Dialight plc Full year results 2015 On when it counts 1 Agenda On when it counts. Overview Financial Review Strategic Review Q&A Overview • Challenging markets highlighted opera>ng issues On w hen it • Reduced m atters m ost. opera>ng profit from high overheads and costs • Immediate ac>ons to fix the business • Leading posi>on in a growing market • Clear strategy for sustainable, profitable growth supported by new leadership Strategic Company Confidential On w hen it c o u n t s . 3 Challenges and acGons taken Management team changes New execu>ve team driving change Increased costs Strategic account selling Slowing revenue growth Partnerships with automa>on companies Diversifica>on of sectors and geographies Headcount reduc>ons Increased costs Tighter controls around inventory Process changes to Mexican plant Inefficient supply chain Upgrade supplier management Cash management Improved working capital management On when it counts. Dialight is a ligh>ng technology company Financial review • Reliable Solid State Lighting (SSL) fixtures • Trustworthy Obstruction products • Warranties are unbeaten • In-house power supplies Fariyal Khanbabi Financial summary On Refocused w hen it business following challenging year m Onatters w henmitost. m atters m ost. 2015 £6.1m underlying EBIT, down 66% 35% Gross margin 1% Revenue growth R CAG 12% 102 115 131 159 Underlying EBIT (£m) (£m) 5-‐year summary Gross profit Revenue Net debt £3.8m Underlying EPS 13.3p (£m) (21% ) CAG R GR 9% CA 161 40 38 50 61 56 16 20 15 18 6 2011 2012 2013 2014 2015 Company Confidential 2011 2012 2013 2014 2015 On w hen it c o u n t s . 2011 2012 2013 2014 2015 6 Income statement Income statement Variance On w hen it m Onatters w henmitost. £m m ost. m atters 2015 Revenue 2014 Reported Constant currency 161.4 159.8 1% (2%) (105.2) (99.2) 56.2 60.6 (7%) (11%) Distribu>on costs (30.7) (28.6) Administra>ve expenses (19.4) (13.9) 6.1 18.1 Non-‐underlying costs (9.5) (2.3) Finance expense (0.5) (0.3) (Loss)/profit before tax (3.9) 15.5 1.9 (6.0) (Loss)/profit a`er tax (2.0) 9.5 Underlying basic EPS 13.3p 36.8p Statutory basic EPS (6.4)p 29.4p Cost of goods sold Gross Profit Underlying EBIT Tax Company Confidential (66%) (72%) n/a n/a n/a n/a On w hen it c o u n t s . • Gross profit margin reduced by 3% • Underlying EBIT decline of 66% • Administra>ve expenses increased by £5.5m mainly in H1 • Non-‐underlying items of £9.5m, cash cost of £2.4m • Tax credit of £1.9m due to non-‐underlying items • Revised repor>ng segments 7 LighGng revenue up 3% 71% The Americas On w hen it m atters m ost. 19% Europe 10% Asia and Australia LighGng revenue (£m) 116.9 44.2 63.8 120.6 83.0 • Growth in power genera>on, pulp and paper and other industrial sectors • Upstream oil and gas significantly impacted revenue growth in H1 offset by re-‐focus on downstream oil and gas in H2 • Automo>ve down from 20% in 2014 to 6% in 2015 • Obstruc>on down from 15% in 2014 to 12% in 2015 2011 2012 2013 2014 2015 Company Confidential On w hen it c o u n t s . 8 EBIT bridge Underlying EBIT bridge £1.6m New inventory provision policy (£m) On w hen it m Onatters w henmitost. m atters m ost. £1.5m Capitalised overheads from reduc>on in inventory £1.3m Produc>on overheads for indirect heads and tooling £4.4m 3% reducGon in gross margin to 35% (4.4) £1.7m (1.7) More conserva>ve approach to development costs £2.1m SG&A headcount increases 18.1 (5.9) 13.7 £1.0m Central opera>on management increases £1.1m Compliance £0.3m, Other £0.8m 12.0 £0.9m FX impact 6.1 6.1 £0.8m External consultants £5.9m Total increase in overheads 2014 Gross margin Company Confidential Development costs Overheads 2015 On w hen it c o u n t s . 9 Segmental results LighGng On w hen it Income statement m Onatters w henmitost. £m m atters m ost. Signals & Components Income statement 2015 2014 Variance Revenue 120.6 116.9 3% Direct costs (72.3) (66.1) (9%) Gross profit 48.3 50.8 Gross margin 40% Overheads £m 2015 2014 Variance Revenue 40.8 42.9 (5%) Direct costs (32.9) (33.1) 1% (5%) Gross profit 7.9 9.8 (19%) 43% (3%) Gross margin 19% 23% (3%) (41.5) (35.4) (17%) Overheads (5.2) (4.3) (30%) 6.8 15.4 (56%) EBIT 2.7 5.5 (51%) EBIT 2015 Revenue 2015 EBIT (£m) (£m) 25% 28% (2014: 27%) (2014: 26%) 75% 72% (2014: 73%) Ligh>ng (2014: 74%) Ligh>ng Signals & Components Signals & Components Note: Segmental EBIT excludes unallocated overheads of £3.4m. Company Confidential On w hen it c o u n t s . 10 Non-‐underlying costs Non-‐underlying costs £m 2015 2014 6.0 2.8 Intangible asset write down 1.0 1.3 Employee severances 1.8 0.7 Execu>ve director replacement cost 0.8 0.4 (0.5) -‐ 0.4 0.2 -‐ (3.1) Non-‐underlying costs 9.5 2.3 Of which cash costs 2.4 1.3 On w hen it Inventory m atters m ost. Seglement of legal case Other Con>ngent considera>on Company Confidential On w hen it c o u n t s . • • Impact of common produc>on plaeorms • Inventory £6.0m • Intangible asset write down £1.0m Build scalable and efficient opera>ons • Employee severances £1.8m • Execu>ve replacement cost £0.8m 11 Balance sheet Balance sheet As at 31 December (£m) 2015 2014 Variance 16.1 15.2 0.9 Intangible assets 20.0 21.0 (1.0) Net working capital 39.5 43.1 (3.6) Net (debt)/cash (3.8) 0.6 Pension provision (0.1) Tax (current & deferred) • Strong balance sheet with low gearing – 5% • Improved working capital management through a reduc>on in inventory and receivables (4.4) • £25m RCF with HSBC, plus £25m accordion (1.2) 1.1 • (0.2) (4.4) 4.2 Compliant with all covenants at 31 December 2015 Other provision (1.4) (1.5) 0.1 Net assets 70.1 72.8 (2.7) On w hen it Fixed assets m atters m ost. • Capital expenditure £m Dec-‐15 Dec-‐14 Variance Produc>on capacity 3.3 3.7 (0.4) Product development 2.5 3.5 (1.0) Capital expenditure 5.8 7.2 (1.4) • Net Debt to EBITDA 2.5:1 – tested at 0.3:1 • Interest cover 4:1 – tested at 22x Term to June 2018 Note: Gearing is calculated as Net Borrowings/Net assets excluding Net Borrowings. Company Confidential On w hen it c o u n t s . 12 Working capital and cash flow Cash flow bridge £m • Working capital absorp>on reduced by £5.4m Net cash as at 31 December 2014 0.6 • Capital expenditure of £5.8m 3.6 • Dividends paid of £3.2m rela>ng to 2014 Tax (3.9) • No dividend proposed for 2015 Dividends (3.2) • Tax payment of £3.9m, £1.4m recoverable in 2016 Net working capital 5.4 • Cash conversion of 145% Capital expenditure (5.8) Other (0.5) Net debt as at 31 December 2015 (3.8) On w hen it Opera>ng cash flow m atters m ost. Net debt Gross borrowings Cash £m Working Capital (£m) £5.4m decre ase 43.1 37.7 (9.5) 5.5 Debt issue costs (0.2) Net debt as at 31 December 2015 (3.8) Company Confidential On w hen it c o u n t s . 13 2016 cost savings Restructuring • Improved produc>on processes and global purchase management • Enhanced cash monitoring tools • Standardised product plaeorms • Closure of UK plant • Manufacturing partnership Other costs Non-‐underlying costs • Inventory and fixed asset write-‐offs Cost savings • Materials cost • Headcount • Severance payments • Produc>on overheads • Project management costs Cost of c. £12m in 2016 • Renego>ated supplier contracts CumulaGve 3 year savings of c. £12m 2016 planning assumpGons On w hen it Income m atters m ost. Statement Net interest Broadly in line with 2015 Tax rate Expected to be in the region of 34% Capex Planned spend of £8-‐10m for plant upgrades, IT & product development Cash flow Working capital Restructuring Company Confidential Broadly in line with 2015 Cost Further 2016 restructuring costs of around £12m, of which around 40% will be cash costs Benefit Ini>a>ves expected to deliver £12m cost savings in aggregate over the next three years On w hen it c o u n t s . 15 Business review Scalable and efficient to meet growth demands DifferenGated posiGon in sizeable market Focused on niche markets On w hen it m atters m ost. £70bn -‐ 100bn retrofit opportunity 31% 34% Leading Market Share1 <2% converted 5% 6% 11% 13% Dialight Major compe>tors Other compe>tors 1Within Company Confidential On w hen it c o u n t s . global heavy industrial lighting market. 17 DifferenGated technology Most energy efficient and longest life LED lighGng fixtures for industrial environments On w hen it m atters m ost. LED by design Market experience Energy efficient Pure play LED Proven to work Highest lumen/ wag Engineering and sales channels built in this market Company Confidential Ten years of installa>on proves total cost of ownership model Saves electrical cost Allows for more use of light for safety On w hen it c o u n t s . Most reliable Connected sensors Low cost of ownership Controls and sensors Virtually eliminates maintenance cost Proven in the toughest condi>ons Maximise life>me and savings Integrated with independent automa>on systems 18 New strategic framework Five strategic priori>es Rebuild On w hen it m Onatters w henmitost. m atters m ost. Lead Grow Clearly defined product roadmap to maintain technology lead and support growth Con>nue to lead in current sectors and expand into sectors where Dialight can deliver differen>ated solu>ons. Maintain a strong focus on North America while diversifying into regions where our sector advantage is strong Scalable and efficient opera>ons Lead the market in products and technology Develop common produc>on plaeorms Strategic global accounts and automa>on partners Cost effec>ve, >mely and high quality opera>ons with op>mal inventory usage Minimise component and finished goods part prolifera>on whilst delivering mass-‐customised product offering Company Confidential Tap into corporate sustainability and savings ini>a>ves with large global organisa>ons. Partner with leading facility automa>on companies On w hen it c o u n t s . Grow into new sectors and geographies 19 Scalable and efficient operaGons On w hen it m mitost. Onatters w hen Progress m atters m ost. • New senior leadership team driving change • Headcount reduc>on saving £3m per year • Focused on the growth businesses in LED ligh>ng • Signals and Components to be managed for value • More efficient opera>ons to support growth • ‘Tiger Team’ in Mexico resolved opera>ng issues • Team focused on materials procurement • Manufacturing partnership secured with Sanmina Current prioriGes • Closure and sale of UK plant • Incremental phased approach to manufacturing partnership Company Confidential On w hen it c o u n t s . 20 Develop common producGon plahorms Progress • Good progress standardising the design of certain product parts to be used as the founda>on for all finished products – ‘pla7orm engineering’ • Enabling more cost effec>ve supply chain management How it works • Completed 2 out of 12 plaeorms • Eliminated 86 out of 399 sub-‐assemblies • Customisable to over 6300 possible configura>ons • 10% reduc>on in components Common Sub-‐Assemblies • • Current prioriGes • All 12 product lines to have plaeorm design • • Leaner opera>ons Reduced obsolescence Material cost savings De-‐risked supply base Add-‐On Components • • • Made to order and customised for customer Short lead >mes Faster to market Company Confidential On w hen it c o u n t s . 21 Maintain technological lead in products On w hen it m mitost. Onatters w hen Progress m atters• mMaintained ost. leading market share through differen>ated technology • 32 new products launched in 2015 (2014: 13) • Developed a three-‐year product roadmap seqng out a >meframe for the introduc>on and development of new products, plaeorms and technologies Current prioriGes • Increase new product introduc>ons in line with the three-‐year roadmap • Improve >mely delivery of new products • Increase patent poreolio to further protect new technology Company Confidential On w hen it c o u n t s . 22 Strategic global accounts and automaGon partners On w hen it m mitost. Onatters w hen Progress m atters• mFully ost. entrenched with distribu>on networks • Direct sales to factories and corporate clients • 32% of sales to corporate driven specifica>on • Established first integra>on partnership with automa>on company • Announced Rockwell Automa>on partnership Direct sales Factory level Current prioriGes • Accelerate sales through global corporate specifica>on • Sustainability and cost-‐saving ini>a>ves • Expand partnerships with leading building management and automa>on companies Company Confidential On w hen it c o u n t s . DistribuGon networks Direct sales Corporate level MulGchannel distribuGon More routes to market AutomaGon partners 23 Grow into new sectors and geographies On w hen it m mitost. Onatters w hen Progress m atters m ost. • Diversifica>on into other market sectors • Power genera>on, pulp and paper • Strong Ligh>ng revenue growth of 23% in Asia and 34% in Australia Current prioriGes • New niche markets • Examples: Ins>tu>onal, portable industrials and transport (rail, tunnels and ports) • New territories • Rebuilding presence in Europe • Exploring expansion in China, Japan, Korea and India • Establish interna>onal technology centres focused on local engineering and customer service and regional cer>fica>ons Company Confidential On w hen it c o u n t s . 24 Most energy efficient and longest life LED lighGng • Refreshed senior team with clear strategy to -‐ rebuild, lead, grow • Pure play in LED ligh>ng -‐ compeGGve advantages built over a decade • Differen>ated offering -‐ proven technology, low cost of ownership • Clear market leader -‐ 34% share On w hen it m Onatters w henmitost. • Large growth market -‐ £70bn -‐ £100bn LED conversion opportunity m atters m ost. LED by design Market experience Energy efficient Most reliable Connected sensors Pure play LED Proven to work Highest lumen/waj Low cost of ownership Controls and sensors Company Confidential On w hen it c o u n t s . 25 Outlook On “In October 2015 we set out a new strategy to return the business to sustainable, profitable growth. w hen it m Onatters w henmitost. m atters m ost. We are making progress in 2016, having established our first manufacturing partnership as well as securing our first automaGon partnership. Although the economic outlook remains uncertain, there are a number of ini>a>ves underway and we are targeGng underlying EBIT growth in 2016. We are confident in the Group’s outlook over the medium to long-‐term.” Company Confidential On w hen it c o u n t s . 26 On when it counts Q&A Disclaimer Certain statements included or incorporated by reference within this presenta>on may cons>tute “forward-‐looking On statements” w hen it in respect of the Group’s opera>ons, performance, prospects and/or financial condi>on. m atters m nost. By their ature, forward-‐looking statements involve a number of risks, uncertain>es and assump>ons and actual results or events may differ materially from those expressed or implied by those statements. Accordingly, no assurance can be given that any par>cular expecta>on will be met and reliance should not be placed on any forward-‐looking statement. Addi>onally, forward-‐looking statements regarding past trends or ac>vi>es should not be taken as a representa>on that such trends or ac>vi>es will con>nue in the future. No responsibility or obliga>on is accepted to update or revise any forward-‐looking statement resul>ng from new informa>on, future events or otherwise. Nothing in this presenta>on should be construed as a profit forecast. This presenta>on does not cons>tute or form part of any offer or invita>on to sell, or any solicita>on of any offer to purchase any shares or other securi>es in the company, nor shall it or any part of it or the fact of its distribu>on form the basis of, or be relied on in connec>on with, any contract or commitment or investment decisions rela>ng thereto, nor does it cons>tute a recommenda>on regarding the shares and other securi>es of the company. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Statements in this presenta>on reflect the knowledge and informa>on available at the >me of its prepara>on. Liability arising from anything in this presenta>on shall be governed by English Law. Nothing in this presenta>on shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws. Company Confidential On w hen it c o u n t s . 28