Dialight overall group revenues 29% higher than prior year

Dialight plc (LON:DIA), the global leader in sustainable LED lighting for industrial applications, has announced its unaudited preliminary results for the year ended 31 December 2022.

Financial summary2022£m2021£m
Underlying profit from operating activities5.04.5
Profit from operating activitiesProfit after tax2.
Statutory EPS – dilutedAdjusted EPS* – diluted1.2p7.3p0.9p6.4p
Pre-IFRS16 Net debt(20.9)(15.7)

Key points

·      Overall Group revenues in 2022 were 29% higher than the prior year (17% at constant currency):

·      Lighting revenues up 34%, with orders up 23%

·      Underlying operating profit increased to £5.0m (2021: £4.5m), which was lower than initially expected due to weaker orders in the very important December trading period

·      Gross margin fell to 32.2%, reflecting significant cost inflation and supply chain disruption (2021: 35.7%)

·      Net debt of £20.9m (1.7x LTM EBITDA), driven by higher inventory levels

Fariyal Khanbabi, Group Chief Executive, said:

“We made important strategic progress which was reflected in significant sales growth driven by strong demand for our sustainable lighting products. However, the markets we operate within became increasingly difficult during the year due to significant price inflation and continued global supply chain disruptions, which impacted our gross margins. Whilst these headwinds remain, we believe that they are in most cases transitory, and we expect to see some alleviation in H2 2023.

The strong growth in Lighting orders demonstrates the increasing relevance of our products as energy efficiency became more urgent. We deliver innovative and sustainable lighting solutions to our customers and continue to make progress towards driving our impact on the environment and society.”

*Adjusted earnings excludes non-underlying items (see note 3) and allocates tax at the appropriate rate (see note 5)

Full year results presentation

The 2022 full year results presentation can be found at: https://www.dialight.com/ir/reports-news/


1.     Net debt excludes lease liabilities under IFRS 16

2.     Underlying profit from operating activities and underlying EBIT are the same measures

3.     Constant currency impact is calculated by re-translating the prior year numbers at the exchange rate prevailing in the current year.

4.     Cautionary Statement: This announcement contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Dialight plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as ‘intends’, ‘expects’, ‘anticipated’, ‘estimates’ and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Dialight plc believes that the expectations will prove to be correct. There are a number of factors, many of which are beyond the control of Dialight plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. This announcement contains inside information on Dialight plc.


We made important strategic and operational progress during the year, achieving revenue growth of 29% against exceptionally challenging market conditions, increasing our penetration of Tier 1 customer accounts and making over £3.0m of operating cost savings. Total revenue growth at constant currency was 17%, achieved through a combination of volume (11%) and price (6%) increases. The volume growth reflecting both an increase in market share, as well as expanding our market reach. The Maintenance, Repair and Operations (MRO) market remains generally robust, but we experienced a slowing of larger capex projects, particularly in the fourth quarter, owing to labour and material shortages. Combined with the distribution channel reducing their inventory levels, this had a significant impact on the final month of trading.

Positively, the structural demand for our products continued to increase as energy efficiency became a higher priority agenda item for businesses, accelerated by the energy crisis which commenced during 2022. This strengthened our competitive position as we executed on our strategic priorities. We developed innovative and sustainable new lighting solutions for our customers and continued to make progress towards driving a more positive impact on the environment and society.


Overall Group revenues in 2022 were 29% higher than the prior year (17% constant currency). Underlying operating profit was £5.0m, compared to £4.5m in 2021, which was lower than initially expected, due to weaker orders and deliveries in the very important December trading period.

Gross margin reduced to 32.2% (from 35.7%) reflecting a number of headwinds during the year. Our supply chain was severely impacted by significant inflation, component shortages and continued challenges in shipping times and cost. Microchip availability was particularly problematic as suppliers struggled to deliver either on time or in the required volumes. We focused considerable resources to sourcing and testing alternative components and suppliers, which enabled us to successfully overcome shortages, albeit this impacted gross margin. The impact of increased material costs and expedited freight costs accounted for 4.3% of the reduction in gross margins.

Our gross margins were further impacted by increases in the minimum wage in Mexico of 23%. There were also inefficiencies in our labour utilisation due to the component shortages. This impacted gross margin by 0.9%.

Our operational performance during 2022 made key improvements despite supply chain headwinds.   We were able to partially offset the increased material and labour costs by generating 1.8% of production efficiencies. These were generated by reduction in consumables, standardisation in our packaging and investments in automation. Our on-time delivery was 77%, above the current industry standard, and we achieved customer lead times of three weeks, supporting our revenue growth.

Lighting order growth in 2022 was 23% (constant currency 11%) with all regions reporting growth over the prior year. The majority of Lighting order growth was generated in our core US market which increased by 30% (constant currency 17%), with EMEA increasing by 53% (constant currency 38%). APAC increased by 7% (constant currency -3%). Obstruction orders fell by 28% (constant currency -35%) as higher steel prices led to lower levels of tower construction.

Signals & Components is a high-volume business operating within highly competitive markets. This business segment had exceptional growth during COVID-19 but has since normalised. Within this division, opto-electronic component orders fell by 13% as the market reduced the level of inventory in the channel. After two years of growth, a market correction was expected, but the level of cancellations in Q4 were higher than forecast.

As a result of the supply chain shortages, we increased our inventory to mitigate the challenges we faced. We have taken a number of actions in the second half of the year to reduce the levels of raw materials held, which has resulted in raw material inventory levels being broadly flat year on year and 9% down on a constant currency basis.

Market conditions

We operate within the industrial LED lighting market and our future will be determined by the trends within this space. The advances we have seen over the last ten years in terms of efficiencies and controls are all building a path to a more sustainable fixture. Older technologies have become more expensive to maintain while LED fixtures use 75% less energy and last 25 times longer, compared with HPS/fluorescent lighting. In the US alone there are more than 144 million industrial lighting fixtures in 455,000 facilities. With existing industrial carbon emissions in the US estimated at c. 2 billion metric tonnes per annum, high-efficiency LED lighting provides an immediate and sustainable reduction in emissions. That is a compelling proposition when companies and global economies are mapping their pathway to achieve their net zero targets.

The macro-economic backdrop presents considerable uncertainty, and we continue to take an active approach to targeting market niches with more resilient demand dynamics and where growth is driven by structural, safety, regulatory and sustainability factors.  

The Group’s natural resource markets in oil & gas and mining are expected to show solid demand in the short to medium term. Global energy market shortages have seen an expansion in oil extraction activity, with US onshore drilling up 60% year over year, and with three times the number of rigs in service from two years ago.  Mining customers are benefitting from the demand for Lithium and Nickel in battery production, which should benefit our customers in Australia.

The Group is also seeing increasing success, led by the strategic sales team, in expanding its customer base into a wider range of process industries including aerospace, electric vehicle and food & beverage. Facilities in these markets can be very significant and often have demanding operational requirements which lend themselves to Dialight’s highly engineered lighting product range.


Dialight’s core strengths centre around our products and a long history of innovation within the industrial lighting markets. Our fixtures meet the needs of our customers to enhance safety, reduce energy and maintenance costs and critically, help them achieve their corporate objectives of being carbon net zero. Our products also provide the best cost of ownership to industrial customers, with paybacks based on energy savings and maintenance cost avoidance. Our in-house custom designed power supply is the key to our market leading 10-year warranty and field reliability. Our optimised optics ensure improved light illumination, providing uniformity and quality whilst enabling our customers to use fewer lights to illuminate the target area. Their integrated design significantly reduces the burden of installation and maintenance. Our products have the ability to withstand extreme environmental conditions such as very high or low temperatures, humidity, high vibration, and corrosive environments. The addition of sensors and controls brings an additional element to the value proposition for our customers.

Our overall strategy is focused on organic growth underpinned by product innovation. We have three key objectives:

•       Convert our core heavy and harsh industrial markets — by expanding our routes to market, emphasising our product innovations and sustainability credentials.  We believe that sustainability will be a major driver in the conversion to LED and this has accelerated post COVID-19 with a return to corporate discretionary spend. Dialight will continue to grow its leading position through market share gains in MRO together with capex projects as the market recovers.

We continue to identify and successfully engage with new key accounts through our strategic sales team. In particular, increased targeting of EPC/engineering firms and electrical contractors. We are continuing to work on strengthening our branding and focusing on vertical market applications, with good progress made during the year.

·        Improve margins – through continued cost improvements and manufacturing efficiency programmes supported by supply chain development. By reducing the cost, weight, and size of our products we can improve our competitiveness and improve our overall margins. Over the past two years, we have successfully reduced the cost of our High Bay, 60K High Bay and Area Lights. Besides design-based cost reductions, we believe there are further cost reductions through strategic supply chain sourcing and value-added engineering to improve our manufacturing processes.    

We are also focused on simplification of our products in order to reduce costs and improve lead times.  At the start of 2022, Dialight had 8,800 active finished good SKUs, and approximately 64,000 active components. Our initiatives over the past year have been to remove legacy finished SKUs from the database to simplify operational planning.  We have standardised components within our product lines to reduce the complexity of sub-assembly management. At the end of 2022 we had reduced the active finished goods SKUs by 24%. Following on from standardising our mainstream Vigilant High Bay in 2021 we continued with the hazardous version resulting in 99% of our highest running product family being upgraded to the third-generation power supply. During the year we have also upgraded 92% of our Area Light family to our third-generation power supply.

We are dual sourcing components to mitigate the risk of component shortfalls which significantly impact on operational efficiency. Out of our total active components, 588 are deemed to be critical in nature. To date we have dual sourced 248 parts with 340 remaining. We will continue to develop alternate sources and vendors for critical components and regionalise supply of components where possible, using VMI and consignment stocks. In conjunction with our dual sourcing plan, we will develop and implement a regionalisation strategy to reduce the business risk directly related to sourcing from the Far East. While these challenges are expected to continue for some time, we will continue to mitigate their impact.

These actions will support the achievement of our targeted £5m reduction in inventory in 2023, with further inventory reductions expected in later years.

Our focus will continue to be on further improvements in efficiency and mitigation of increasing labour costs. We plan to automate our sub-assembly operations which will improve our efficiency and cost base over time.

•       Product innovation – we continue to lead the market in innovation. Our next generation of technology is heavily focused on building on the sustainability needs of our customers, with the goal to have the first fully recyclable industrial LED lighting fixture. Our “source and sell” initiative will address the 20% of the customer lighting schedule that is not highly specified. This initiative protects our market leading position with key strategic accounts and increases our relevancy to the large accounts we are targeting.

Strategy execution in 2022

Organic growth remains a key focus, both in terms of penetrating the MRO market, but more importantly delivering significant capex projects as end customers increase their expenditure on lighting over the longer term. This encompasses three strands:

Strategic sales focus

The new strategic sales team are focused on building relationships with key large corporates, primarily in the US. This is a longer-term activity particularly focused on new customers, so prospects will take time to develop into initial orders and then gain preferred supplier status. The team has already won several multi-million-dollar orders for major US corporates. There is a sizeable pipeline of opportunities, however predicting when these orders will come is challenging in the current economic climate. To date we have secured 11 strategic accounts with whom we are the preferred supplier.

Expanding routes to market

Expanding our market reach is key to wider penetration and growth of our market share. We continue to make strong inroads, developing new distribution partners along with a focus on the contractor market. We signed over 37 new distribution partners along with engaging with an additional 80 distributor locations in the US alone. We have developed over 30 new contractor relationships, expanding our routes to market. Another key milestone has been re-joining Affiliate Distributors which is a members owned group that brings growth orientated distributors and best in class suppliers together, with a view to outperforming the market and staying ahead of the competition.

Enhanced product range through innovation

Our new product platforms launched in the past two years are expected to further strengthen our position within our heavy industrial verticals. These product platforms are the Ultra-Efficiency High Bay, the GRP Linear, the new Bulkhead, and new Flood lights. In addition, we have launched two source and sell product lines (Wall-Packs and emergency lighting). We have received £22.4m in orders from products launched in the past two years. These products have been critical in advancing our technological lead and provide the best cost of ownership within the markets we operate within.

Sanmina litigation

As previously disclosed, Dialight is involved in ongoing litigation with Sanmina Corporation, following the termination in September 2018 of the manufacturing services agreement (MSA). The Board is pleased to note the Federal court ruling on 14th March 2023 that the strength of evidence on our claim of fraudulent inducement, together with various claims and counter-claims relating to accounts receivable and accounts payable, is sufficient that the dispute should be resolved by jury trial, pending any appeal process. This ruling confirms that Dialight can challenge the contractual liability cap in the MSA on the basis of Sanmina’s fraudulent inducement and Dialight intends to rigorously pursue this claim, and the various other contract-based claims, to trial.

Purpose and sustainability

Sustainability is at the heart of everything we do, from product design to material sourcing and the way we operate the business.

Our products provide an easily achievable opportunity to reduce carbon emissions in the near-term by utilising our ultraefficient LED technology that generates up to 75% less emissions than legacy lighting. The time value of carbon reductions[1] is magnified by the pace at which the industrial world embraces a significant adoption of LED lighting. The lights sold in 2022 will generate avoided emissions of 2.1m tonnes over their lifetime and help our customers achieve their emission reduction goals. Our sustainable solutions have been recognised by the Lighting Council of Australia in their inaugural awards in 2022.

Over the past two years we have invested significant time in understanding our existing carbon impact and how to use R&D to reduce that impact in the design of our products and the choice of materials. We continue to recycle packaging from upstream and as much by-product of production as possible. We also target downstream end-of life recycling through the use of partnerships on a geographic basis.

In 2020, we carried out our first full Green House Gas (GHG) inventory and this will form the base year for our SBTi Net Zero targets which will be submitted during H1-2023. Dialight’s internal processes are low intensity with most of the more intense processing happening upstream. Nonetheless, in the interim, we established Scope 1 & 2 reduction targets and water consumption targets, both on an intensity basis. The targeted reduction for Scope 1 & 2 was 3% and we achieved 9%; the target for water consumption reduction of 5% was also surpassed at 21%.

Dialight engages with the Carbon Disclosure Project where we achieved a B rating for climate change and B- for water security, plus an EcoVadis rating of silver. We are members of the Clean Lighting coalition which seeks to ban the use of mercury in lighting and because our products are mercury free, we have been assessed by FTSE Russell as having 100% green revenue. 

The Dialight Foundation continues to enhance the communities where we operate by supporting local initiatives with funding and donated time. The specific focus areas are women’s rights and educational support for children. To this end, we have continued our support of the Women’s Earth Alliance and a local orphanage in Ensenada, Mexico. In addition, the Foundation also has a hardship fund which can be accessed by staff facing unforeseen expenses.

As a business at the leading edge of industrial LED technology, people are at the heart of our business. We support all our people by creating a safe, inclusive environment, where every individual is able to work and contribute to the development of the business. Having engaged, motivated, empowered and appropriately skilled employees is integral to our success. Developing a high performing and inclusive culture is a key enabler in our ability to deliver strategic growth. Our position as a long-term presence in our operating locations is reflected in the range of long service awards around the globe, ranging from 10 years in Malaysia to 50 years in the USA.

Our target of zero accidents at all our sites is a morally responsible business objective. As a producer of lighting that is used in heavy industrial and hazardous locations, our safety focus extends beyond our own staff to those of our customers. In our own operation in 2021 there were no recordable incidents but regrettably in 2022 there were five. Dialight production is mainly light engineering and assembly, so these incidents are typically strains and sprains, sustained where operating procedures were not correctly followed, or PPE not used. We take these incidents very seriously and have provided re-training where necessary to prevent recurrences. Despite the increase in recordable incidents, two of our plants have not recorded any incidents in the past two years.

Dialight is committed to always conducting its business in an ethical and responsible manner, and in full compliance with all applicable laws and regulations. All employees and all third parties who act on the Group’s behalf are required to comply with our standards of behaviour and business conduct, as set out within the Code, and applicable laws and regulations in all of the countries in which we operate. In 2022 we undertook a survey of our top 30 suppliers (c. 70% of supply chain value) to establish whether they had sustainability ratings and to understand their sustainability processes and due diligence processes in more detail.

As a sustainability solution provider to our customers, our business is primarily focussed on the opportunity that arises from the transition of the industrial market away from traditional lighting and towards LED as an alternative. Hence, the requirements of TCFD dovetail with the existing business framework. The largest opportunity lies in the scale and speed of increases in market adoption of LED. There are some smaller efficiency and logistic opportunities that could also be realised in the process.

The business strategy of growth will result in increasing the avoided emissions for our customers which outweigh the emissions from using our fixtures by a factor of 1.6x. Since we started the Lighting segment, we have helped our customers avoid c. 20m tonnes of carbon emissions, significantly reduce their operating costs and increase the safety of their facilities. Our values are designed to ensure that our sustainability solution is underpinned by a sustainable business model.


The macroeconomic outlook remains challenging, and we expect global supply chain disruptions to continue in the short term. We expect to see some alleviation in H2 2023.

We expect to continue to grow our Lighting business demonstrating the increasing relevance of our products as energy efficiency becomes more urgent. This is underpinned by a clear organic growth strategy, solid order book, and a strong pipeline of projects. Longer term, we see significant opportunity as the established leader in the heavier industrial lighting market.


2022 saw strong revenue growth of 29% (17% in constant currency) driven by strong customer demand across both business segments and a robust order book at the start of the year. This growth was delivered against the backdrop of a challenging supply chain with component shortages and significant cost increases, particularly in H2, that were only partially mitigated by price increases. Availability and supplier reliability impacted production and lead times to customers, but the situation is improving. The result was a decline in the gross profit margin by 350bps to 32.2%, despite strong cost control on all non-revenue linked activity.

The Group delivered a reported profit from operating activities of £2.3m, an improvement of 10% (£0.2m) over the 2021 profit of £2.1m. After increased debt financing costs, the profit for the year was £0.4m, an increase of 33% (£0.1m) over 2021. On an underlying basis the Group delivered EBIT of £5.0m (see note 3 for items regarded as non-underlying), up 11% on 2021.

The underlying EBIT bridge for the year-on-year movement is:

Underlying EBIT bridgeCCY 2022£mActual 2022£m
Underlying EBIT 20214.74.5
Revenue increase impact9.013.6
Change in gross margin(6.0)(6.0)
Change in SG&A costs(2.7)(7.1)
Underlying EBIT 20225.05.0

Strong revenue growth in both segments delivered a £9.0m increase in gross profit. However, 2022 saw significant increases in key raw material costs (particularly in H2), increased freight costs and increased Mexican employment costs linked to minimum wage rate rises. These were only partially offset in the period by price increases, cost reduction programmes in key Lighting products and operational leverage due to increased production volumes and resulted in a lower gross profit margin of 32.2% compared to 35.7% in 2021. Selling, General and Administrative costs increased to support the near and longer-term growth in revenue and include exchange losses on US dollar borrowings. As a percentage of revenue, costs at 29.2% were lower than last year.

Lighting revenue grew by 34% (23% at constant currency), with our core US market seeing increased levels of project and MRO business, although December did not see the traditional end of year uplift in sales and orders. Our closing order book was lower than anticipated but we are starting to see this build again. EMEA and Asia grew revenue with customer demand increasing as COVID-19 restrictions eased and delayed projects re-commenced, but Australia revenue was lower following a strong performance in 2021, with restrictions impacting customer site access for a large part of the year and larger projects being delayed. These restrictions have been lifted and performance is expected to improve in 2023.

Signals & Components performed well with revenue up 18%, (7% at constant currency) driven by strong demand for opto-electronic (OE) product. The cyclical OE market has been strong for two years and is now going into an expected downturn.

Operations had another challenging year. While disruption from COVID-19 and government restrictions reduced, world-wide shortages of key components continued to severely impact our supply chain along with significant increases in shipping times and availability. To mitigate the impact, the Group increased stocks of raw material in H1 but in H2 actions were taken to reduce holdings, leading to raw material inventory levels being broadly flat year-on-year at December (down 9% ccy). The provision for excess or obsolete raw material inventory increased in 2022 by £2.0m, partly due to the decision to move to an aged-based method of calculation.

Net debt increased by £5.2m to £20.9m with a higher level of finished goods inventory and adverse movements in the USD exchange rate. At December, the Group had access to £7.5m in undrawn facilities and £1.7m in cash.

Currency impact

Our major trading currency is the US Dollar (87% of revenue) due to the size of our US business and the use of USD as a contract currency elsewhere in the world. The Group reports its results in Sterling, and this gives rise to translational exposures on the consolidation of overseas results.

Transactional exposure is where the currency of sales or purchases differs from the local functional currency. We use natural hedging on revenue and purchases to mitigate the majority of the currency risk and forward contracts on a currency specific basis. The average US Dollar rate against Sterling strengthened to 1.24 from 1.38, a favourable impact of 10% with the year-end spot rate with the US Dollar rising by 11% to GBP: USD 1.21.

In constant currency, Group revenue grew by 17% with gross profit up 6% (versus 29% and 16% at actual rates). Underlying EBIT grew by £0.5m at actual currency rates and £0.3m at constant rates.


Lighting2022£m2021£m Variance %2021 at constant currency£mConstant currency variance %
Gross profit40.633.7+20%36.9+10%
Gross profit %33.6%37.2%-360bps37.3%-370bps
Underlying EBIT6.95.3+30%5.7+21%

The Lighting segment saw continued strong growth in 2022, with revenue up 34%. Lighting represents 71% of the Group’s revenue (2021: 69%), and consists of two main revenue streams, large retrofit projects and on-going MRO spend.

US revenues saw strong growth of 37% with the region benefitting from a high opening backlog of orders supported by price increases implemented in H1. We continued to gain market share in the MRO market, saw an increase in the number of sales to retrofit projects and started to see orders generated from the strategic sales team. However, revenue was significantly below our expectations in December, reflecting seasonal demand being below historic levels as well as several strategic customers deferring anticipated orders. Margins reduced in the year due to the challenges of increased material and freight costs, negated in part by operational efficiencies resulting from the capital investment.

EMEA revenue grew by 36% as COVID-19 restrictions lifted, with orders up 53% driven by new product launches. 2023 will see the benefit from price increases implemented in Q4 that will help offset the impacts from economic headwinds.

Following two years of strong growth, Australia suffered from lockdowns and close contact rules that reduced the ability of contractors and our sales teams to get on site, which reduced both sales (4%) and order intake (5%). With the relaxation of restrictions, we are seeing improved enquiry and MRO rates. Revenue growth rates are expected to increase in 2023, with improved product availability following transfer of more production to Penang and the benefit from recent price rises.

Asia, our smallest region, saw revenue grow by 133% to £3.4m as restrictions lifted with strong order growth at 60%. Activity levels remain excellent, with several larger projects under discussion and a strong backlog going into 2023.

Gross margins came under pressure from significant component price increases and a lack of availability, especially for aluminium, microchips, electrical components, and high freight costs. This particularly impacted H2 and was partially offset by the benefits from better fixed overhead absorption (higher production volumes) and cost saving programmes on key products. Sale prices for new orders were raised on two occasions but there is a lag before their benefits are realised in revenue and the overall impact saw margin falling to 33.6%, a reduction of 360bps on 2021.

Operating costs were £5.3m higher than 2021 with higher sales and marketing (including commissions) to support the strong revenue growth as well as engineering costs to support sourcing and testing of alternative critical components. As a percentage of sales, overheads fell from 31% of revenue to 28% in 2022.

This resulted in an underlying operating profit of £6.9m, compared to a profit of £5.3m in 2021.

Signals & Components

Signals & Components2022£m2021£mVariance %2021 at constant currency£mConstant currency variance %
Gross profit14.013.3+5%14.8(5)%
Gross profit %28.7%32.4%-370bps32.4%-370bps
Underlying EBIT5.75.5+4%6.4(11)%

Signals & Components is a high-volume business operating within highly competitive markets. There are three main elements to this business: traffic lights, opto-electronic (OE) components and vehicle lights.

The segment performed strongly during 2022 with revenue up 18% (7% at constant currency), helped by the strong order book carried from 2021. Continued high customer demand drove OE revenue up 21%, with increased sales of new products and expansion of our distributor footprint. OE is a cyclical business and the past two years have seen strong volume growth driven by customer concerns over supply chain instability. H2 saw the expected downturn in orders and revenue, which is expected to continue into 2023 as customers work through their raised inventory levels.

Traffic improved by 9% with higher orders placed ahead of price increases and changes to our shipping costs policy. Vehicle grew by 22%, despite the impact from curtailed bus production due to supply chain shortages.

Gross margin fell by 370bps driven by increased input prices for raw material and components, particularly in H2. Pricing has been raised for new orders, but the high level of committed customer orders and contracts resulted in only limited benefit in H2. Overheads increased by £0.5m to £8.3m due to foreign exchange movements but fell as a percentage of revenue.

The benefit from improved revenue was largely offset by the lower gross margin and resulted in an underlying operating profit of £5.7m compared to £5.5 in 2021.

Central overheads

Central overheads comprise costs that are not directly attributable to a segment and are shown separately. In the year, these totaled £7.6m, an increase of £1.3m (£0.2m at constant currency) due to a combination of foreign exchange movements, underlying inflation, annual pay awards and increased travel following the lifting of COVID-19 restrictions.

Non-underlying costs

Non-underlying costs 2022£m2021£m
Sanmina costs1.02.9
Development cost impairment1.3
Release of warranty provision post sale(0.3)
Other litigation costs0.4(0.2)
Cash impact1.42.4

To give a full understanding of the Group’s performance and aid comparability between periods, the Group reports certain items as non-underlying to normal trading. These are summarised above, and further details are in note 3.

Costs of £1.0m were incurred in the year in relation to the ongoing litigation with Sanmina Corporation, following the termination in September 2018 of the manufacturing services agreement (MSA). Following unsuccessful mediation at the beginning of the year, Sanmina lodged a motion for summary judgement to dismiss the majority of Dialight’s claim. The detailed evidence from both parties was examined by Federal judge and the Court’s ruling on Sanmina’s dismissal motion was released to the parties under seal on Tuesday 14 March 2023. The court denied Sanmina’s motion to dismiss Dialight’s fraudulent inducement claim and denied its motion for summary judgment on Sanmina’s accounts receivable claim. The court granted Sanmina’s motion as to the dismissal of Dialight’s willful misconduct claim. The judge ruled that the strength of the evidence on the fraudulent inducement claim, together with various claims and counterclaims relating to accounts receivable and accounts payable, is sufficient that the dispute should be resolved by jury trial, pending any appeal process.

This ruling confirms that Dialight can challenge the contractual liability cap in the MSA on the basis of Sanmina’s fraudulent inducement and Dialight intends to rigorously pursue this claim, and the various other contract-based claims, to trial. During the year, the Group has also incurred £0.4m in legal costs relating to a disagreement initiated by Dialight over royalty payments covering a number of years. Further costs will be incurred during 2023.

At the beginning of 2021, the Group paused development of a new range of Obstruction products within the Lighting segment. This was a temporary measure while technical and engineering resources supported the supply chain team in identifying and sourcing alternative components, following world-wide shortages linked to COVID-19. Over the past year management has explored options to complete the development, with the most likely outcome now unlikely to involve use of the Dialight developed technology. Accordingly, the development costs of £1.3m have been impaired.

In the prior year, we incurred £2.4m in legal costs and £0.5m in provisions for slow moving inventory in relation to Sanmina; £0.3m was released following the expiry of the warranty period on a disposed subsidiary and a provision of £ 0.2m for employment claims was released.


Inventory levels grew £11.2m over 2021 (£6.7m at constant currency), driven by increased holdings of sub-assemblies and finished goods.

Raw materials22.722.2
Finished goods18.811.2
Spare parts0.20.3

Dialight, in common with many companies, has continued to be impacted by the well-publicised global commodity shortages as well as increased shipping times for inbound raw materials and outbound finished goods. Supplier lead times and the level of de-commits have been higher than normal in 2022 and, especially for semi-conductors, lack of availability forced us to temporarily purchase via expensive brokers. This continuing uncertainty led to the decision to maintain the level of raw material holdings in order to safeguard production and fulfil customer orders.

Inflation and foreign exchange have also increased the value of inventory held, with significant raw material price rises across many key components and movements in exchange rates since December 2021 increasing inventory by c. £4.5m.

Finished goods and sub-assembly levels increased following lower-than-expected customer demand in December. Inventory of high-running lines is normally built up in anticipation of a strong order take for immediate delivery, but this seasonal demand did not occur to the expected level and the inventory is now expected to be sold during early 2023.

We continue to keep inventory levels and future commitments under close review but will continue to maintain above average raw material and WIP stocks until lead times on both availability and shipping times for raw materials return to more normal levels, which is expected over the course of 2023. This is targeted to deliver a reduction of at least £5m, with further reductions delivered in later years through increased product and sub-assembly standardisation.

Capital expenditure

During 2022, the Group invested £7.3m in capital expenditure (2021: £5.6m).

New product development expenditure of £3.6m included the new Prosite High Mast/High Output Floodlight, next generation Highbay, new battery back-up systems and next generation GaN power supply.

Capital expenditure of £3.4m was focused on increasing automation of sub-assemblies in our Mexico factories, tooling for new or existing products, investment in capacity through production transfer to Malaysia, essential health and safety works in Mexico and completing the replacement of the Roxboro factory roof.

In 2023 the Group is planning to increase the level of investment to circa £10m, with 40% on new product development and 60% on capital expenditure. Product development will focus on new technologies, cost reduction for existing products and next generation Highbay/linear. Capital expenditure will focus on automation to reduce labour, increasing factory capacity to support revenue growth, replacing end of life equipment and digitise the business. This increased spend will help facilitate our multi-year growth.

Purchase of minority interest

In May, the Group acquired a further 12.5% of Dialight ILS Australia Pty Ltd for £1m (satisfied by issuing 266,958 new ordinary shares of 1.89 pence) and a cash payment of £100,000. This increased our shareholding to 87.5%, with the balance owned by a current senior employee.

Cash and borrowings

The Group ended the year with net debt of £20.9m, an increase £5.2m from December 2021 and £0.7m since June 2022. Net debt excludes lease liabilities related to the adoption of IFRS 16 Leases, which is consistent with the basis of covenant testing.

The roll forward of net debt was as follows:

 Net Debt £m £m
Opening balance 01 January 2022 (15.7)
Underlying EBITDA12.3 
Net working capital excluding inventory0.212.5
Increase in inventory(6.7) 
Investment in new products(3.6) 
Maintenance capex/other(3.7) 
Non underlying costs(1.4) 
Provisions and other movements(0.1) 
Interest and tax paid(2.6)(18.1)
Foreign exchange 0.4
Closing balance at 31 December 2022 (20.9)

The main factors behind the increase in net debt were:

•     Increase in raw material inventory during H1 to mitigate the impact of world-wide commodity shortages and increased shipping times plus increased finished goods inventory following lower-than-expected December sales

•     Improved credit terms with key suppliers

•     Continued capital investment into new product development, increasing factory capacity and maintenance (see earlier capital expenditure section)

•     Non-underlying costs (see earlier section)

•     Higher interest and tax payments

There is a focus on reducing borrowings in the coming year, partly driven by the reduction in inventory discussed above.

The interest expense is analysed in note 4 and taxes paid in note 5. Interest expense will be higher in 2023 following the renegotiation of bank facilities and higher level of borrowing.


The Group has its banking relationships with HSBC Bank plc. The Group’s multicurrency revolving credit facility with HSBC of £25m was re-negotiated and signed in July 2022 and will now run until at least July 2025. The three-year facility has two one-year extension options exercisable between 60 days before and 30 days from the first and second anniversary of the effective date, giving a maximum duration of five years. In November 2022, the facility was re-denominated to USD 34m as the majority of the Group’s income and expenditures are denominated in USD. In accordance with the Group’s strong ESG commitment, the new facility is a sustainability linked loan.

The Group increased its banking facility with HSBC on 15 June 2020 by adding a further £10m facility on a 3-year basis, utilising a combination of £8m under the COVID-19 Large Business Interruption Scheme (CLBILS) and a £2m commercial loan. The £10m additional facilities are repayable over 30 months, in equal instalments, from January 2021. £4m was repaid in the year, with a further £2m payable in 2023 and the facilities will be fully repaid by June 2023 at the latest. At 31 December the Group had £30m (2021: £31m) in facilities of which £22.6m was drawn and £1.7m of cash on hand.


The Group’s quarterly banking covenants have reverted to a maximum leverage and minimum interest cover level for all facilities, with the CLBILS facility having an additional test based on the ratio of adjusted cashflow to debt service. The Group was fully compliant with all leverage and interest covenants on its RCF facilities at 31 December 2022 and throughout 2022. The additional covenant test on the CLBILS facility was complied with through June 2022 and has been waived for all periods thereafter, until the end of the facility in June 2023. The trailing 12-month leverage multiple is 1.7x EBITDA and is expected to reduce towards 1x by the end of 2023, with interest cover at over 9x.


Based on a profit before tax of £0.5m in the year, the Group had an effective tax rate of 20% (2021 57.1%) resulting in a tax charge of £0.1m. This was broadly in line with our normalised rate, with prior year and R&D credits offsetting UK trading losses for which we are not recognising a deferred tax asset.

In the year we made a net cash tax payment of £0.8m, with £2.5m in corporation tax on operations in the USA, Australia and Malaysia offset by a £1.7m carry back refund in the US.

Pension costs

The Group has two defined benefit schemes that are closed to new entrants. The aggregate surplus on both schemes is £4.5m, an increase of £0.6m from 31 December 2021. The increase is the result of actuarial gains from changes in demographic and financial assumptions, as well as investment returns being higher than expected and cash contributions. The cash cost of the scheme in 2022 was £0.4m (2021: £0.4m) as agreed with the trustees following the 2019 valuation. The latest valuations were completed as at April 2022, and future cash contributions have been agreed at the current levels.

Capital management and dividend

The Dialight Board’s policy is to have a strong capital base in order to maintain customer, investor, and creditor confidence and to sustain future development of the business. The Board considers consolidated total equity as capital. At 31 December 2022 this equated to £68.7m (2021: £60.2m).

Management’s focus in 2022 has been on profitably growing revenue and maintaining availability of component supplies during a period of continuing world-wide commodity shortages and increased pricing, which has led to the higher-than-normal level of inventory. Distributions are not permitted under the terms of the CLBILS facility whilst there is debt outstanding, with the last repayment due in June 2023. The Board is not proposing a final dividend payment for 2022 (2021: nil). The Group has a clear capital allocation discipline and is committed to returning excess funds to shareholders via future dividend or share repurchases.

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