caDialight’s Mid-Year Financial Results Improve Loss on Flat Sales; Litigation Loss Halves Market Cap
Dialight plc, has released its unaudited interim results for the six months ending 30 September 2024. Despite challenging market conditions and ongoing litigation, the company continues to make significant strides in its transformation plan to streamline operations and drive growth.
Dialight stock closed at £261 on 17 September 2024. As of this writing, it is trading in the £119 range, down 8.5% today. The stock is usually thinly traded.
Financial Performance Overview: Dialight Improves Loss with Sales Flat
Dialight reported a revenue of $90.3 million, slightly below the $91 million recorded in the same period last year. The company achieved an underlying operating profit of $0.9 million, a turnaround from the $2.5 million loss reported in the prior year. However, the statutory loss before tax widened to $20.8 million compared to $6.6 million in the previous year, largely due to non-underlying litigation and transformation initiatives costs.
Key financial highlights include:
- Gross margin improvement: Increased to 33.0%, up from 30.8% in the comparable period.
- Reduction in net bank debt: Improved to $15.4 million, down from $27.3 million in the same period last year.
- Positive cash flow: Underlying operating activities generated $5.6 million after tax and interest.
Progress on the Transformation Plan
Dialight’s transformation plan remains central to its strategy. The company reported significant advancements, including:
- Streamlining operations: A new production facility in Penang, Malaysia, is part of efforts to consolidate operations and reduce complexity.
- Automation investments: The company has begun automating production processes, including a $1.4 million investment in power supply sub-assembly automation during the first half of 2024.
- SKU reductions: Ongoing efforts to standardize the product range have resulted in fewer stock-keeping units (SKUs), improving operational efficiency.
CEO Steve Blair emphasized the plan’s importance, stating, “Our relentless focus on executing the transformation plan is yielding positive results. These foundational changes position us to achieve our medium-term goals despite the challenging market environment.”
Market and Regional Trends
Dialight continues to face headwinds in its core lighting segment, which accounted for 74% of revenue in the first half of 2024. Key trends include:
- Regional performance: Lighting orders decreased across all regions, with EMEA experiencing a 54% decline and Asia and Australia seeing drops of 31% and 11%, respectively. North America, Dialight’s core market, recorded a modest 3% decline.
- Sector-specific challenges: Economic uncertainties, high inflation, and labor shortages have delayed capital projects, particularly in the petrochemical industry.
The Signals & Components division showed resilience, with revenues rising 3.1% to $23.6 million, driven by strong vehicle sales.
Sanmina Litigation Impact
The results also reflect the financial impact of Dialight’s ongoing litigation with Sanmina Corporation. Non-underlying costs of $25.4 million include $22.3 million related to the Sanmina case. The jury ruled against Dialight on essential claims but confirmed that Sanmina breached its Manufacturing Services Agreement. A final ruling is expected in early 2025, and the outcome could have a material impact on the company’s financial position.
Strategic Divestments and Product Development
Dialight completed the sale of its Traffic business in July 2024, generating $5.2 million in cash proceeds. This move aligns with the company’s focus on its core industrial LED lighting business.
Additionally, Dialight invested $5.2 million in product development during the first half of 2024. Innovations include the Backup Battery for ProSite Floodlight, a next-generation linear lighting solution, and new streetlights for industrial applications.
Outlook for the Second Half of 2024
The company remains cautiously optimistic about the second half of 2024. Despite ongoing market challenges, Dialight is committed to executing its transformation plan, enhancing operational efficiencies, and investing in product innovation.
Blair noted, “While we face a cautious outlook due to macroeconomic uncertainties, we are confident in our ability to make further progress in the coming months.”
Dialight’s interim results underscore the challenges of navigating external market pressures and internal restructuring. However, the company’s commitment to transformation and innovation signals its readiness to capitalize on future growth opportunities.