Dialight Plc · LSE:DIA
Dialight — H1 2018 Earnings Presentation
29 slides from Dialight's earnings presentation, Jul 30, 2018
Slide 1: 2018 Half Year Results
2018 HALF YEAR RESULTS 30 JULY 2018
Slide 2: Key Points H1 2018
KEY POINTS H1 2018 OPERATIONAL ISSUES HIGHEST PRIORITY IN H1 REDUCE LEAD SIGNIFICANT READY FOR Q4 TIMES TO NORMAL PROGRESS MADE DEMAND SPIKE LEVELS TRANSITION FROM RECOVERY TO GROWTH Private and confidential 2
Slide 3: Operational Highlights
OPERATIONAL HIGHLIGHTS REDUCED LATE ORDERS BY 60% Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Total late orders SIGNIFICANT INCREASE IN Q4 PRODUCTION CAPACITY Q1 2018 Q2 2018 Q3 2018 Q4 2018 External capacity Internal capacity Private and confidential 3
Slide 4: Financial Review
FINANCIAL REVIEW FARIYAL KHANBABI Private and confidential
Slide 5: Financial Summary – H1 as Expected
FINANCIAL SUMMARY –H1 AS EXPECTED Revenue Underlying EBIT Net cash £92.7m £6.5m £12.7m £80.1m £7.3m £2.9m H1 2017 H1 2018 H1 2017 H1 2018 H1 2017 H1 2018 35% £2.8m 6.4p Underlying Underlying profit Underlying gross margin before tax basic EPS Private and confidential 5
Slide 6: EBIT Bridge
EBIT BRIDGE Impact of revenue decrease (£1.8m) Dual running costs £6.5m (£0.9m) (£3.5m) £2.6m Operating costs £2.9m 2.9 $ Foreign exchange £ H1 2017 H1 2018 Private and confidential 6
Slide 7: Lighting
LIGHTING Lighting Reported currency Reported currency £m H1 2018 H1 2017 Variance H2 2017 Variance Revenue 59.3 72.4 (18%) 65.1 (9%) Gross Profit 22.0 30.6 (28%) 23.7 (7%) Gross margin 37% 42% -500bps 36% +100bps Overheads (18.7) (23.1) 19% (20.0) 7% EBIT 3.3 7.5 (56%) 3.7 (11%) Gross margin bridge
Slide 8: Lighting Order Intake
LIGHTING ORDER INTAKE The Americas • Operational issues impacted lead times • Large projects not bid for Order intake (18%) • Lower distributor inventory • Continued strength of sales team £71m EMEA £64m • Narrow product range served from inventory on hand +22% • New sales team H1 2017 H1 2018 • Inc
Slide 9: Signals and Components
SIGNALS AND COMPONENTS Revenue Gross margin Underlying EBIT 30% £2.2m £20.3m £20.8m 28% £1.6m H1 2017 H1 2018 H1 2017 H1 2018 H1 2017 H1 2018 2% 38% Revenue growth 200 bps Improvement in EBIT Improvement in gross margin 12% 69% At constant currency At constant currency Private and confidential 9
Slide 10: Cash Bridge
CASH BRIDGE Operating cash £3.5m (£9.0m) Inventory increase £12.8m Raw material increase £7.3m due to Ensenada commencing High Bay production 2017 H1 2018 Private and confidential 10
Slide 11: H2 2018 Planning Assumptions
H2 2018 PLANNING ASSUMPTIONS c.25% £1m - £2m c.£7m Group tax rate Savings in cash tax costs Capital investment Net interest Broadly in line with 2017 INCOME STATEMENT Tax rate c25% c.£7m for plant upgrades, IT Capex & product development CASH FLOW Increased inventory levels as Working capital Ensena
Slide 12: Business Review
BUSINESS REVIEW MARTY RAPP Private and confidential
Slide 13: Operational Highlights
OPERATIONAL HIGHLIGHTS 60% 83% 35% % improvement in level of late % increase in total lighting On time delivery at Ensenada orders production volumes Currently producing, 37% lighting volume at Ensenada; available capacity to move all remaining assembly operations if required Private and confidentia
Slide 14: Manufacturing Partner Performance
MANUFACTURING PARTNER PERFORMANCE Weekly production units Overdue units On time H1 2018 H1 2018 delivery 51% 48% Highbay Total 2017 H1 2018 Product lines transferred early 2017 returning to normal on time Production units remains flat over delivery H1 2018 H1 2018: 3% improvement High Bay line overd
Slide 15: Ensenada Performance
ENSENADA PERFORMANCE Production units Overdue units On time H1 2018 delivery 83% * 75% Q4 2016 Jun-18 Q3 2018 Q4 2018 2017 H1 2018 Capacity for all lighting assembly High Bay production commenced in June 2018 H1 2018: 8% Multiple suppliers of sub Overdue orders transferred from improvement assemblie
Slide 16: Upgrades at Our Ensenada Facility
UPGRADES AT OUR ENSENADA FACILITY PEOPLE • Upgraded operations leadership • Labour force skilled in complex assembly process • Enhanced sustaining engineering on site PROCESSES • Improved shop floor controls – upgraded manufacturing practices • Improved Sales and Operations Planning process • Improv
Slide 17: Outsourcing
OUTSOURCING Initial Outsourcing Hybrid assumptions Labour efficiencies Increased assembly time Increased on time Reduce assembly times by 20% delivery targeted at by 45% 90% Material cost savings Dialight material cost Improved gross Reduction of 10% reductions only margins >40% Private and confiden
Slide 18: Hybrid Manufacturing Model
HYBRID MANUFACTURING MODEL External Finished goods Machining Cable harness PCBAs &Painting • Internal capacity for assembly of all Select sku inventory Internal Final assembly lighting products Final assembly and supply chain management • Qualified sub assembly suppliers for Ensenada and Penang faci
Slide 19: From Recovery to Growth
FROM RECOVERY TO GROWTH From To Current Business Future Direction • Inwardly focused • Strongly positioned for fast • Centralised functions growth • Move to contract • Leaders in innovation manufacturing impacted • Adjacent products to product leadership position enhance customer offering • Strong m
Slide 20: Regional Emphasis – To Support Local Expansion
REGIONAL EMPHASIS –TO SUPPORT LOCAL EXPANSION OPERATIONS ENGINEERING • Regional assembly facilities • Global technology leadership • Global purchasing with local delivery deployed regionally • Fulfilment from regional hubs • Dialight design rules • Regional customer service • Increase speed to marke
Slide 21: Opportunity – Extend Product Range to Our Existing Customers
OPPORTUNITY – EXTEND PRODUCT RANGE TO OUR EXISTING CUSTOMERS Core product offering in hazardous environments of the heavy industrial space Dialight £0.5b £0.5bn current market n Expand our offering to provide a more competitive product for the lighter Potential £1.8b £2bn expanded market industrial
Slide 22: Summary
SUMMARY • Corrective actions yielding results, benefits in H2 • Transfer to own facilities running efficiently - good on time delivery • Reliance on manufacturing partner significantly reduced • As previously guided, 2018 results heavily weighted to H2 • Industrial LED market opportunity largely unt
Slide 23: Questions
Questions Private and confidential 23
Slide 24: Outlook
OUTLOOK We have taken targeted actions to improve our operational performance, reducing late orders significantly since the start of the year. This improvement is primarily due to moving an increasing proportion of our product assembly back in-house. On-time delivery and cost performance of our inte
Slide 25: Disclaimer
DISCLAIMER Certain statements included or incorporated by reference within this presentation may constitute “forward-looking statements” in respect of the Group’s operations, performance, prospects and/or financial condition. By their nature, forward-looking statements involve a number of risks, unc
Slide 26: Income Statement
INCOME STATEMENT Variance £m Constant H1 2018 H1 2017 Reported Currency Revenue 80.1 92.7 (14%) (7%) Cost of goods sold (51.8) (56.5) Gross Profit 28.3 36.2 (22%) (16%) Distribution costs (15.0) (17.4) Administrative expenses (10.4) (12.3) Underlying EBIT 2.9 6.5 (55%) (49%) Non-underlying costs - (
Slide 27: Market Segments
MARKET SEGMENTS H1 2018 H1 2017 Obstruction 14% 13% Food & Beverage 8% 7% Heavy industrial 13% 14% Mining 11% 9% Oil & Gas 20% 18% Power 8% 8% Pulp & Paper 10% 8% Other industrials 16% 23% 100% 100% Private and confidential 27
Slide 28: Signals and Components
SIGNALS AND COMPONENTS Signal & components Actual currency Constant currency £m H1 2018 H1 2017 Variance H1 2017 Variance Revenue 20.8 20.3 2% 18.6 12% Direct costs (14.5) (14.7) (13.5) Gross Profit 6.3 5.6 13% 5.1 24% Gross margin 30% 28% +200bps 27% +300bps Overheads (4.1) (4.0) (3%) (3.8) 8% EBIT
Slide 29: Cash Flow
CASH FLOW £m Net cash at 31 December 2017 12.8 EBITDA 5.1 Net working capital excluding inventory 3.1 Increase in inventory (9.0) Capex (2.3) Taxes (1.2) Provisions and other movements (1.2) Net cash at 30 June 2018 7.3 Private and confidential 29