cd High Intensity LED Light in Sweden 100m mast Aviation Obstruction Lighting and Marine Aids to Navigation Medium Intensity Obstruction Lights Antenna Obstruction Light Power Supply Controller and Monitor GPS Receiver Photocell Photocell Detector Low Intensity Marker Lights Floodlights and Spootlights Tower and Sign Lighting Marine Lanterns Radar Reflectors Fog Signal Visibility Meter Marine Lantern Power Supply and Alarm Monitor Flood Light Contactor MarkerLight Controller Fog Signal Power Supply and Controller Main Power Supply Controller and Battery Back-up Offshore Wind Turbine - Typical Set-up WW Growth Offshore Wind Farms 30,000.00 25,000.00 Asia North America Europe Megawatts 20,000.00 15,000.00 10,000.00 5,000.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 Year 2015 2016 2017 2018 2019 2020 Source: EWEA 2009 Illumination ● ● ● ● ● ● ● Revenues up over 100% 20,000 Industrial White Lights shipped High Bay Light major success Winner of Techmark and Elektra awards Sales to over 300 customers in 2010 Pipeline of new/improved products 2011 starting strongly LED Developments – Canaccord view ● Very high rate of LED adoption up to 60% by 2020 – growing the LED cumulative revenue to $313bn – taking the equivalent of nearly 600 power stations from the world grid by 2020 – equivalent to the emissions of all passenger cars in the world today ● Traditional lighting companies to move increasingly into LED ● Huge growth in LED capacity – prices rapidly declining driving further adoption ● Cost and size decreasing – break even lowering ● Need for up to 4700 MOCVD tools (Metal Organic chemical disposition) ● Availability shortages based on natural resources – need for sapphire industry to grow from $200m to $2bn by 2020 LED Performance ● Cree, Philips and Nichia all supplying high performance devices ● Typical lumens/watt 135 ● Device output possible to 235 lumens ● LED cost per fixture reduced by 50% in the year ● More LED suppliers entering the market Evolution of Energy Efficient Lighting Lumens per watt 200+ LPW 200 186 LPW 180 XM Lumens / Watt 161 LPW 160 LED T8 Fluorescent T5 HO Fluorescent High Pressure Sodium XPG 140 130 LPW 120 Metal Halide Pulse Start XPE Metal Halide 114 LPW REBEL 100 100 LPW 0 2009 2010 2011 2012 Advantage for Dialight ● More lumens/watt means 1. 2. 3. 4. 5. 6. Less LEDs Less power Less heat Smaller power supply Less thermal management More applications for our products…. …if we work with short product life cycles… ….not typical for the Lighting Industry ! Solid State Lighting Lighting Market Sizing 2010 Global Projection: $75 billion Parts & Accessories 18% Industrial 7% Residential 23% Portable 18% Commercial 21% Outdoor 17% 2010 Global Industrial Sales: $5.25 billion Source: Freedonia / IMS Market Sizing: Hazardous Lighting 2010 Estimated Global Sales: $900+ Million Growth projections 7%+ CAGR 2011 - 2015 Source: Freedonia Americas – Markets Currently Served Industrial Hazardous Markets ● Oil & Gas ● Pipelines ● Petrochemical & Chemical ● Pharmaceuticals ● Mining (Surface) ● Waste Treatment ● Pulp & Paper ● Food Processing Industrial Markets ● Water Treatment ● Power Plants & Utilities ● Manufacturing ● Automotive ● Freezers, Cold Storage ● Food Processing ● Specialty – Nuclear Public Infrastructure ● Military ● Government–Federal/Municipal ● Prisons Other Markets ● Warehousing Progress to date – Customers/Segments Oil & Gas, Petrochemical & Pharmaceutical AES Alyeska Pipeline Services Co. Arkema Chemicals Baxter Baxter Caribe Inc. BP Offshore BP Refineries (6 locations) Cenex Chevron Coffeyville Resources Ref. / Nitrogen Plant ConocoPhillips (5 locations) Degussa Engineered Carb Dow Chemical Dow Corning DuPont – NJ Plant Exxon Mobile (4 locations) FMC Alcoy Formosa Plastic Great Salk La ke Minerals Hess (2 locations) Indolex Chemical Co. ISP Chemicals Lubrizol Painseville Lyondell Bassell Merck & Co. – VA plant Nexen Gas Oxbow Carbon & Minerals Oxbow Minerals Oxy Chemical Pfizer Pioneer Drilling Co. Pride International Proctor & Gamble Rain CII Carbon LLC Red Cedar Gathering Reichart Chemicals Reichart Petroleoum Plant Rohm Haas Saint Gobain Plastics Sartomer Sasol North America Sasol North America Shell Oil WS Refinery Solvay Chemicals Sun Products Sunoco (3 location) Tameco Thatcher Chemical Valero (2 locations) Progress to date – Customers / Segments Mining & Power Generation Antelope Coal Mine Arch Black Thunder Coal Mine Climax Molybdenum Henderson Mine Coal Peers Corteau Mines Fairmont Minerals Henderson Mine Jacobs Ranch Mine Kiewit Buckskin Mining Mississippi Phosphates Corp. Mountain Coal West Elk Mine Oxbow Carbon and Minerals Peabody (2 locations) PCS Phosphate Pilbara Iron Red Path Mining Rio Tinto (4 locations) Teck-Cominko Pogo Mine Unico Mining Western Energy Rose Bud Mine Westmore Coal - Abasaloka Anderson Chamming Electric Chesapeake Energy(3 Locations) Coalstrip – PA Light Colorado Springs Utilities Connectiz Anderson Chamming Electric Chesapeake Energy Coalstrip – PA Light Colorado Springs Utilities Connectiz Coteau Covanta Energy – DE Plant Covanta Energy – Indy Plant DTE Energy Eco Electrica Power Plant Elite Energy Enogex Entergy Nuclear(3 locations) Envirolight Excel Energy Eraring Energy Great River Energy Idaho Power Corporation IES Utilities, Inc OGS Kaneka Eperan Kapar EnergyLine Power Merrit Energy Midwest Generation Montana Power (PPL) Colstrip Power Plant PNM NM Portland General Electric Public Service New Mexico Rocky Mountain Power Hunter Station Rocky Mountain Power Huntington Plant Rohr Rytway Sebago Snowey Hydro Southwest Generation Spectra Energy Spectra Energy Toledo Edison Tucson Electric Power Unico Mining Western Energy – Rose Budd Western Energy Rose Bud Mine Westmore Coal - Abasaloka Mine Williams Energy Gas Plant Wisconsin Power & Light Xcel Energy Progress to date – Customers / Segments Water, Waste Water, Processing & Food Plants ADM Corn Processing ADM Wallhalla Arbiti Bowater Bar-S Foods BNS Fererro Cargill City of Philadelphia City of Reno, NV Clearbrook Rice Diamond Crystal Dip Abitibi Bowater Drayton Foods Galvin Gary Waste Water Goderich Elevator Golden Plump Chickens GS Dunn Hatfield Quality Meats Heinz Henkel Huntington Alloys Idaho Power Jennie O Turkeys Kapstone Kraft Paper Co Kellogg's LA Water & Power Michigan Sugar Nestle-Stouffer Noranda Alumina North Dakota Mill Passaic Valley Sewage Patrick Cudahy Riverview Dairy Farm Seneca Foods Sherwin Alumina Simplot Potatoes SSAB Steel Alabama Inc. Sugar Beet Plant Temple Island Tyson Foods United Farms Wallhalla Bean Plant Wild Flavors Wispak Progress to date – Customers / Segments Warehouse & Manufacturing 3E - Electrical Eng & Equipment Co. Aisin – Japan Alcoa Allsteel Panel Anderson Anderson Auto Archer Daniels Midland Corp. Automation & Electronics Buckman Labs City of Toronto Concord Phillips Conectiv Edgemoor Davisco Int’l DMI Industries DOT Warehouse DTE Energy-St. Clair PP Eco FedEx Lighting Services & Tech Flexicon Inc Frontline Int. Galavan Industries General Machinery Glenadale Complex Graphic Packaging Int’l Henrico County Holcium USA Huntsmann I/O Solutions & Controls Industrial Automation Controls Jesco John Deere (2 Locations) KEW Incorporated C/O Gerrie Klockner Pentaplast Lafarge Medsafe Warehouse Meng Xue Song Metal Container Mozel Inc. Noctur Pilkington North America Potato Factory PPG Proctor & Gamble Rittenhouse Electric Rockline Industries SEPTA Steffen Inc. Swann TECOT Dover Branch Transfers The Baltimore Sun Timken David SIPE Van Meter Industrial Vektra Electric Wichita Multiplier Effect ● Typical Customer Cycle − − − 1 – 10 Small test area 10 – 50 Small Application 100+ Retrofit process, multiple facilities ● e.g. Sherwin Alumina 10pcs, Multiple 100+pcs, 50/wk Oct – Dec ● e.g. Entergy 5pcs, 3 x 100+pcs, potential 3000pcs ● Average Order Size Today * 10 – 15pcs Dialight LED Product Differentiators ● All encompassing 5 year Warranty ● T Rating on Dialight fixtures is typically higher ● More Efficient Design/Better Power Consumption ● Wider Operating Temperature Range ● Thermal Protection is Superior ● Power Factor is Superior ● Very Cost Competitive vs Current Technology in Industrial/Hazardous Application ● Recognized as the Leader in LED Design Expertise ● IP on Optical Design ● Continuous improvement in performance/value Market Size World Lighting Demand by Region Source: Freedonia Worldwide Expansion ● Majority of Industrial Lighting sales in 2010 were in North America ● H2 2010 invested in R & D Centre in UK to address IEC Specifications ● Sales Managers now in UK, Germany, France, Dubai, Singapore, Australia ● Recruitment planned for Korea, Japan ,Eastern Europe Primary Oil & Gas Activity London Paris Houston Seoul Singapore UAE Perth Saudi Arabia Primary Oil & Gas Engineering Centres Current Oil & Gas Projects & $ Values Europe 900+ projects, value $971 billion + Middle East 400+ projects, value $600 billion + Russia 300+ projects, value $650 billion + Asia 800+ projects, value $550 billion + Australasia 200+ projects, value $325 billion + Information Source Technology Effect / The Future ● Existing industrial markets further enabled ● Contribution margins improved ● Much improved solar packaging ROI’s ● Emergency back up ROI enhanced ● Controls and communications ● Expanded core market opportunities 2010 Outlook from early 2010 ● Signals/Illumination positioned for continued growth with stronger margins ● Improved LED efficiency and cost is moving the adoption point ● Pipeline of new and improved White Lighting products ● Continued reengineering and cost reduction ● LED Indication showing recovery and still a strong profit and cash generator ● Group shows excellent prospects for future Revenue Growth and Profitability 2011 Outlook from early 2011 ● Signals/Illumination positioned for continued growth with stronger margins ● Improved LED efficiency and cost is moving the adoption point ● Pipeline of new and improved White Lighting products ● Continued reengineering and cost reduction ● Executive confident in further Revenue Growth and Profitability Mark Fryer Group Finance Director Five Year History 2010 £m 2009 £m 2008 £m 2007 £m 2006 £m Turnover 99.2 77.3 77.9 63.4 52.3 Profit before tax 11.3 5.3 5.6 4.5 5.8 Operating Cash flow 14.0 11.0 6.0 5.8 2.2 Net Cash 10.4 9.1 4.1 4.4 2.2 Shareholders Funds 46.2 40.1 37.5 30.8 29.7 Return on Sales 11.4 % 6.9 7.2 7.1 11.1 Return on Capital % (Exc Cash) 17.1 17.7 17.0 21.1 31.6 Signals / Illumination Five Year History 2010 £m 2009 £m 2008 £m 2007 £m 2006 £m Turnover 61.1 46.4 43.3 33.4 28.6 Operating Profit 8.7 3.3 1.7 0.1 (0.5) Return on Sales % 14.2 7.1 3.9 0.3 n/a % of Group Profit 77.7 62.2 30.4 2.2 n/a Summary Profit & Loss 2010 £M 2009 £M Revenue 99.2 77.3 Gross Profit 27.3 18.7 Gross Profit % 27.7 24.2 Overhead costs (16.5) (13.2) Operating profit 11.2 5.5 Net financing income / (cost) 0.1 (0.2) Profit before tax 11.3 5.3 Tax (3.8) (2.0) 7.5 3.3 - 2.1 7.5 5.4 Net Profit Adjustment to profit Retained profit 2010 Segment Result Emech Components £M Revenue LED Signals/ Indication Illumination £M £M Total £M 14.6 23.4 61.1 99.2 2.5 12.4 25.8 40.7 Contribution % 17.2 52.9 42.2 41.0 Overheads (2.4) (6.8) (17.2) (26.4) 0.1 5.6 8.6 14.3 Contribution Segment profit Taxation ● Reduced effective tax rate in 2010 was 34.0%, reduced from 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 Dividends and Earnings Per Share 2010 2009 Dividends per share 8.0p 6.6p Basic EPS 23.8p 17.5p Dividend cover 3.0 times 2.7 times Underlying EPS 23.8p 10.6p Adjusted Dividend cover 3.0 times 1.5 times Summary Balance Sheet 2010 £M 2009 £M Non current assets 21.9 17.8 Cash 10.4 9.1 Other current assets 28.0 27.3 (12.2) (12.1) Non current liabilities (1.9) (2.0) Net Assets 46.2 40.1 Current liabilities Working Capital 2010 £M Inc BTI 2010 £M Exc BTI 2009 £M Inventories 9.2 8.6 9.2 Trade and other receivables 18.9 18.4 18.2 Trade and other payables (11.3) (10.9) (11.0) Working Capital 16.8 16.1 16.4 Summarised Cash flow 2010 £M 2009 £M Operating cash 15.1 8.3 Working capital 0.2 4.0 Pension contribution (1.3) (1.3) Cash from operations 14.0 11.0 Tax/financing (4.7) (1.6) Investing activities (3.9) (2.5) Dividend (2.2) (1.9) Acquisition (2.1) - 1.1 5.0 Net cash generated Cash Flow ● Inventory – effective inventory management ● Almost 15 days out of receivables days ● Working capital constant excluding BTI ● Cash - Continuing strong cash flow from Operations with debt free balance sheet Pensions ● Group deficit increased from £0.9m to £1.4m ● US deficit constant at £1.8m ● UK surplus £0.4m ● IAS 19 deficit smaller than ongoing or termination deficit ● Termination basis would increase US deficit to over £3.0m ● Contributions of £1.3m in 2010 (£1.1m in US) – addition administration costs and management time ● Buyout US scheme H1 2011 ● Premium paid tax allowable – c 18month payback depending on member election Banking ● Transferred 2011 banking relationship to Barclays ● £10m initial facilities with fees paid for £3m overdraft only ● Discussions with regard to additional £13m facility ● £33m 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 Summary and outlook ● ● ● ● ● ● ● ● ● ● High growth across all segments and territories Strong signals and illumination performance High H2 2010 investment in overhead to support 2011 growth although seasonality and growth mean H2 strength over H1 Profitable business (both return on sales and net assets %) in mixed market conditions High R&D investment to take advantage of technology timing Reducing tax rate Cash generative Debt free balance sheet Banking facilities and customer financing Confident platform for 2011 and beyond Q&A