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DIALIGHT PLC
ANNUAL REPORT
AND ACCOUNTS 2022
36
SUSTAINABILITY
Product design, material
sourcing and business
operations using an
ESGFramework
26
MARKET REVIEW
Industrial LED market size and
conversion rates
30
STRATEGY IN ACTION
We help our customers
reduce their costs and
carbonfootprint
14
CEO STATEMENT
We are pioneers in lighting
energy efficiency through
long-term strategic
investment in R&D
8
INVESTMENT CASE
We develop market-leading
sustainable LED products
formarkets with very
lowpenetration
STRATEGIC REPORT
04 – Our business at a glance
08 – Investment case
10 – Chair’s statement
14 – Group Chief Executive’s review
24 – Our business model
26 – Market review
28 – Strategy at a glance
30 – Strategy in action
32 – Key performance indicators
36 – Sustainability at Dialight
62 – TCFD Report
70 – Risk management
74 – Principal and emerging risks and uncertainties
80 – Chief Financial Officer’s review
88 – Going concern statement
90 – Viability statement
GOVERNANCE
94 – Chair’s introduction to governance
99 – Section 172 statement
104 – Board: Governance
124 – Nominations Committee report
128 – Audit Committee report
136 – Remuneration Committee report
140 – 2022 Remuneration
171 – Directors’ Report
176 – Directors’ responsibility statement
FINANCIAL STATEMENTS
178 – Independent auditor’s report to the members
ofDialight plc
191 – Consolidated income statement
192 – Consolidated statement of comprehensive
income
193 – Consolidated statement of changes in equity
195 – Consolidated statement of total financial
position
197 – Consolidated statement of cash flows
198 – Notes to the consolidated financial statements
241 – Company balance sheet
(prepared under FRS 102)
242 – Company statement of changes in equity
243 – Notes to the Company financial statements
251 – Five-year summary (unaudited)
SHAREHOLDER INFORMATION
252 – Directory and shareholder information
What’s
inside
1
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
ESG HIGHLIGHTS AND INITIATIVES
Reduction in Scope 1&2
emissions per £m
ofrevenue
9%
Reduction in water intensity
per £m of revenue
21%
PERFORMANCE AT A GLANCE
Group revenue
£169.7m
Strong growth in
Lightingsegment
Net debt*
£20.9m
Short-term investment
ininventory
Growth in order take
11%
Strong Lighting order take
withcyclical downturn in
Signals & Components
Inventory
£53.6m
Increase in finished
goodsinventory
Working hours lost
0.003%
Safety continues to be
a major focus
Gross margin
32%
Global commodity shortages
and material cost increases
Profit/(loss)
£0.4m
Higher financing and
non-underlying costs
On-time delivery
77%
Strong focus on meeting
customer delivery dates
Underlying EBIT*
£5.0m
Strong revenue improvement
offset by increased
materialcosts
FINANCIAL NON-FINANCIAL
Supply chain rating agency
We completed the EcoVadis questionnaire in September
which saw us retain our Silver rating.
Our rating can be summarised as follows:
Climate change B
Water security B-
Supplier Engagement B-
Corporate Rating C
Retained Silver rating and now at
79thcentile (prior year 73rd)
We also engage with other organisations in the ESG arena:
We have committed to achieving Net Zero
with SBTi by 2050. Our internal target is to
achieve this by 2040
P61
We have prepared Environmental Product
Declarations (EPDs) within 7 product
families, and these have been verified by
BRE Group
P46
We are a member of the Clean Lighting
Coalition, which is a global coalition to
eliminate mercury usage in Lighting
P46
We continued our sponsorship of the
Women’s Earth Alliance, who are
empowering women’s leadership to
solve climate-related issues
P55
2022
2021
2020
169.7
131.6
119.0
2022
2021
2020
53.6
42.4
32.5
2022
2021
2020
77%
71%
81%
2022
2021
2020
5.0
4.5
(6.4)
2022
2021
2020
0.003%
0.001%
0.000%
2022
2021
2020
32%
36%
29%
2022
2021
2020
0.4
0.3
(7.8)
2022
2021
2020
20.9
15.7
11.4
2022
2021
2020
11%
24%
-14%
* Alternative performance measures are defined in note 28 of the consolidated financial statements.
3
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
2
Group revenue
£169.7m
2021: £131.6m
Robust MRO demand in
Lighting
Environmental
LED lighting provides significant energy
savings and reduction in carbon emissions
Social
We are committed toa safe, inclusive and
diverse culture across the Group
Governance
Our structure prioritises ethical behaviour,
transparency and accountability
£119.0m £169.7m£131.6m
2020 20222021
OUR BUSINESS AT A GLANCE
Making
apositive
impact that
lasts
WHO WE ARE
At Dialight we are passionate about playing
our part in building a fairer and more resilient
world for generations to come. We are
committed to being a net zero company
by2040 and see the transition as both an
opportunity, and an obligation to help drive
meaningful change in the industrial sector.
WHAT WE DO
We offer the largest selection
of cutting-edge LED lighting
products to suit virtually any
industrial application. Our
controls seamlessly integrate
with existing factory and building
automation solutions, reducing
energy costs by up to 70%.
70%
reduction in energy cost
OUR PURPOSE
Dialight has been a pure LED company for
over 50years with all our products developed
in-house. We are working to accelerate the
transition to greener solutions through our
cutting-edge technology and support our
industrial customers to achieve their
sustainability targets.
OUR VISION
We see a world where our environmentally
friendly LED technology and market-leading
innovations reduce the carbon footprint of
harsh and hazardous industries whilst also
improving the safety and well-being of
peopleworking in those sectors.
ESG
Committed tobeing
net zero by 2040
OUR VALUES
CULTURAL GENES
These are the unique cultural and
behavioural principles we must protect and
leverage to optimise our organisational
genes and deliver our purpose.
LIVE THE PROCESS
Be passionate about making the world
safer, cleanerandhealthier. See real
problems and createinnovative solutions.
EMBRACE THE ADVENTURE
Continually grow and change,
asindividuals and collectively. Challenge
assumptions and see opportunities. Seek
insight from all directions and leverage
diverse points ofview.
BE AN ENTREPRENEUR
Be an owner, risk taker, visionary.
Transform bold ambitions into reality.
Beagile and responsive in the face of
constant change.
CAN DO
A “can do” attitude to conflicting priorities.
Build fortomorrow and deliver today.
Havestability andconstantly evolve.
Enjoyautonomy and eagerly collaborate
toaccomplish our goals.
INTEGRITY
Play to win, but not at the expense of
others. Operate with impeccable ethics,
transparency andintegrity in all that wedo.
LED Industrial Lighting
Our range of LED Industrial Lighting is
aimed at a market that is still dominated
by older, more inefficient technologies.
With low levels of conversion to LED, the
catalyst for mass conversion is increased
energy savings, lower maintenance costs
and increased regulation to phase out
older technologies.
Our two
divisions
Signals & Components
This division has a diverse range of
products with extended life-cycle
opportunities in both mature markets and
fast-growing markets for medical and
wearable technology. This division uses
LED lights in a variety of safety products
and as performance status indicators.
5
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
4
P27
P26
A global
presence
We are a pure play LED lighting
company with a global footprint
ofover 2.8 million fixtures
Malaysia
andAustralia
Manufacturing
and distribution
centres
Mexico
Manufacturing
and distribution
centre
The Netherlands
Distribution centre
Manufacturing
North Carolina
Support office
Engineering
andback office
in NewJersey
30%
Dialight has the largest
share of the hazardous
market in the US
Source: Internal estimates
£2.0bn
The estimated value
of Dialight’s currently
addressable market
Source: Internal estimates
HEAVY INDUSTRY PULP AND PAPER POWER GENERATION OIL AND GAS
WE SERVE A WIDE RANGE OF MARKETS
AMERICAS
£132.7m
Revenue
EUROPE
£14.5m
Revenue
AUSTRALIA AND ASIA
£22.5m
Revenue
OUR BUSINESS AT A GLANCE CONTINUED
7
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
6
P40
Time
Avoided
emissions
CO
2
emissions
INVESTMENT CASE
5
4
6
321
EXPERIENCED
Significant expertise exclusively
in LED and over 50 years of
experience as a lighting partner
to many of the world’s leading
organisations have helped us
achieve the largest installed base
with over 2.8 million industrial LED
fixtures around the world.
SUSTAINABLE
A strategic focus on environmentally
friendly LEDtechnology and
acommitment tohelping all
organisations, including our own,
reach corporate sustainability goals.
INTELLIGENT
Controlled lighting solutions that
seamlessly integrate with existing
factory automation and building
management systems to
conveniently optimise site
safetyandproductivity.
Over 50 years
as a dedicated LED lighting provider
Why invest?
Dialight provides a sustainability solution to reduce
carbonemissions in the industrial sector. Our ultra-efficient
LED products generate up to 70% less emissions than
legacy lighting and are trusted globally in the most
demanding environments.
POSITIONED FOR
CONTINUED GROWTH
Our global footprint and diverse
customer base ideally position
ustocapture the potential of an
industrial market which is still largely
unpenetrated by LED and whereby
themajority of lighting is antiquated,
and environmentally damaging. LED
lighting represents the future.
DIFFERENTIATED
Our best-in-class designs offer
superior performance backed by a
ten-year warranty, low maintenance,
high efficiency and long life. That’s
how we provide our customers
withfaster payback and
abetterreturn on investment.
CO
2
EMISSIONS
Conventional lighting
Dialight LED lighting
PROSITE FLOODLIGHT
Highly efficient and rugged
product with chip scale
LEDs and unique moulded
optics available in 12,000-
65,000 lumen models.
SCALABLE
Increased manufacturing capacity
with ourfacilities in the USA,
Mexicoand Malaysia providing
scalable production.
9
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
8
CHAIR’S STATEMENT
Our strong revenue growth demonstrates Dialight’s
very relevant and sustainable offering of low-carbon
and high energy efficiency products. As a technology
company with over 50 years of experience in the LED
market, we continue to be a pioneer of innovation,
through continued development of technologies to
help our customers achieve their sustainability targets.
Our people are key to our success and drive
everything we do. I am proud and inspired by what
has been achieved this year through the incredible
determination our team has shown globally. Dialight’s
historic operational issues have eased and we are
well positioned to secure good growth over the
coming years, with an exciting future ahead of us.
2022 performance
2022 was another year of strong revenue growth.
Thefirst half reflected strong demand for Lighting
and Opto-Electronic products and a resilient
operating performance. The second half saw tougher
trading conditions, with lower levels of revenue
growth and a combination of input cost pressures
and global component shortages.
We have continued to invest into developing new
andimproved products, improving factory efficiency,
and expanding the capabilities of our newly created
strategic sales team. These investments willsupport
Dialight’s continuing profitable growth.
December is a key trading period for Dialight and
traditionally generates a significant proportion of
operating profit. Revenue was significantly below
ourexpectations in December, reflecting seasonal
demand being below historic levels as well as several
strategic customers deferring anticipated orders.
Thisled to H2 underlying operating profit being
belowBoard and market expectations.
This shortfall also adversely impacted inventory levels
and going into the new financial year, reductions in
inventory continue to be a major focus.
While the full year outturn is disappointing, underlying
EBIT still grew by 11% and the Groupretains a leading
position and product offeringin markets which are
underpinned by long term sustainability, safety and
regulatory drivers. Asaresult, there is significant
opportunity for growth,underpinned by product
innovation, and this continues to provide confidence
in the Group’s longer-term prospects.
We continue to assess financial performance across
the Group using a framework of profitability, return
and cash flow measures. This framework underpins
our key performance indicators (pages 32 to 35)
andis central to our remuneration criteria.
Karen Oliver stepped down for personal reasons as
Chair and Non-Executive Director in December and I
would like to thank her for her contribution to Dialight
over nearly three years.
The Board was delighted to welcome Nigel Lingwood
as Non-Executive Director in November 2022. He
brings considerable financial and international public
company experience to Dialight and took over as
Audit Committee Chair in January.
On 20 March 2023 we were pleased to announce that
Neil Johnson will join the Group and the Board as
Chair with effect from the 17 May 2023.
Despite the many challenges in
2022caused by global supply chain
problems, the Group remained focused
on meeting the delivery requirements of
customers and building on our market-
leading position.
Group revenue
2021: 11%
29%
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
10 11
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
David Thomas
Interim Chair
BRIGHTER, SAFER, GREENER
Case Study
P43
CHAIR’S STATEMENT CONTINUED
On 30 March 2023, we announced that David Blood
will be stepping down as a non-independent Non-
Executive Director after nearly eight years. His
decision ensures we will maintain a balance of
independent directors, following the announcement
that Neil Johnson will become Chair on 17 May 2023.
David joined the Board in 2015, served as Chair in
2019-2021 and has made an invaluable contribution
to the success of the business. Everyone at Dialight
extends him our best wishes for the future.
Commitment to ESG and net zero
We believe in creating a safer, cleaner, healthier
futurefor everyone. Our products play a positive
rolein society by addressing key environmental
challenges relating to the level of emissions
generation which is linked to climate change.
Thesocietal benefit from avoided emissions through
the use of our Lighting products are long term in
nature due to our 10-year warranty. In addition to
assisting with emission reductions, our customers
getthe financial benefit oflower costs and increased
safety in industrial environments.
In December we published our second sustainability
report, which highlights the progress we have made
over the past year. These achievements include FTSE
Russell confirming our revenues are 100% Green,
completing internal analysis ahead of agreeing our
carbon reduction targets with the Science Based
Targets initiative in H1 2023, increasing our CDP
rating to B and maintaining our Silver sustainability
rating with EcoVadis. We recognise that we still have
lots to do and 2023 will see us publish our detailed
plan, targets, and milestones to achieve net zero.
The transition to net zero carbon is both an
opportunity and obligation for Dialight as we are a
sustainability solution that helps our customers to
achieve net zero. Our ambition is to be a net zero
business by 2040 and we continue to drive our
Environmental, Social and Governance (ESG)
initiatives across all aspects of our business.
Outlook
Dialight enters 2023 in a good position following
twoyears of strong revenue growth and continuing
demand for our market-leading products. The short-
term macroeconomic outlook remains challenging,
with global supply chain disruptions that are not
expected to start alleviating until H2 2023.
The initiatives we are taking to improve operational
performance through broadening our strategic
relationships with key customers and distributors,
strengthening our supply chain, and improving
operational efficiency will support our robust revenue
and profit growth in the mid-term.
Longer term theGroup is well positioned to capitalise
on the significant opportunity for growth,
underpinned by product innovation, that provides
confidence in the Group’s prospects.
On behalf of the Board, I would like to thank Fariyal
Khanbabi and all our Dialight colleagues throughout
the world for their significant contributions and
commitment, and the way they continued to respond
to the challenges of the past year. Lastly, I would like
to thank our customers, suppliers and shareholders
for their confidence and trust in us as we continue to
implement our growth strategy and secure an exciting
future for Dialight.
David Thomas
Interim Chair
2 April 2023
Avoided emissions
The industrial lighting sector where Dialight
operates has low conversion to LED (see page
27). Most of the lighting used in this sector is
older sodium and metal halide fixtures which are
highly inefficient and consume up to 70% more
electricity than LED lighting.
As customers switch from these older
technologies to more efficient LED-based
lighting, they can not only reduce their power
costs but they can also significantly reduce their
emissions impact.
The emission savings by customers are
classified as avoided emissions generated
through the use of Dialight’s products. The
emissions from customers using Dialight lights
sold in 2022, over their expected 10-year life, is
1.1m tonnes and is included within our Scope 3
emissions (see page 43). The emissions that are
avoided by customers (Scope 4 emissions) are
2.1m tonnes but, using the GHG protocol, these
are not eligible to be included within our net zero
calculations.
Sustainability
Avoided emissions (tonnes ofCO
2
)
2021: 1.6m
2.1m
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
12 13
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
GROUP CHIEF EXECUTIVE’S REVIEW
Fariyal Khanbabi
Group Chief Executive
Growth in order take
2021: 24%
11%
Underlying EBIT
*
2021: £4.5m
£5.0m
Reduction in Scope 1&2
emissions
2021: 3%
9%
Overview
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.
Results
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%).
* Alternative performance measures are defined in note 28 of the consolidated financial statements.
15
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
14
25.0
20.0
15.0
10.0
5.0
0.0
2010 2022
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.
GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
Time Value of Carbon (TVC)
Whilst the Time Value of Money is abusiness
concept that has been widely understood for
centuries, the TVC is a much newer concept and
notbroadly understood. The TVC is the concept
that greenhouse gas emissions cut today are
worthmore than cuts promised in the future.
The compounding impact of emission reductions
means that a company that reduces its emissions
today creates a benefit for the climate system each
year into the future. Companies that start to cut in
2030 will have spent another eight years drawing
from the global carbon budget, and by then the
1.5degree goalcould be out of reach. This is
whylong-dated climate goals with noshort-term
action are not viewed asacceptable by SBTi and
why near-term action creates considerable
ecological value.
Against this backdrop, if we look at the benefits of
customers switching to LED lighting and reducing
their electricity requirement by 70%, they can
create animmediate and lasting impact in reducing
emissions. The following graph shows our
estimation of the cumulative benefit of avoided
emissions (Scope 4) by customers switching to our
highly efficient LED lights over the past 12 years.
The upward curve shows that emissions continue
to be avoided for a period of at least 10 years
which is the warranted life ofmost of our products.
It is likely that many will last significantly longer,
thereby bringing additional benefit.
The climactic benefit of adopting
LED lighting in the near term
Tons of CO
2
avoided (m’s)
Many potential customers seeking to reduce
theiremissions do not consider theTVC in
theircalculations and therefore may defer the
investment in LED lighting and this is reflected in
the conversion ratesdiscussed on page 27. One
potential for changing the pace of adoption is the
introduction of carbon pricing on a widespread
basis which would act as a penalty for higher
emissions and force companies to lower emissions
faster. This is likely to become more prevalent in
the coming years. The potential impact on the
business is discussed on page 68 but it forms one
of the enablers to achieving the opportunity
discussed in the TCFD section on page 68.
“Cutting emissions
today is more valuable to
society than doing so in the future
and LED lighting provides an
immediate and lasting benefit.”
Fariyal Khanbabi
Group Chief Executive
Number of active
components
64,000
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GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
Strategy
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 products have the ability to withstand extreme environmental
conditionssuch asvery high or low temperatures, humidity, high vibration,
andcorrosive environments.
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:
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GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
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.
Targeted reduction for
Scope 1 & 2
9%
Target: 3%
Water consumption
reduction
21%
Target: 5%
Increase in avoided
emissions
29%
1 The Time Value of Carbon is the concept that greenhouse gas emissions cut today
are worth more than cuts promised in the future, due to the escalating risks
associated with the pace and extent of climate action.
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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
GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
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.
Outlook
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.
Fariyal Khanbabi
Group Chief Executive
“As a business at the
leading edge of industrial
LED technology, people
are at the heart of our
business.”
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PRODUCT
INNOVATION
Our engineering teams
develop industry leading
sustainable LED lighting,
sourcing innovative
materials and ensuring
high efficiency.
MANUFACTURING
AND SUPPLY
CHAIN
Our factories operate
lean processes
supported by our
robustsupply chain
andrelationships
withkey suppliers.
MULTI-CHANNEL
DISTRIBUTION
We build strong
relationships with our
global distributor
network and
endcustomers by
providing market
leading lead times.
BUSINESS MODEL
OUR PURPOSE
To improve the world we live in through intelligent LED lighting technologies. We enable industrial customers
operating in demanding environments to reduce their costs and carbon footprint while maximising the safety
and productivity of their facilities.
Financial
Ensuring a strong balance
sheettosupport growth
andproductdevelopment.
Relationships
Building strong relationships with
ourend customers, distribution
channels andsuppliers.
Human capital
Creating high performing innovative
teams that develop and market our
industry-leadingproducts.
Intellectual assets
Protecting our product innovation
with patents, trademarks and
intellectual property licences.
Product innovation
Developing market leading LED
products for industrial markets.
Sustainability
Developing recyclable products to
reduce carbon emission and provide
a safer working environment.
Reduction in energy
costsfor customers
70%
We certify our products
using EN 15804 with
independently verified
Environmental Product
Declarations
We are developing the
first fully recyclable
industrial lighting
fixture
P30
Shareholders
We deliver long-term value for our
shareholders by developing market-
leading sustainable products in a market
with very low penetration. We carefully
balance the need for investment,
working capital and shareholder returns.
Employees
We provide a creative working
environment with scope for individual
responsibility and personal
achievement, develop our employees
and provide competitive rewards
linkedto performance.
Communities
We create jobs for local communities
around the world, support local supplier
development and deliver economic
benefits for local communities.
Customers
We work closely with our customers to
understand and meet their objectives,
including reducing their carbon
footprintby lowering their energy
andmaintenance costs.
Government
We support local economies by creating
employment, paying local taxes and
stimulating local economic prosperity.
Through the Dialight Foundation
welookto support the disadvantaged
inourlocal communities.
REVENUE
Our revenue mainly derives from
the sale of lighting fixtures via
distribution channels and direct
tothe end customer using our
highly technical sales force.
CASH FLOW
Revenue is turned into cash and
used to fund operating costs and
working capital requirements.
Surplus cash is re-invested
tosupport future growth.
RE-INVESTMENT
Cash generated from operations
isre-invested in R&D and
operational improvements.
OUR INPUTS
THE VALUE WE SHARE
UNDERPINNED BY SUSTAINABILITY
WHAT WE DO
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LED MARKET
INDUSTRIAL LED MARKET PER ANNUM
Industrial LED market
Non-industrial LED market
£8.0bn
£32.0bn
Harsh
Hazardous
Non Dialight SAM
£1.2bn
£0.8bn
£6.0bn
MARKET REVIEW
This non-industrial market includes
luminaires for residential, retail, office
and commercial market where Dialight
does not participate.
The size of the industrial market has
been estimated by the DOE at£8.0bn
per annum and our best estimates are
that Dialight’s current serviceable
addressable market (SAM) is £2.0bn
which comprises of the harsh and
hazardous segments, as follows:
A large
LED
market
Value of the global
LEDmarket per annum
£40bn
Source: US Department
ofEnergy
THE GLOBAL LED
LIGHTINGMARKET
The industrial LED market
£8.0bn
Dialight’s current SAM*
£2.0bn
P27
Market analysis of the global LED market is fragmented
and there are differing estimates of the quantum. We
have used a variety of sources inorder to understand
the market and where we sit within it. Our previous
internal calculations put theglobal LED market in the
region of £50bn per annum. Astudy we commissioned
in 2016, confirmed this as a reasonable estimate.
More recently we have performed amore in-depth
analysis of the industrial market using the US
Department of Energy (DOE) data as the basis of
ourcalculations. They value the total LED market at
£40bn per annum, split as follows:
Within this, the harsh and hazardous segments can be
subdivided by three main characteristics:
— Geography
— Verticals
— Product
We have used data from the National Electrical
Manufacturers Association (NEMA) in the US and a
2022 study of the hazardous market by Verified Market
Research to provide more granularity.
Some of the key outcomes were as follows:
— We have a 30% share of the hazardous market in
North America
— Of the verticals that are not currently addressable by
our product portfolio, the most attractive target vertical
is Food & Beverage where our products can serve a
market valued at £0.4bn per annum
— We can see product line penetration in harsh and
hazardous applications
We have taken this data and are using it to make more
informed choices on R&D for new products and also
prioritising upgrades to current products,
P46 .
By targeting the Food &
Beverage market, Dialight’s
total SAM increases to £2.4bn
LED CONVERSION RATES
The LED conversion rates vary significantly depending
on which area of the market we look at.
In the commercial arena adoption levels are
economically driven. A large portion of a site’s
energyuse is related to lighting fixtures, with lighting in
accessible areas, lower labour costs, attractive rebates
and a choice between fixture replacement and lamp
upgrade. It is estimated that 95% of current lighting
sales to this sector is LED.
The labour cost to update fixtures within industrial sites
is higher, requiring lifts, safety officers, and electricians
as lamp upgrades are not feasible. For heavy industrial
sites with fixtures in hazardous locations, the return from
energy savings takes longer to offset installation costs.
The cumulative conversion rate to LED is subjective.
Based on data derived from NEMA, it is estimated that
overall industrial conversion is c. 30%. Within this, the
hazardous market is slower to convert and we estimate
that only 20% is converted to LED. The hazardous
segment is still buying 80% non-LED lighting which at
apoint in the future will have to be replaced by LED.
The overall business growth is linked to the adoption
curve and whilst we can try to stimulate that adoption
through R&D, we are dealing with a market segment that
does not embrace change very quickly. Forecasting the
steepness of the adoption curve is extremely difficult in
the absence of tough legislative changes to stop sales
of non-LED lighting.
* Dialight serviceable addressable market (SAM)
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STRATEGY AT A GLANCE
Dialight’s strategy is to grow the business in global industrial
markets. We believe that the combination ofourproducts, strong
ESG credentials, people and culture differentiates us from our peers,
andwe expect todeliver sustainable value for our shareholders.
KPIs P32 TO 35
OUR STRATEGIC PILLARS 2022 ACHIEVEMENTS TARGETS FOR 2023
INVEST IN OUR
CORE MARKETS
We will deliver organic
growth through increasing
conversion of legacy
lightingto LED in global
industrial markets
— Lighting only order growth of 28%
— Strategic Sales secured 11 preferred supplier
accounts and several multi-million dollar orders
from major US corporates
— Reduced active finished good SKUs by 24%
— Dual sourcing in place for 42% of critical
components
— Increased online sales through Signals &
Components website covering 70% of products
— Target 5 preferred supplier accounts through Strategic Sales
— Product cost reduction programmes to improveLighting margin
— Implement regionalisation strategy for Far East sourcing
— Invest in sub-assembly automation
EXPAND OUR
MARKET REACH
We will expand our market
reach by developing new
routes to market and
expanding into new verticals
— Re-joined Affiliated Distributors buying group
— Added 37 new distributors and 80
additionallocations in the US
— Developed 30 new contractor relationships
— New orders from aerospace, electric vehicle and
food & beverage verticals
— EMEA Lighting sales growth of 53%
— Further expansion into new industries such as aerospace, electric vehicle and F&B,
usingStrategicSales
— Increased targeting of EPC/engineering firms and electrical contractors
— Increase share of distributor spend by increasing location coverage
— Deepen relationships with Affiliated Distributors
CONTINUED
INNOVATION
We maintain our market-
leading position and fill
portfolio gaps by
continuously investing in
improving the materials,
formfactor and technology
in our products
— Delivered £22.4m in orders for products launched
in last two years
— Launched two Source and Sell products – wallpack
and exit/emergency signage
— Power supply now standardised across highest
running product families
— Launched hazardous ProSite floodlight
— Launch ProSite High Output/High Mast Floodlightrange
— Launch existing products with shielding against reactive gases/volatile organic compounds
— Continue development of first fully recyclable fixture
— Continue standardisation of components within productfamilies
Key performance indicators
Our growing revenue, EBIT and lighting orders demonstrates ourstrategic progress
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STRATEGY IN ACTION
The problem
Lighting fixtures designed to operate in Industrial
andhazardous lighting environments have tended to
focus on drive current and LED temperatures as the
key factors affecting performance of the LEDs and
fixture. This misses other factors that can directly
affect the performance of LEDs over time, with the
presence of volatile organic compounds (VOCs) and
reactive gases being problematic in many industrial
verticals. Both VOCs and reactive gases are harmful
to LED lighting but cannot be prevented or eliminated,
and both are difficult and expensive todetect.
VOCs are organic compounds that easily vaporise
atroom temperature and atmospheric pressure.
Theyare emitted by a wide range of industrial
products such as rubbers, silicones, lacquers etc
andcan easily permeate through silicone-based LED
encapsulations. This leads to discolouration, loss of
light from the luminaire and the light output appearing
blue or purple. The LED device will revert to normal
performance if the VOC escapes a vented luminaire.
Reactive gases, such as hydrogen sulphide,
contribute to premature LED failure as they also
permeate through the LED encapsulation. However,
their effect is corrosive and irreversible as they
damage the LED or electronics within the luminaire.
They occur in a wide array of industrial processes,
including power generation, rubber manufacturing,
pulp and paper processing, waste water treatment,
etc. These are all verticals where Dialight’s harsh
andhazardous products areinstalled.
The quality and reliability of lighting in industrial sites
is criticalto ensure safe operations, so Dialight
wanted to be able toprovide our current and
prospective customers withasolution to these
potentialproblems.
ISSUES WITH VOLATILE ORGANIC COMPOUNDS
(VOCS)
—Leads to discoloration (see picture on right)
—Loss of light from the luminaire
—Light output appearing blue or purple.
Solving lighting
problems for
ourcustomers
30%
more efficient
than previous
model
ULTRA EFFICIENT
VIGILANT
®
HIGH BAY
30% more efficient than
previous model, with
optional microwave
occupancy sensor
offering superior sensing
for industrial facilities
Our solution
Our review highlighted that the conditions causing
premature failure within fixtures occurs at levels
below human health and safety thresholds, so
human perception is that the environment is
benign. Additionally, component manufacturers
have not implemented protection against these
conditions. Intensive research by our material
science group proved that the only temperature-
independent solution was to create a shield that
isolated the VOC or reactive gas from sensitive
electronics, such as the LEDs. Afterextensive
testing looking at performance and tradeoffs,
thebest-performing chemistry for the shield was
identified. This protective chemistry is then applied
to all exposed conductive joints and coats the
LEDs, such that the reactive gas or VOC cannot
permeate through and ensures light quality and
colour isunaffected.
Dialight’s patented shielding technology can
nowprotect the LED chemistry from severe
environmental contamination that shortens useful
fixture life and light output. It is already available
onour Vigilant High Bay, Linear and 60k, with the
first shipment to customers in December.
VOC SHIELD
—LEDs coated with shielding chemistry to
prevent reactive gases and VOCs from
permeating through
—The Dialight protective coating chemistry
does not allow the release of VOCs that
contribute to reduced LED performance
—Internal power contacts made of suitably
noble metals to protect from corrosion
caused by reactive gases.
—Protective chemistry fully covers all
exposed conductive joints
31
STRATEGIC REPORT
OTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
30
LINK TO STRATEGY
The key measure of the success of
our near-term strategic goals is
growth in underlying EBIT.
LINK TO STRATEGY
Profitable revenue growth is
essential to long-term success.
LINK TO STRATEGY
Cash generation is critical to
support our growth ambitions.
LINK TO STRATEGY
Net debt is a critical measure to
ensure the business has sufficient
liquidity to support growth ambitions.
LINK TO STRATEGY
Ensuring that the ESG credentials
ofthe business are maintained
andenhanced is fundamental to
achieving growth.
KEY PERFORMANCE INDICATORS
Description
Revenue from sales.
Definition
Revenue from continuing operations
and organic growth.
Remuneration linkage
Revenue growth is a key element in
achieving short-term and long-term
incentive targets. This strong growth
has not translated into the expected
increase in EBIT, so no management
bonus has beenearned.
Target
Year on year revenue growth. We met
this target with revenue growth of 29%
to £169.7m (17% at constant currency)
driven by strong customer demand
across both business segments.
Description
The ability to turn profits into cash.
Definition
Cash generated by operations is
defined as the operating cashflow
afterworking capital movements.
Remuneration linkage
Cash generation does not directly link
to remuneration but impacts net debt
which is directly linked. In 2022 it was
avital measure of the ability to ensure
liquidity in the business.
Target
Year on year growth. This was achieved
with increased profit in the year being
offset by the increase in finished goods
following lower-than-expected sales in
the key December trading period.
Description
To manage the Group’s borrowings
within the available facilities.
Definition
Long- and short-term borrowings less
cash in bank.
Remuneration linkage
Net debt is directly linked to
remuneration to ensure the business
maintains adequate headroom against
its bank facilities.
Target
For 2022 the target was consensus net
debt at the start of the year, which was
£10.5m. This target was not achieved
due to lower EBIT, the decision to
maintain raw material inventory due to
continued supply chaindisruption and
the increase in finished goods inventory
at December.
Description and definition
Over the past 2 years the Group
hasimproved its ESG profile through
better ESG ratings and invested time
inunderstanding our existing carbon
impact and how we can use R&D to
minimise that impact. These will be
considered as part of setting targets
for2023.
Remuneration linkage
The Remuneration Committee intends
to use this detailed work to form the
basis for robust and challenging
quantitative targets for the 2023
Executive Director and management
bonus plans.
Target
These will be based on the short-term
science-based targets to meet net zero
that will be prepared during 2023. These
targets will be based on the reductions
that are controllable by management
(see page 44).
Group Revenue
£169.7m
2022
2021
2020
169.7
131.6
119.0
Cash generated by
operations (£m)
£6.6m
2022
2021
2020
6.6
6.0
10.5
Net debt (£m)
£(20.9)m
2022
2021
2020
(20.9)
(15.7)
(11.4)
ESG
ENVIRONMENTAL
SOCIAL
GOVERNANCE
LINK TO STRATEGY
INVEST IN OUR CORE MARKETS
EXPAND OUR MARKET REACH
CONTINUED INNOVATION
Description
The underlying EBIT related to the
performance of the underlying business.
Definition
Operating profit of the business
excluding items that are considered
asnot reflective of the underlying
performance of the business (see note6).
Remuneration linkage
Underlying EBIT is one of the main
measures used in short-term and
long-term incentive targets. Despite
strong revenue growth, the target for
2022 was not achieved as margins
weredepressed by higher material
costs and freight costs following global
supply disruption. Consequently, no
management bonus has been earned.
Target
For 2022 the target was consensus
underlying EBIT at the start of the year,
which was £8.0m.
Underlying EBIT (£m)
£5.0m
2022
2021
2020
5.0
4.5
(6.4)
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
32 33
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
LINK TO STRATEGY
Ensuring a safe working environment
for employees is fundamental to
attracting and retaining good-calibre
staff which will enable us to achieve
our strategic goals.
KEY PERFORMANCE INDICATORS CONTINUED
LINK TO STRATEGY
Retaining high-calibre staff is part of
creating and capturing value.
LINK TO STRATEGY
Order growth is a lead indicator
ofthe financial strength of our
endmarkets.
LINK TO STRATEGY
On-time delivery is a lead
indicatorof the quality of service
toour customers.
LINK TO STRATEGY
One of the key near-term strategic
goals is to build a robust and scalable
operational platform. Lighting gross
profit is a good indicator of the
success of this target.
Description
A measure of how many recordable
incidents have occurred within
theGroup.
Definition
A recordable incident is a work-related
incident that results in a member of
staffnot being at work for more than
three days.
Remuneration linkage
Health and safety does not directly link
to remuneration but is an enabler to
achieving revenue and underlying
EBITtargets.
Target
We have missed the target of zero
recordable incidents. Our focus remains
on achieving zero harm for all staff and
two plants have had no incidents in the
last two years. For more information on
these incidents, see page 51.
Description
A measure of how well the Group can
retain its staff.
Definition
The number of staff at the end of the
year divided by the total of the number
of staff at the start of the year and
joiners. This calculation excludes direct
manufacturing staff.
Remuneration linkage
Business growth will come from the
intellectual property generated by our
engineers and our knowledgeable
salesteams.
Target
We are targeting 90% employee
retention and continue to see an
improvement in our performance.
Description
Orders received for Lighting products.
Definition
Total orders received for Lighting
products in the year.
Remuneration linkage
Order growth drives revenue which in
turn drives EBIT, which forms part of the
remuneration targets.
Target
We target year on year order growth
and achieved 23% at constant currency,
which reflects benefits from the
strategic accounts team, recovery in
ourend markets and reclaiming of
market share.
Description
The percentage of Lighting orders
delivered on time (year end numbers
areshown).
Definition
The value of orders shipped in the year
meeting the customer request date over
the total value of the orders shipped in
the year.
Remuneration linkage
A low level of on-time delivery will
impact revenue and hence EBIT. Our
on-time delivery improved in 2022 but
remained impacted by the continued
severe supply chain disruption brought
about by global commodity shortages.
Target
Our target was to maintain or exceed
our prior year on-time delivery. This
target was met despite the supply
chaindisruptions.
Description
The gross profit related to the
performance of the underlying
Lightingbusiness.
Definition
Gross profit of the Lighting business
excluding items that are considered not
reflective of the underlying performance
of the business (see note 6).
Remuneration linkage
Lighting gross profit expansion is a key
part in achieving increased EBIT and
short-term and long-term incentive
targets.
Target
We target year-on-year expansion
ofLighting gross profit. In 2022 we
achieved this through strong revenue
growth, including pricing actions,
thatoffset cost pressures in the
supplychain.
Health and safety
(number)
5
2022
2021
2020
5
0
2
Retention (%)
84%
2022
2021
2020
84
83
76
Lighting orders (£m)
£124m
2022
2021
2020
124
100
87
Lighting on-time
delivery (%)
70%
2022
2021
2020
70
67
80
Lighting gross profit
(£m)
£40.6m
2022
2021
2020
40.6
33.7
23.7
LINK TO STRATEGY
INVEST IN OUR CORE MARKETS
EXPAND OUR MARKET REACH
CONTINUED INNOVATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
34 35
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
SUSTAINABILITY AT DIALIGHT
“Sustainability is at the heart
of everything we do, from
product design to material
sourcing and the way we
operate the business.”
The past two years has been a time when
companies have had to lead with courage
andtake greater responsibility to benefit all
stakeholders. I believe the future belongs to
thosewho can drive growth that is both
sustainable and inclusive.
We believe that growth is necessary to secure
prosperity and wellbeing for everyone. Along with
driving growth, building resilience for our customers,
society and ourselves is a priority.
Our products provide a pivotal opportunity to reduce
carbon emissions in the near term by utilising our
ultra-efficient LED technology that generates up to
60% less emissions than legacy lighting. The time
value of carbon reductions (see page 17) is
magnifiedby the pace at which the industrial world
embraces a significant adoption of LED.
With the guidance from the Science Based Targets
initiative that we need to halve emissions from
electricity by 2030, the timeliness of action
becomesmore crucial. In addition, the inevitable
transition to adecarbonised grid will in turn be easier
to achieve ifthe overall power requirements are
significantly reduced.
Through our cutting-edge technology we will be
bringing the first fully recyclable product to the
market. We are pursuing science-based targets to
decarbonise our own operations and achieve net-zero
impact by 2040.
We aim to create economic opportunity to reduce
inequalities and enable inclusive growth. By investing
in human capital in the same way we invest in physical
capital, we can foster workforce diversity and reskill
or upskill people so they can thrive.
In 2020, we created the Dialight Foundation, a non-
profit arm of our Company dedicated to helping the
communities we operate within. The overwhelming
support from our employees around the world has
made a meaningful difference in the lives of so many
and we look forward to building on this initiative.
On behalf of all our colleagues, I am proud of the
significant steps we have taken on our sustainability
journey this past year. We have a new framework that
builds on our sustainable, inclusive growth ambition,
established a Sustainability Committee to maintain a
sharp focus, and we continue to evolve our external
reporting – including aligning with the Task Force for
Climate-related Financial Disclosures (TCFD).
I am proud of what we have accomplished and I am
even more excited for what is still to come.
Fariyal Khanbabi
Group Chief Executive
A
Sustainability
Solution
We provide a sustainability solution to reduce
carbon emissions in the industrial sector,
which generates 32% of global emissions
FARIYAL KHANBABI
SUSTAINABILITY REPORT
Our 2022 Sustainability Report is available
on our website at
https://www.dialight.com/wp-content/
uploads/2023/01/Sustainability-
Report-2022.pdf
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
37
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
36
SUSTAINABILITY AT DIALIGHT CONTINUED
Our framework
ACCELERATING SUSTAINABLE & INCLUSIVE GROWTH
Our approach
OUR KEY AREAS
P40 P50 P56
ENVIRONMENTAL
Be the catalyst for
decarbonisation
with our customers
SOCIAL
Build inclusive
communities and a
workforce that
reflects society
GOVERNANCE
Set standards for
accountability and
compliance
— Helping our customers deliver their
sustainability goals faster to benefit
with the TVC, see page 17
— Achieve net zero by 2040 and reduce
our emissions in line with validated
near-term science-based targets
— Help the world stay on 1.5 degree
Celcius pathway
— Enhance organisational performance
through a more diverse, equitable and
inclusive culture
— Attract, develop and retain a diverse
workforce while creating an inclusive
environment
— Empower our employees to give their
talent and time to local communities
whilst providing financial and
organisational support
— Continue to evolve and live our values
— Meet the highest professional, legal
and ethical standards while enhancing
accountability
— Continue to drive transparency to our
stakeholders and ensure integrity in
everything we do
INFLUENCING CHANGE
Dialight promotes sustainability through
contributions to industry forums and leveraging
thought leadership through published articles, to
educate industrial stakeholders about solutions to
help them achieve their carbon goals.
Examples over the past year include:
Dialight’s CEO addressed the National
Association of Electrical Distributors (“NAED”)
women in industry forum earlier this year.
This forum provides an environment where female
professionals within the male-dominated electrical
distribution industry can connect with senior
female leaders in industry-leading companies.
This provides a springboard for career
development and increasing the industry
diversityat a senior level.
SUSTAINABILITY MAGAZINE
How Dialight’s LED Lighting
Addresses Workplace Safety
POWER SYSTEMS DESIGN
5 Ways Better Lighting Improves
Steel Plant Safety & Sustainability
Environmental
Key objectives
— Replace environmentally unfriendly
non-LED lighting
— Enable our customers to reduce
costs and their carbon footprint
— Improve industrial safety
Focus areas
— Educate on the benefits of LED
lighting and stimulate demand to
improve adoption
— Continued innovation to produce
themost efficient industrial
lightingproducts
— Design products with lowest
emissions footprint
Measurement
— Dialight emissions plus those from
customers using our products are on
page 43
Social
Key objectives
— Ethical treatment of our people
andthose in the supply chain
— Support local communities
Focus areas
— A culture that promotes all aspects
of health & safety
— Using the Dialight Foundation to
support local communities
— Localisation of supply chain to
reduce carbon footprint and increase
the proportion of local purchases
Measurement
— Accident rates, diversity and
community spend are on pages 51
Governance
Key objectives
— Promote ethical business practices
internally and in our supply chain
— Measure and report on performance
to promote transparency
Focus areas
— Ensuring suppliers agree to Code
ofConduct
— Carbon footprint verification
— ISO 45001, 9001, 14001 and 14064
compliance
Measurement
— KPIs in place and reported on page
33 and under SASB in our 2022
Sustainability Report.
ALIGNMENT WITH SDGs: ALIGNMENT WITH SDGs: ALIGNMENT WITH SDGs:
SUSTAINABILITY HIGHLIGHTS AND CREDENTIALS
Our external ESG ratings have improved over the past two years and with 100% green revenue and facilitating significant avoided
emissions, our products are sustainable in their production and operation.
We have committed to achieving
Net Zero with SBTi by 2050.
Ourinternal target is to achieve
this by2040.
P61
We only sell LED products and
our revenue has been certified
100% green.
P21
Our CDP ratings for 2022 are B
for Climate Change and B- for
Water Security.
P45
Our EcoVadis rating for 2022
isSilver.
P12
Our lights sold in 2022 resulted in
avoided emissions of 2.1m tonnes
by our customers.
P44
We have aligned our policies
onbusiness ethics and
sustainability with our SDG
objectives.
P56
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
38 39
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
SUSTAINABILITY AT DIALIGHT CONTINUED
Environmental
RESPONSIBILITY
We are a sustainability business not just in our
ownoperations but by providing the products that
enable our customers to make their businesses
sustainable and achieve net zero. Today, the
emissions avoided by customers switching to
ourhighly efficient LED lighting (compared to
inefficient legacy lighting) more than outweigh
theemissions from production and use of our
lighting SEE P43 . The more lights that we sell, the
greater is the overall benefit to society through
avoided emissions.
MEASURING OUR ENVIRONMENTAL IMPACT
In order to manage our environmental impact, we
measure various aspects of it, as follows:
— The emissions from the sourcing of materials
— The internal impacts from production and
internal operations
— The impact of distribution to the end customer
— The impact of electricity usage by the customer
— The emissions avoided by our customers
switching to LED
— The end-of-life impact
These form part of our environmental reporting
on P42 . This allows us to focus our efforts on
the aspects that have the potential to generate
the largest emissions reductions.
The largest environmental impact comes from the
emissions avoided by our customers, so themore
efficient we can make our lights; the greater will
bethe benefit to society. This is reflected in
thecontinued R&D and innovation of the product
portfolio discussed on P46 and the measurement
assumptions are discussed on P43 .
The next largest element relates to the size of the
lighting fixtures and the types of materials used. The
smaller the fixture, the lower the materials emissions.
This is discussed in detail on P46 .
The impact of logistics inbound and outbound is
largely out of our control, until there is a widely
available portfolio of decarbonised freight transport.
We look to localise the supply chain where possible
and review our operating locations, but this also brings
the risk of disrupting manufacture and therefore
impacting the quantum of avoided emissions.
Our internal operations are not very resource
intensive and therefore the benefits from reductions
will be quite small. Using an emissions-based ROI
approach, there is a significantly greater potential
benefit from R&D that increases avoided emissions
than from reducing the impact of our own operations.
A 1% improvement in product efficiency can generate
20,000 tonnes of avoided emissions on a 10-year
basis whereas a 1% reduction in the impact of
internal operations will only reduce emissions by
500tonnes over the same 10-year period. We will
continue to seek improvements through the natural
cycle of machinery upgrades, but specific emissions
reduction-based investment must also meet financial
ROI criteria. The investment required for a solar
installation in one of our plants failed the financial
ROI,so has not been pursued.
We have set a target
of reducing water
consumption by 5% per
annum per £m of revenue.
This target was exceeded
in 2021 and 2022.
Water stewardship
Access to clean water and sanitation is a basic
human right and aligns with the United Nations
Sustainable Development Goal (UN SDG) 6
“Clean water and sanitation”. As a responsible
business, we need to ensure that our water usage
is minimised as much as possible, so that there
isan equitable distribution of freshwater. We
complete the CDP water security questionnaire
annually and for 2022 our rating was B-.
Water usage in our production processes is not
extensive and accounts for c. 30% of water
usage.Where there is any contamination from
these processes, water is treated before release
topublic sewers. The majority of water usage
relates to WASH (Water, Sanitation & Hygiene)
services for staff and is therefore discharged
topublic sewers.
Our facilities in Mexico, which account for 45% of
water usage, are in high water stress areas and we
therefore continuously look for ways to reduce
usage. We have set a target of reducing water
consumption by 5% per annum per £m of revenue.
This target was exceeded in 2022 with a reduction
of 21% mainly related to targeted water
conservation measures in Mexico.
BRIGHTER, SAFER, GREENER
Case study
Reduction in water usage
per£mof revenue
2021: 10%
21%
41
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
40
SUSTAINABILITY AT DIALIGHT CONTINUED
Usage by customer
These emissions relate to the impact of the electricity
usage at customer sites whilst using the product over
its life-cycle. This isa highly subjective calculation
aswe do not have access to the electricity usage of
our customer base and, due to thelack of customer
concentration, we would need toget data from
thousands of customers. The calculated impact is
derived from internal calculations and due to its
subjectivity, it is not possible to get assurance over
this number.
Environmental
reporting
Over the past two years we have invested significant
time in understanding our existing carbon footprint
and looking at reduction plans. We used 2020 as
ourbaseline year and performed our first full Green
House Gas (GHG) inventory (excluding the emissions
from customer usage). We have carried out a similar
exercise for 2021 and both have been externally
verified under ISO 14064 to a reasonable assurance
level. Our 2022 figures have not yet been
externallyverified.
The basis of the emission calculations varies
depending on the emission type. Scope 1 and 2
emissions relate primarily to electricity and gas
usageand the quantities used were mainly extracted
from utility bills with a relevant emission factor by
geography applied to derive the emissions.
Scope 3 emissions are more difficult to calculate and
they fall into two major categories:
Sourcing, operations and distribution
These emissions relate to the upstream materials
sourcing, internal operations and distributions of
products tothe end customer and the EOL impact.
The calculations use a combination of 3rd-party data
and analysis to derive an impact that has low
subjectivity and can be externally verified. Themain
elements measured are:
— Materials impact: we used the upstream materials
analysis derived from our EPD analysis to provide
an emissions impact by type of materials used.
— Logistics: wherever possible, we used data from
3rd party logistics carriers to provide the core data
on a geographic basis upstream and downstream
and this was combined with internal calculations
and geographic emission factors.
— Business travel: We used a combination of external
travel agent data and analysis of expense claims
tostratify travel by method and then applied a
geographic-based emission factor.
— Commuting and Work from Home: We used a set
of internal calculations based on a combination of
worker types and geographic locations to create a
matrix of travel distances and method of transport.
We also allowed for some continued post-
pandemic work patterns where office staff
werenot in the office five days per week.
Environmental continued
“Over the past two years we
have invested significant time
in understanding our existing
carbon impact and how to use
R&D to minimise that impact.”
USAGE DISCLOSURES
CO
2
2022 2021
*
2020 2022 Vs 2021
Scope 1 Emissions from combustion offuel Tonnes 1,617 1,188 1,168 (36%)
Scope 2 Emissions from purchased electricity Tonnes 4,885 4,377 4,464 (12%)
Scope 3 Emissions from all other activities
except customer usage
Tonnes 120,147 100,820 123,218 (19%)
Total excluding customer-related
emissions Tonnes 126,649 106,385 128,850 (19%)
Scope 3 Emissions from customer usage** Tonnes 1,099,000 882,000 800,000 (25%)
Total emissions using GHG Protocol Tonnes 1,225,649 988,385 928,850 (24%)
Emissions if customers did not convert
to LED**
Tonnes 3,189,000 2,496,000 2,348,000 (28%)
Scope 4 Emissions avoided by customers** Tonnes (2,090,000) (1,614,000) (1,548,000) 29%
Net emissions impact** Tonnes (1,963,351) (1,507,615) (1,419,150) 30%
Consumption
2022
m’s
2021
m’s
2020
m’s
Variance
m’s
Electricity
*
kWh 12.1 11.0 10.4 (1.1)
Water litre 14.8 14.6 12.1 (0.2)
* There were some minor changes to 2021 reported numbers during the verification process later in 2022
** Internal calculations, see assumptions above and overleaf. Net emissions impact is 2,090k (1,099k less 3,189k) of net customer benefit less 127k (all other processes)
In order to estimate the impact, we have to make
assumptions about key variables:
—The number of hours that lights are in use during
the year. Dialight sells to industrial customers
across abroad range of markets. Some customers
have facilities that are run 24/7 such as oil and gas
refining; others such as power generation may run
18/7 and food & beverage could run 12/6. Because
of this, we have taken a simple average of the
outcomes based on usage 24/7 and 12/6 as
anapproximation.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
42 43
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
SUSTAINABILITY AT DIALIGHT CONTINUED
Environmental continued
—The use of control systems by customers. Control
systems reduce the number of hours that lights
arein use by up to 26% which in turn reduces
electricity usage.
—The use of green energy by customers. As green
energy becomes more available, customers will be
able to utilise this to reduce their emissions impact
and we have no way to track the emissions
reduction impact.
—Emission factors vary by country and can vary
significantly by state within countries. For example,
in the US which is our largest market, factors can
vary by a factor of 3x between states, in Australia
by a factor of 6x and in Europe by 50x. We would
need to monitor sales on a very granular basis
totrack this usage and apply the correct
emissionsfactor.
—Ten year life-cycle, having made assumptions
basedon data available today, we then have to
estimate the forward curve on these for the next
10years asthis is the expected life-cycle of our
lighting products.
EMISSIONS AVOIDED BY CUSTOMERS
One of the major advantages of LED lighting is that
itis up to 70% more efficient than traditional lighting
and therefore generates significant electricity
savingsand reductions in emissions. These avoided
emissions are known as Scope 4 emissions and using
the current GHG Protocol, these cannot be counted
in determining net zero status. Nonetheless, for a
business like Dialight, these are the very core ofour
business purpose and growth strategy and therefore
we have also calculated these emissions.
INTENSITY RATIOS
Our actual intensity ratios for 2022 mainly showed improvements over 2021. Gas consumption (Scope 1)
increased with production volumes but for electricity (Scope 2), we got the benefit of production not
being resource intensive so the 29% increase in revenue could be delivered with an intensity reduction.
For water, we put specific actions in place in Mexico to reduce the water usage.
Consumption per £ of turnover 2022 2021 Variance
Revenue 169.7 131.6 29%
Scope 1 Tonnes/£m revenue 9.5 9.0 (6%)
Scope 2 Tonnes/£m revenue 28.8 33.3 13%
Scope 1 and 2 combined Tonnes/£m revenue 38.3 42.3 9%
Scope 3 (excluding customer usage) Tonnes/£m revenue 746.3 808.4 8%
Electricity MWh/£m revenue 71.3 83.6 15%
Water Kilo litre/£m revenue 87.4 110.9 21%
REPORTING THROUGH OTHER ROUTES
We complete the Carbon Disclosure Project
(“CDP”) questionnaire annually in which we
give details of Scope 1, 2 and 3 emissions,
avoided emissions (Scope 4) and water
management. Our submission is public and can
be viewed via the CDP website. Our climate
change rating in 2022 was B and water
securitywas B-.
In addition, we publish three year environmental
data and SASB Electronic Manufacturing
Services compliance data in our Sustainability
Report available onour website via the link on
the right.
The calculation is very subjective and is internally
generated, it has not been verified. The basis used
isto compare the major product categories sold
withthe most common non-LED products that they
replace. By doing this we can calculate the electricity
usage with LED and without LED and the wattage
saving by product.
We then apply the same assumptions as Scope 3
usage on hours of usage, control systems, etc. to
calculate a total saving. As the assumptions used for
both the usage with LED and without LED are the
same, some of the subjectivity is mitigated and the
emissions avoided is based on the efficiency of LED
and quantum of fixtures sold.
In order to provide a better understanding of the
environmental impact of the business, we include
Scopes 1 to 3 and a calculation of avoided emissions
(Scope 4) in our reporting.
TARGETS
Our targets for 2022 were to reduce Scope 1 & 2
(combined) by 3% per annum (per £m of revenue)
Our other target was to reduce water consumption
by5% per £m of revenue. Both targets were
exceeded in 2022.
We have used a short term Scope 1 & 2 target but
this will be superseded by the Net Zero targets that
will be agreed with SBTi in H1-2023. We will also add
a Scope 3 target but emissions from the customer
usage phase remain the biggest challenge due to
their comparative size.
See our website for
our Sustainability Report
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
44 45
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
RAW MATERIAL CHOICE
We have prepared EPDs for seven product lines
which have provided invaluable data on the
impact of three major factors
—Material choice: differing materials have
significant variation in emissions fromproduction
—Material source: the same material can
havedifferent emissions depending on
where it is processed
—Weight of the fixture: reducing fixture sizes
tendsto reduce the emissions impact from
thematerials
The primary materials that we have used in
the year are as follows:
TONNES OF MATERIALS USED – 2022
Our highly efficient products have a lifespan
doublethat of many other LED competitor products
and up to 5x longer than legacy lighting technologies,
reducing landfill waste through longer product
replacement cycles. Additionally, our products do not
contain any mercury or other toxic materials requiring
hazardous disposal. As we continue to evolve, our
focus is on designing for sustainability.
Long life
High efficiency performance
Reduced waste
Increased recyclability
Non-toxic materials
Reduced carbon emissions
BRIGHTER, SAFER, GREENER
Case study
RECYCLING AT END OF LIFE (EOL)
The major components in our products can be recycled
at EOL. Aluminium is the most widely recycled but
depending on the end market, the other major parts
can also recycled (estimated at 96% in the UK). We
encourage customers to use our recycling partners but
they can also choose alternate vendors to do this. We
continue to look at extending the product life by use of
replacement parts and field upgrades
SUSTAINABILITY AT DIALIGHT CONTINUED
Environmental continued
Sustainable product
design
One major advantage of LED lighting over
legacysolutions is they do not contain
hazardoussubstances.
Most fluorescent tubes and High Intensity Discharge
(HID) lighting contain mercury which is dangerous at
all stages of their life-cycle.
HAZARDOUS WASTE
Whilst there are no hazardous materials in our
products, during the production process there is a
minor amount of hazardous waste generation which
primarily consists of industrial alcohol used to clean
fixtures and solder paste from production of
electronic circuit boards.
Aluminium – 2,115
Packaging – 838
Moulded parts –763
Electronics –743
Wiring – 173
Dialight is a member of the Clean
Lighting Coalition, a group of clean
lighting stakeholders that seeks to ban
the use of mercury in Lighting.
We certify selected products using
EN15804with independently verified
Environmental Product Declarations
https://bregroup.com/services/testing-
certification-verification/en-15804-
environmental-product-declarations/
Sustainability Award
The inaugural ‘Sustainability Award’ is awarded to
individuals or companies who have demonstrated
along-standing commitment to advancing the
sustainability and environmental aims of the
LightingCouncil Australia (LCA).
The LCA is the main body for the lighting industry
inAustralia. Its goal is to encourage the use of
environmentally appropriate, energy efficient,
quality lighting systems.
Dialight’s sustainable LED lighting encompasses the full
sustainability solution that the LCA seeks topromote:
industry-leading efficiency reducing the carbon
footprint of users
ethically sourced materials with their carbon impact
assessed by Environmental Product Declarations
Ten year life that reduces the use of resources in
replacing fixtures and
improving safety on site by providing high quality
light output.
“As a member of the LCA
since 2009, it was fitting that
Dialight was recognised by
their first award as a long-
term sustainability solution.”
RECYCLING DURING MANUFACTURING
Three of our four operational sites use Environmental
Management Systems certified toISO 14001. All
sites have well-established recycling programmes
that ensure that we minimise the amount of waste
going to landfill. The in-house processes are light
industrial and do not generate significant waste. The
major waste items relate to inbound packaging for
materials and some metal off-cuts from machining.
PRODUCT TYPE
2022
Tonnes
2021
Tonnes
Cardboard 299 273
Plastic 71 70
Metals 162 137
Wood 45 7
Other 1 4
Total 578 491
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
SUSTAINABILITY AT DIALIGHT CONTINUED
Efficiency
The installation of 400 Dialight
fixtures to replace the antiquated
technology has been a major
success. Not only are the new
lights guaranteed for 10 years,
butthey also reduce energy
consumption, maintenance
costsand carbon emissions
significantly.
Due to their robust design, they
can cope with the impact of
hydrogen sulphide, a corrosive
by-product that caused the older
halogen fixtures to fail.
DIALIGHT LED FIXTURES illuminate
theexterior tanks in Bridgewater, NJ
EFFICIENCY AND SAFETY
Case study
Efficiency
andsafety
Our LED lighting has multiple
benefits including increased
efficiency and enhanced site safety.
BUSINESS NEED
This 32-acre sewerage and
wastewater facility runs 24/7
and had electrical and lighting
systems that were not only
outdated, but were an amalgam
of different lighting types. These
were prone to frequent failure
and procuring replacement
bulbs and other partswas
extremely difficult and
time-consuming.
DIALIGHT LED LIGHTS
providing a brighter,safer
work environment
The antiquated
lighting provided
inadequate
illumination in
many places which
increased the
accident risk.
DIALIGHT EQUIPMENT USED
ALL NEW PROSITE
®
FLOODLIGHT
Chipscale LEDs andunique moulded
optics offer powerful output in a
smallpackage
Safety
The lighting upgrade has also
substantially improved safety at the
facility which runs all night. It has a
high volume of truck traffic bringing
effluent for processing.
THE IMPROVED VISIBILITY
makes it easier for staff to
monitor traffic
ensures vehicles and
pedestrians are more visible
prevents accidents
“The improvement
in lighting is like
night and day.”
Sherwin Ulep
Manager of Engineering
Warranty period for lights
10 years
49
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48
1
MEXICO
AMERICAS
EUROPE
APAC
MALAYSIA
1,493
28
188
33
228
2022 20202021
0.0
0.4
1.0
3.0
2022 20202021
4.0
0.0
SUSTAINABILITY AT DIALIGHT CONTINUED
1
2
3
Safety footwear is compulsory
at all operational sites
Eye protection is mandatory
on the production floor
Hi-vis clothing is obligatory
inwarehouses and any
locations where moving
vehicles are present
Average number of employees
Social
THERE ARE THREE MAIN
GROUPS OF PEOPLE WE
CONSIDER IN OUR
OPERATIONS:
OUR PEOPLE
We have a moral obligation to
ensure the safety and wellbeing
ofall our staff
THE COMMUNITIES IN
WHICHWE OPERATE
In order to have a sustainable
business, we must protect local
communities
PEOPLE IN THE SUPPLY CHAIN
Our moral obligations to people
extend back through the supply
chain to ensure sustainable
production
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.
Global presence, local impact
We have had a long-term presence
inmany of our operating locations,
contributing to the prosperity of the
regions and communities by generating
socio-economic value.
OUR PEOPLE
Our long-term presence is reflected in
the long service awards
P53
Despite the increase in
recordable incidents, two
of our plants have not
recorded any incident in
the past two years.
Safe working environment
Our target is zero recordable accidents at all our sites
as 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,
seeproduct safety
P60
.
All new staff receive safety briefings in local
languages before commencing work. Safety is
reinforced through the use of bulletin boards and
videos in communal areas.
Accident rates
In 2021 there were no recordable incidents but
unfortunately in 2022 there were five. Dialight
production involves mainly light engineering
and assembly, so these incidents were mainly
strains and sprains where operating
procedures were not followed or PPE not used.
We take these incidents very seriously and
have provided re-training where necessary
toprevent recurrences.
At operational sites PPE
equipment is provided
free. We have created a
culture that has a strong
focus on safety.
All near misses are
investigated to establish
root cause and implement
actions to prevent
recurrence.
Recordable incident rate per
1,000,000 hours worked
Recordable incident severity
rate, average days lost per
incident
Accident rate trends
51
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50
Social continued
SUSTAINABILITY AT DIALIGHT CONTINUED
THE COMMUNITIES
IN WHICH WE
OPERATE
2
ENGAGING WITH OUR PEOPLE
As a global business operating across different time
zones, we use a range of formal and informal
channels to communicate with staff.
These include CEO global video calls with an open
Q&A session, all-hands meetings, smaller team
briefings, employee forums, and direct email
addresses. In addition, the factory sites also use
notice boards and TV screens in communal areas
thatplay corporate updates in local languages.
During the year, Gaëlle Hotellier (Workforce
Engagement NED) conducted a series of meetings
with staff at various sites (without management
present) to understand any concerns that staff had.
DEVELOPMENT AND TRAINING
As a business that relies heavily on R&D, we understand
that development is the cornerstone of the drive to
continuously improve the quality of our business.
Our colleagues are involved in performing a huge
number of often complex processes and procedures
and work continues to ensure high levels of operator
competence throughout the organisation. Individuals
across the organisation are encouraged to undertake
continuing professional development to ensure that
their expertise and knowledge remains up to date.
Outside of technical competence, our focus is on the
development of management and leadership skills.
DIVERSITY
We are committed to ensuring that we have an
inclusive and diverse culture across the Group which
reflects the communities we operate in, as well as
providing an environment where all our people are
able to attain their potential at work. Different
expertise and experiences contribute positively to
Dialight’s development and to a broader and better
basis for decision-making.
At operational sites, the labour pools vary depending
onthe characteristics of the region. Our operations in
Mexico are staffed 100% by local staff. Our operations
in Malaysia predominantly comprise local labour but
also use some migrant workers that supplement
thelocal labour pool. These employees are directly
contracted by Dialight on a full-term contract and we
ensure they are treated equally with the local workers.
Employees in North America are from diverse
backgrounds with sales staff located all around
theUS, Canada and Mexico. Many newly hired
administrative staff are partly home-based thereby
allowing access to a much broader labour pool.
The Lighting industry has traditionally been heavily
male dominated and recruitment of women in certain
roles is difficult due to the gender balance in the
labour pool. We are attempting to break themould
where possible, and our overall male:female ratio is
very balanced, see page 105. In addition, we have a
female CEO which is very uncommon in this industry.
LONG SERVICE AWARDS
Case Study
“We have a long-term
presence in all our
operating locations.”
LONG SERVICE AWARDS
Case Study
Long service awards
We feel it is important to recognise the
achievements of our people and long
service awards are part of that process.
These awards reflect the length of time
thatDialight has been established in the
local areas.
In 2022, the longest was a 50-year award in
Farmingdale, New Jersey for an employee
who started when LED was invented. Our
oldest plant in Roxboro, US celebrated two
long-term employees, with 35 and 40 years
service. Our presence in the Ensenada
region of Mexico gave rise to several
peoplecollecting awards to recognise
15and 20 years’ service. Our Penang
factory (opened in 2012) recognised
staffwith 5 and10 years’ service.
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STRATEGIC REPORT
Social continued
SUSTAINABILITY AT DIALIGHT CONTINUED
PEOPLE IN THE
SUPPLY CHAIN
3
SUPPLY CHAIN AND HUMAN RIGHTS
Dialight is committed to conducting its business in an
ethical and responsible manner at all times, 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.
WE EXPECT OUR EMPLOYEES AND SUPPLIERS
—to behave with honesty and integrity at all times
and to comply with our zero tolerance policy on
bribery and corruption
— to ensure they do not engage with suppliers
incountries that are subject to sanctions
orembargoes
— to ensure that they only engage with suppliers that
adhere to Anti-Slavery and Human Trafficking
legislation
—to ensure that all staff have a safe and secure
working environment that is free from
discrimination
— to ensure all staff are paid a fair wage and do not
have to work beyond the legal requirements
COMMUNITY INVOLVEMENT
We recognise that each of the Group’s operations
has an important role to play in its local community.
COVID-19 has resulted in unprecedented hardship
especially in some areas where we have facilities.
Inthese challenging times, it is not just about Dialight
supporting its own staff by being a good employer
but also about giving back to the communities in
which we operate.
This was the background to forming the Dialight
Foundation. The aims of the Foundation are to
promote, operate and manage charitable grants in
respect of the following classes of beneficiaries:
direct charitable projects in local communities
direct donations to local communities
indirect assistance by facilitating 3rd-party
charitable work or donations to the local
communities
FOUNDATION FUNDING
The Dialight Foundation is funded by a combination
of employee and company donations, reflecting a
shared ethos of community responsibility.
Dialight Foundation
The Foundation is governed by the Dialight Foundation Board, comprised of
employees from around the globe and chaired by the CEO. This diverse group
was carefully selected to bring diverse perspectives based on a variety of job
functions, cultural backgrounds and charitable expertise.
PROJECT CRITERIA
Any donation approved by the
Foundation Board must meet one
or more of the following purposes:
—protection and relief of poverty;
—advancement of education;
—advancement of health and
saving lives;
—non-political community
development and cohesion;
—advancement of amateur sport;
—advancement of human rights,
conflict resolution, promotion of
religious or racial harmony, and/
or equality and diversity
FOCUS AREAS
Some specific focus areas that
have evolved since the inception
of the Foundation are women’s
rights and educational support
forchildren
FEATURED FOUNDATION PROJECTS:
CASA HOGAR EL REINO
— We provided continued support to
this orphanage in Ensenada, Mexico
— We are starting a tutoring support
program for children that are
unable to read/write
Expanding
geographicimpact
Our initial projects were in North
America and Mexico, but we have been
working with local operational teams to
expand this to all operational sites.
We have identified one Australian
charity that provides education-
basedservices to vulnerable and
disadvantaged people and will
beproviding sponsorship in 2023.
Women’s Earth Alliance
The WEA’s Accelerator programme
develops and empowers women
leaders to help establish critical
environmental and climate initiatives,
including upcycling plastic pollution,
developing clean energy solutions,
removing toxins from our environment,
planting trees, growing sustainable
food and providing education about
women’s health, and more.
OTHER PROJECTS
— We provided donations to food
banks in all areas where we operate
during 2022
— Funding for the Women’s Earth
Alliance accelerator programme
— Using the hardship fund to help
employees facing unforeseen
expenses
FOCUSED ON EXPANDING ITS IMPACT IN THESE KEY AREAS:
Foundation donations
2021: £28k
£25k
55
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54
STRATEGIC REPORT
See our website for
more policies
SUSTAINABILITY AT DIALIGHT CONTINUED
Governance
INTRODUCTION
This section deals with Governance in relation to
ESG and the main Corporate Governance section
islocated on pages 92 to 177.
We adhere to strict governance practices and
ourstructure puts a priority on ethical behaviour,
transparency, and accountability. The Board is
committed to developing and monitoring progress
against Dialight’s ESG strategy and performance,
with primary oversight in Board meetings where
ESG is a standing agenda item. Our policies on
Sustainability and Ethical business have been
updated on the website to include a full suite
covering environmental reporting, targets and
alignment with UN SDGs.
OUR APPROACH
We are committed to promoting a culture within
Dialight where everyone does the right thing and
takes personal responsibility for their actions.
OurOperational Framework and Code of Conduct
set out the standards of business conduct and
behaviours we expect of all of our businesses,
ouremployees and all third parties who act on
ourbehalf.
OPERATIONAL FRAMEWORK
Our Operational Framework incorporates abroad
range of policies and procedures. The Operational
Framework implements a robust governance and
compliance framework to enable us to operate in
asafe,consistent and accountable way.
—Every employee, at every level of the organisation,
has access to and understands the requirements of
the Operational Framework
—Appropriate training and monitoring processes are
in place to ensure proper implementation of the
Operational Framework
—Local procedures and processes are adopted
toimplement the requirements of the
OperationalFramework
ETHICS AND BUSINESS CONDUCT
At Dialight, we are committed to doing business the
right way. This means acting professionally, morally,
ethically and lawfully in our dealings with all of our
colleagues, business partners, customers and
shareholders. Our Code of Business Conduct
explains what we really mean by this. It provides
guidance and sets out key company principles that
apply to everyone at Dialight. We also expect our
business partners to uphold the same commitment
and principles.
TERMS AND CONDITIONS
Our Terms & Conditions of purchase set out
therequirements of our suppliers including
compliance with:
Anti-slavery and human trafficking legislation
(including the UK Modern Slavery Act 2015)
Anti-slavery and human trafficking legislation
inthesupplier’s supply chain
Anti-bribery and anti-corruption legislation
Occupational Safety and Health Act 1970
Equal Employment Act
Top 30 supplier
ESGsurvey
In 2022 we undertook a survey of our top
30suppliers (c. 70% of supply chain value)
tounderstand:
—If they had sustainability ratings
—Their sustainability processes and due
diligence processes in more detail
We categorised the suppliers between
manufacturers and distributors, and between
publicly listed and private companies to better
understand their answers. The survey showed
that the top 30 vary from having an EcoVadis
Platinum rating down to having no rating at all.
Publicly quoted companies scored better and
we intend to engage with those at the lower
endof the scale in order to set expectations
ofsustainability requirements and any
improvements needed.
Continuous
improvements to
the Operational
Framework
Operational
assurance
process
Internal review
andconsideration
offindings
Implementation
ofnew procedures
andtraining
programmes
Identification of
risks and areas for
improvement
57
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56
BOARD OF DIRECTORS
GOVERNANCE BY ESG COMMITTEE
CEO
AUDIT COMMITTEE
CFO
Operational execution
of strategic direction
Operational execution of
strategic direction
External compliance and
risk management
External
reporting
General counsel VP of ESG
TCFD and
risk updates
Operational
updates
Strategic
direction
GOVERNANCE STRUCTURE FOR ESG
SUSTAINABILITY AT DIALIGHT CONTINUED
HUMAN RIGHTS
The Group is committed to respecting human rights
in the countries in which we do business. Our Code
of Conduct and other applicable policies under the
Operational Framework support our commitment
toensuring, as far as we are able, that there is no
slavery or human trafficking in any part of our
business or in our supply chain.
We see compliance with local legislation as a
minimum requirement and generally strive to
operate at a higher level.
ANTI-BRIBERY AND CORRUPTION
Dialight has a zero-tolerance policy in respect of
bribery and corruption. This extends to all business
dealings and transactions and includes a prohibition
on offering or receiving inappropriate gifts or
making undue payments to influence the outcome
of business dealings. Compliance with the policy
ischecked as part of the half-year and year-end
process. All employees have been trained on
antibribery and corruption policies.
At a corporate level, the Group
does not make political donations
does not make payments to lobbyists
INFORMATION SECURITY
The level of information security should be
appropriate for the nature of the information and
systems, and the risk and impact that breach,
disclosure or loss could cause for one or more
individuals, businesses or Dialight.
This means that only authorised personnel should
have access to information. We are also mindful
about how computers and mobile devices are
secured, when used by the mobile workforce or by
staff working from home. This has created additional
hazards for protecting information where personnel
work outside the traditional protected office
boundary. Any such personnel still can transport
paper documents, and these require the same level
ofsecurity. Dialight expects staff to apply the same
standards whether in the office or not as it is still
responsible for customer information, even if it
isbeing handled or processed outside of
Dialightoffices.
Governance continued
TAX STRATEGY
As part of supporting local communities, we are
committed to paying the taxes due by law in the
countries where we operate and to comply with local
legislation. This applies to direct and indirect taxes.
The Group manufactures finished goods in Mexico
and Malaysia and some of these are sold to Group
companies in other jurisdictions. For corporation tax,
the key safeguards that we put in place related to the
inter-company trading are:
Transfer pricing is set in compliance with
OECDprinciples
Global transfer pricing policy is in place
Based on the arm’s-length principle
GAN INTEGRITY
Ongoing surveillance of suppliers and
customers for negative ESG publicity
ASSENT
Materials compliance surveillance for
Conflict Minerals, Human Trafficking,
REACH/RoHS
SUPPLY CHAIN
Third-party agency
We use a third-party agency who
provide a 24-hour ethics reporting
service, which can be accessed by
telephone, email or by an external
website. Whistleblowers can remain
anonymous and all reported issues
are investigated and reported to the
Audit Committee.
Due to our workforce diversity,
posters are displayed at operational
sites in local languages and the third
party uses multi-lingual staff.
WHISTLEBLOWING
We have a whistleblowing policy and procedures
in place which enable all employees to raise
concerns, in confidence, about possible
improprieties or wrongdoing within the business.
59
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58
2040
SUSTAINABILITY AT DIALIGHT CONTINUED
Governance continued
Our Net Zero Ambition
PRODUCT SAFETY
All lighting products must meet local safety standards before they can be sold.
The standards vary by region and are as follows:
TEN-YEAR WARRANTY
We provide a 10-year warranty on most
Lighting products which guarantees the
workmanship of the product, provided that
ithas been installed correctly and is used in
anenvironment for which it was designed.
All fixtures come with installation instructions
that advise that only suitably qualified
personnel are used for installation. Due to the
weight of the fixtures and the height at which
they are mounted, we recommend the use of
secondary retention lanyards in certain
installations to prevent danger of injury.
PRODUCT SAFETY LITERATURE
All our fixtures are shipped with installation and
safety instructions, and these are also available
onour website.
SAFETY STANDARD
NORTH
AMERICA
SOUTH
AMERICA EUROPE
MIDDLE
EAST
SOUTH EAST
ASIA
AUSTRALIA/NEW
ZEALAND
CB
ENEC
RCM
UL
ATEX/IECEX
ABS
DNV-GL
INMETRO
GEOGRAPHIC APPLICABILITY
THE MAJOR SAFETY STANDARDS ARE:
Our approach
UPSTREAM
ACTIVITIES
Review of material choice and source
Reduction in fixture size
Localisation of supply chain
Availability of decarbonised freight transport
Review of material choice and source
Reduction in fixture size
Localisation of supply chain
Availability of decarbonised freight transport
INTERNAL
OPERATIONS
Reduce energy usage
Upgrade machinery
Reduce business travel
Availability of renewable energy at all sites
Availability of low-carbon business transport
Reduce energy usage
Upgrade machinery
Reduce business travel
Availability of renewable energy at all sites
Availability of low-carbon business transport
DOWNSTREAM
ACTIVITIES
Proximity of manufacturing sites to
endmarkets
Availability of decarbonised freight transport
Reassess location of manufacturing sites
Availability of decarbonised freight transport
CUSTOMER
EMISSIONS
Increased energy efficiency from
designimprovements and sale of more
control systems
Availability of renewable energy
Further energy efficiency and sale of
more control systems
Availability of renewable energy to
allcustomers
AVOIDED
EMISSIONS
Satisfying the lighting demands from
increased LED adoption, see page 44
Speed of adoption of LED by
industrialmarket
Satisfying the lighting demands from
increased LED adoption, see page 44
Speed of adoption of LED by
industrialmarket
SHORT TERM TO 2030 LONGER TERM 2031 TO 2040
National Lighting Bureau
(NLB) Trusted Warranty
Programme
In 2021, Dialight’s 10-year warranty
was approved by the NLB in the US.
This recognises lighting companies
that meet objective quality
standards and practices regarding
their warranty and validates that
they stand behind their warranty
commitments.
RECOMMENDATIONS FROM
THE SBTI NET ZERO
STANDARD
Reduce emissions by 50% within
a 5 to 10-year period
Set longer-term targets that
reduce emissions to zero by 2040
1
2
SBTI TARGETS
We will be submitting our SBTi net
zero plans in Q2-23 for approval.
Our plan has not yet been finalised
butis likely to contain the elements set
out below. On page 43 we show the
relative size of our emissions sources.
Dialight’s internal processes are not
very resource intensive with the more
energy-intensive processing of
materials such as aluminium happening
upstream. Our internal processes only
account for c. 5% ofemissions (excluding
customer emissions). In turn, customer
emissions need to be balanced with the
significantly larger benefit from avoided
emissions by customers switching to LED,
see page9.
Plans are likely to include a
combination of two key factors:
Dependencies
on 3rd parties in
order to achieve
reductions
Actions that
we can take
and directly
control
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
60
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
61
TCFD REPORT
As a sustainability solution provider to our
customers, our business is primarily focused
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ourexisting business framework.
We have complied with FCA listing rule 9.8.6R(8) and
have considered relevant and material elements of
the recommended TCFD disclosures. This report
uses the four thematic areas and 11 recommended
disclosures, and we continue to consider the
“Guidance for All Sectors” set out in the October
2021 Implementing the Recommendations of the Task
Force on Climate-Related Financial Disclosures. We
expect to continue to finalise our net zero plan during
2023 (see page 61 for potential elements of the plan)
and, in future Annual Reports, will enhance our
reporting and further integrate climate disclosures.
Governance
The Board of Directors is responsible for the
oversight of climate-related risks and opportunities
aspart of the strategy and risk management of the
Group and we confirm that we comply with the
requirements of Listing Rule 9.8.6R(8). The Board
monitors and oversees the Group’s GHG emissions
(actual and avoided) and any targets related to them,
see page 43 for further details. The Board is
responsible for approving the content of the
Group’sTCFD disclosures.
TCFD Report
The executive management level oversight of climate-
related issues at Dialight is performed by the CEO,
with the support of the ESG Committee/Executive
Committee, which consists of VPs from all the
majordepartments. The ESG Committee is in turn
supported by other functions and project teams who
have responsibility for implementing the underlying
sustainability framework actions, including the
day-to-day management of climate-related issues,
and reporting any relevant data, progress or issues
tothe ESG Committee.
Strategy
The business strategy is growth and therefore this
relates primarily to the ability to maximise the
opportunity from climate change. Whilst we outline
both risks and opportunities in the same detail, the
Group believes that, because of our business model,
strategy and exposure, our climate-related
opportunities are more significant and the majority of
the risks relate to the ability to cope with accelerated
product demand.
Scenario analysis requires analysis of specific
factorsand modelling them with fixed assumptions.
Anumber of assumptions were made in this analysis:
—With the opportunity being significantly greater
than the risks, the greatest assumption relates
tothe pace of the adoption curve for LED by
industrial customers, see page 44.
—Impacts are assumed to occur without the
company or governments responding with any
mitigation actions, which would reduce the impact
of risks. As seen with the supply chain shortages
in2022, we have been able tomitigate upstream
component shortages which were not caused by
climate-related issues but had the sameimpact.
—The analysis considered each risk and scenario
inisolation, when in practice they may occur
inparallel as part of a wider set of potential
globalimpacts.
These scenarios were supplemented with additional
sources specific to each risk to inform any
assumptions included in projections.
Risk management
Dialight considers climate-related risks and
opportunities in all physical and transition risk
categories, current and emerging, whether they
occurwithin our own operations, upstream and
downstream of the Group and whether they occur
within the short (1 to 3 year), medium (3 to10 years)
orlong-term (10+ years) time horizons.
Risks and opportunities relevant to Dialight were
identified and refined through consultation with the
Risk Committee and senior management. The Risk
Committee evaluates climate-related risks and
opportunities on the Company’s five-point risk
management scale for likelihood (Remote to Likely)
andimpact (Minor to Critical).
A substantial financial risk is one that would have an
underlying EBIT impact of more than 25% in any one
year. A strategic risk is one that would have a similar
impact per annum over at least three years and could
severely impact the ongoing business.
The risks identified relating to TCFD are subsets of
the Group risks (see pages 74 to 79) relating to:
—Environmental and Geological
—Geo-political/Macro-Economic
—Production Capacity and Supply Chain
Metrics and targets
With TCFD being synonymous with the underlying
business, our metrics of operational performance
onpages 32-35 relate to the opportunities.
Ourspecific emissions reporting is on page 43
andour targets are on page 33.
Our analysis of the climate-change impact
Our fundamental
business purpose is to
be in a position to
maximise the benefit
from the climate-
related opportunity.
1
Customers wanting to
achieve net zero can
quickly reduce their
emissions by
converting to LED
2
The pace of LED
adoption is uncertain
but is likely to
accelerate as
customers work to
achieve their SBTi and
other climate targets
3
The ability to meet the
increased demand is
our main risk
4
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
2 5
643 7
1
TCFD REPORT CONTINUED
The
opportunities
outweigh the
risks
Estimation of opportunity value
The value of the opportunity on a 20-year
basis is heavily influenced by the adoption
rate, P27 . Whilst in some segments of
theindustrial market the LED adoption rate
for new sales is as high as 65%, in the
hazardous market penetration it is still as
lowas20% and our products are tailored
tothis market.
There are opportunities to expand the
current addressable market, P27 ,
whichcould increase the target market.
PHYSICAL RISK
5
Changing weather patterns
Disruption of upstream and downstream logistics
6
Extreme weather event
Impact of one-off risk occurring at a manufacturingsite
7
Drought
Impact of water shortages, see p68
TRANSITIONAL OPPORTUNITIES
Market
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.
TRANSITIONAL RISK
1
Technological
Product re-design to meet more stringent
emissionrequirements
2
Change of customer type
Transition to zero-carbon economy resulting in
changein customer base and requirements
3
Supply chain
Disruption in materials supply leading to shortages
4
Operational capacity
Capacity constraints to deal with large-scale
demandincreases
£2.0bn
The value of the market that
Dialight can currently serve
is£2.0bn per annum P26 .
TRANSITIONAL
RISKS
PHYSICAL
RISKS
WEATHER PATTERNS
Changing weather patterns are likely
tocause more instances of drought
andflooding as existing climate patterns
are reversed
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
OPPORTUNITIES
TIME HORIZON MAGNITUDE OF IMPACTCHANGE IN YEAR
INCREASED
DECREASED
NO
CHANGE
SHORT TERM
MEDIUM TERM
MEDIUM-LONG TERM
LONG-V. LONG TERM
LOW
LIKELIHOOD
LESS LIKELY
VERY LIKELY
LIKELY
TCFD REPORT CONTINUED
LINK TO STRATEGY
The business strategy is growth from replacing older inefficient
lighting technology with high-performance LED lighting so
changes in the regulatory environment areconsistent with the
business strategy.
One of the growth enablers is to reduce the cost per fixture and
therefore encourage conversion to LED. This is consistent with
that aim.
One of the growth enablers is to reduce the cost per fixture and
therefore encourage conversion to LED. This is consistent with
that aim.
One of the growth enablers is to reduce the cost per fixture and
therefore encourage conversion to LED. This is consistent with
that aim.
DESCRIPTION
There is increasing regulatory pressure at a national and
international level to ban older lighting technology. These often
usehazardous materials in their manufacture and generate
upto60% more carbon emissions than LED lighting. In addition,
customers who have set their own Net Zero targets need to
findcarbon reduction initiatives and conversion to LED is one of
the quickest ways to have a substantial impact on a company’s
carbon footprint.
The majority of lighting fixtures have an aluminium housing in
orderto ensure the longevity ofthe product. This represents
c.60% of the weight of the fixture and c. 5% of the emissions
(using the GHG protocol). We have been using data gathered
whilst preparing EPDs to assist with research into the use of
alternate materials as part of our aim toproduce the first Net Zero
industrial lighting fixture. Replacement materials will becheaper
and have a lower carbon footprint which will enable usto reduce
the materials cost, generate higher gross margin andreduce the
overall product costs.
Whilst we continue using aluminium, there may be opportunities
to reduce the upstream carbon impact by sourcing it from
smelters that userenewable energy. In addition, the use of
recycled aluminium would be much cheaper as primary
production isapproximately 10 times moreenergy intensive than
secondary production. Localisation of supply chain andthe use
of electric vehicles for upstream and downstream transportation
would reduce costs and emissions (logistics are c. 2% of
emissions using the GHGProtocol).
During 2022 we have been investigating the use of solar
installations to reduce our reliance on local grid andreduce our
emissions. Unfortunately, local legislation inMexico does not
permit installation of solar panels at our two facilities. We also
investigated installing solar at our Roxboro, North Carolina site
butthe ROI does not currently support the investment needed,
see page 40. Afull solar installation would only generate 25%
ofthefacility’s current electricity requirements. We consider
thatinvestment inR&D to generate further lighting efficiency for
customers and encourage conversion to LED will give a larger
carbon reduction.
FINANCIAL IMPACT
The value of the market that Dialight can currently serve is £2.0bn
per annum (see page 26). Assuming a market share of 10% over
a20-year basis, the value is c. £4.0bn.
The cost of aluminium per fixture is c. £30 and it is likely that a
replacement material could be c. 33% cheaper. The impact would
depend on the volume of units sold but it could be in the region of
c. £1.0m per 100,000units.
The cost of aluminium per fixture is c. £30 so it is likely that using
recycled aluminium could be up to 50% cheaper. The impact
would depend on availability and the volume of units sold but it
could be in the region of c. £1.5m per 100,000 units.
The benefit from solar at our facilities is low and we estimate it at
only £0.2m perannum.
REGULATORY PRESSURE TO REDUCE
EMISSIONS AND BAN OLDER LIGHTING
TECHNOLOGIES
REDUCTION OF
ALUMINIUM CONTENT/UNIT
GREENER ALUMINIUM
&TRANSPORT
SOLAR SELF-GENERATION
TYPE: MARKETS
OPERATIONAL AREA: DOWNSTREAM
TYPE: RESOURCE EFFICIENCY
OPERATIONAL AREA: OWN OPERATIONS
TYPE: RESOURCE EFFICIENCY
OPERATIONAL AREA: UPSTREAM
TYPE: ENERGY SOURCE
OPERATIONAL AREA: OWN OPERATIONS
VERY HIGH MEDIUM MEDIUM-LOW LOW
CLIMATE-RELATED OPPORTUNITIES
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
TIME HORIZON MAGNITUDE OF IMPACTCHANGE IN YEAR
INCREASED
DECREASED
NO
CHANGE
SHORT TERM
MEDIUM TERM
MEDIUM-LONG TERM
LONG-V LONG TERM
LOW
LIKELIHOOD
LESS LIKELY
VERY LIKELY
LIKELY
TCFD REPORT CONTINUED
DESCRIPTION
The wildfire risk near our Tijuana and Ensenada factories in Mexico
is classified as high, meaning that there is a greater than 50%
chance of encountering weather that could support a significant
wildfire, leading to lossoflife, damage to property and impact on
local services andemployees. Studies indicate climate change will
increase theprevalence of wildfires, their intensity and the length
of thewildfireseason. Forinstance, climate change projections
using Representative Concentration Pathway 8.5 suggest an
increase in days conducive toextreme wildfire events of between
20% and 50%, but it should benoted that in all three scenarios
studied, global temperatures riseuntil 2050.
Carbon pricing (applied directly or indirectly) is expected to
expand in scope and the priceof carbon is expected to rise.
TheInternational Energy Agency forecasts that carbon prices
($/tCO
2
e) relevant toDialight under SDS and STEPS are projected
to increase as below:
CARBON PRICE ESTIMATES (US$/T)
Scenario – SDS 2030 2040 2050
Advanced economies with Net
Zeropledges 120 170 200
Emerging economies with Net Zero pledges 40 110 160
Other selected EM economies – 35 95
Scenario – STEPS 2030 2040 2050
UK 65 75 90
US, Australia, Mexico & Malaysia – – –
Issues such as COVID-19 and Brexit have exposed general
supply chain risks over the last two years. Whilst these are
derived from non-climate related drivers, similar impacts could
occur if the supply chain issubject to physical risks resulting from
climate change. This would result in an inability to source inputs
or higher cost to Dialight. Climate impacts are largest in the
STEPS and RCP 8.5 scenarios, where there are higher chances
ofhigh magnitude extreme heat events, ecological droughts,
extreme rainfall, wildfires and flooding.
MITIGATION
The opportunities for mitigating actions arelow and any internal
fire prevention process is unlikely to assist with an external fire.
Inaddition, being in a water stress area makes access to water-
based mitigation systems more difficult.
The cost implications to Dialight of the introduction of carbon
pricing on Scope 3 emissions would depend upon where
responsibility for the cost lies, and we have assumed in our
modelling that this cost can be passed on to the end customer.
Dialight is reviewing its supply chain resilience, including critical
component supplier locations, potential for localisation ofsupply
and the impact on these from any changes in the major product
materials usedin the next generation of products, seepage 19.
FINANCIAL IMPACT
The financial impact to Dialight (estimated at a maximum of
£80mfor complete loss ofproduction over 12 months) would
bedependent on the scale of any damage, the timescale of any
fire-related disruption and the offset by any insurance monies
recouped under the business interruptionpolicy.
Carbon pricing could increase the cost of electricity, albeit the
Group is not energy intensive. Using SDS carbon prices on the
Group’s 2020 emissions, the additional costs related to our Scope
1 & 2 emissions, if passed through fully, would be under £0.5m
annually through to 2040. The Group’s larger carbon exposures
are in our Scope 3 emissions, in the embedded carbon of
purchased goods and services and the cost of transportation.
The costs are difficult to quantify but the supply chain disruptions
in 2022 provide anestimate of what they might be, albeit caused
by a different issue. As discussed on page 80, the impact of
component availability as well as logistics and freight disruption
accounted for the majority of the £6.0m gross margin impact
in2022.
WILDFIRE/EXTREME WEATHER CARBON PRICES SUPPLY CHAIN DISRUPTION
TYPE: PHYSICAL
OPERATIONAL AREA: OWN OPERATIONS
PRINCIPAL AND EMERGING RISK:
ENVIRONMENTAL AND GEOLOGICAL
TYPE: TRANSITION (EMERGING REGULATION)
OPERATIONAL AREA: UPSTREAM/OWN
OPERATIONS
PRINCIPAL AND EMERGING RISK:
GEOPOLITICAL/MACRO-ECONOMIC
TYPE: PHYSICAL
OPERATIONAL AREA: UPSTREAM
PRINCIPAL AND EMERGING RISK:
PRODUCTIONCAPACITY AND SUPPLY CHAIN
VERY HIGH MEDIUM MEDIUM-LOW
CLIMATE RELATED RISKS
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Group risk control & visibility cascade
The key areas of the Group’s system of internal
controls are as follows:
The key component in any risk management system is
people. Dialight invests heavily in its people, recruiting
capable and adaptable individuals and focusing onthe
retention of our skilled workforce. It is our employees
that maintain our high standards of risk control and
create a culture in which risk can bemanaged to the
advantage of the Group.
Functional reviews (eg finance, operational, legal and
compliance reviews) are hard-coded into our approvals
systems. All cash payments from the Group are
reviewed and approved at a supplier level by the
CFO.Cash forecasting has been enhanced to be at a
moregranular level and rolling 13-week forecasts are
updated regularly. Manufacturing operations, including
relevant supply chain, inventory and production metrics
are reviewed daily. Sales and orders reports are
reviewed daily in order to assess any changing risk
profile on sales activity by geographic location. The
Board approves the annual budget, strategic plan and
in-year forecasts and tracks their achievement.
A comprehensive financial reporting package is
receivedfrom all operating units on a monthly basis,
withcomparisons against budget, forecast and prior-year
performance. Each operating unit is required to submit
aquarterly self-certification on compliance and controls.
Each month the CEO and CFO report to the Board.
TheCEO report outlines the Group’s operations and
provides analysis of significant risks and opportunities.
The paper covers progress against strategic objectives
and shareholder-related issues. The CFO report sets
out progress against internal targets and external
expectations – including routine reporting onliquidity
risk and covenant compliance.
The CEO and CFO report to the Audit Committee
periodically on all aspects of internal control. This
includes the results of internal audit activity by Group
Finance or external providers. TheBoard receives regular
reports from the Audit Committee, and the papers and
minutes of the Audit Committee are used as a basis for
the Board’s annual review of internal controls.
The Board reports annually to shareholders on its risk
management framework, providing shareholders with
an opportunity to challenge Group Strategy, including
in respect of the Group’s risk mitigation
DIALIGHT PLC BOARD
RISK COMMITTEE
GROUP FINANCE STAFF
OPERATIONAL
/ESG
EXECUTIVE
COMMITTEE
COMPLIANCE
COMPANY
SECRETARY
CHIEF EXECUTIVE
SENIOR MANAGERS
AUDIT COMMITTEE
REGIONAL FINANCE
STAFF
1 2 3 4
RISK MANAGEMENT
Strategic risk approach and risk culture
Dialight’s approach to effective risk management
involves our people, at all levels in the organisation,
being empowered to manage risks and take advantage
of opportunities as an integral part of their day-to-day
activities – creating an entrepreneurial organisation
with a high level of risk-literacy. Our risk awareness
culture allows management to make better
commercial decisions and helps to maximise
thebenefits of our business model.
Risk management principles
The effective understanding, acceptance and
management of risk is fundamental to the long-term
success of the Group. The Group has developed
specialist knowledge in products, services,
processes and regions, which allows us to
understand the associated risks and accept them in
an informed way. Our approach is encapsulated in
the key principles of our risk management process:
—to understand the nature and extent of risks facing
the Group;
—to accept and manage within the business those
risks which our employees have the skills and
expertise to understand and leverage;
—to assess and transfer or avoid those risks which
are beyond our appetite for risk; and
—by consideration of materiality, establish the authority
layers within the Group at which decisions on
acceptance and mitigation of levels of risk are taken.
A rapidly changing world
Embedding internal controls and risk management
further into the operations of the business is an
ongoing process and we continually strive for
improvement. This is not a static process with an
end-point, but a continuously evolving process as
weadapt to a changing business environment.
Ourintegrated approach to risk, our simple and flat
corporate structure and our flexible and adaptable
ways of applying our risk framework, enable the
Group to respond quickly, and identify opportunities,
in emerging challenges to our supply chain, product
development and production operations, and our
endmarkets.
Risk governance and controls
The Risk Committee is responsible for overseeing
therisk management processes and procedures.
Itprimarily comprises the members of the Executive
Committee and reports to the Board through the
Audit Committee on the key risks facing the Group.
Itmonitors the mitigating actions put in place by
therelevant operational managers to address
theidentified risks. The Board has approved the
acceptance of certain risks which are considered
appropriate to achieve the Group’s strategic
objectives. The degree of risk to beaccepted within
the business is managed on a day-to-day basis
through the Board-delegated authority levels.
Theseare the framework for informed risk taking
within the businesses and the route for escalating
decision-making up to the Board.
Further details on the governance structure in the
Group are provided on pages 110 to 111. This
governance structure provides the framework for the
Group’s approach to, and management of, risk, and
provides the structure for changes in current and
emerging risks to be highlighted and addressed.
Risk summary
FUNCTIONAL
ANDFRONT LINE
CONTROLS
ASSURANCE
ACTIVITIES
MONITORING
ANDOVERSIGHT
CONTROLS
ETHICAL AND
CULTURAL
ENVIRONMENT
BOTTOM UP
—Business risk appetite policy
—Assessment and mitigation of specific risks
—Upward reporting of key residual risks
Risk management framework
Our complementary approach is based on
utilising a top-down plus a bottom-up process:
TOP DOWN
—Group risk policy and strategy
—Group risk appetite
—Principal risk oversight
—Group compliance oversight
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
READ MORE P74
RESIDUAL RISK
1
ORGANIC GROWTH
2
ENVIRONMENTAL
AND GEOLOGICAL
3
FUNDING
4
PRODUCTION CAPACITY AND
SUPPLY CHAIN
5
CYBER AND DATA SYSTEMS
6
PRODUCT DEVELOPMENT
STRATEGY
7
PRODUCT RISK
8
TALENT AND DIVERSITY
9
INTELLECTUAL PROPERTY
10
GEOPOLITICAL/MACRO-
ECONOMIC IMPACTS
RISK KEY
Catastrophic
Significant
Moderate
Low
Negligible
RESIDUAL RISK HEAT MAP
IMPACT
HighLow Medium
HighLow Medium
PROBABILITY
4
2
5
63
7
10
9
1 8
RISK MANAGEMENT CONTINUED
Principal and emerging risks and uncertainties
The Board has conducted a robust assessment of
theCompany’s principal and emerging risks. The
risksoutlined in this section are the principal risks
thatwe have identified as material to the Group.
Theyrepresent a ‘point-in-time’ assessment, as
theenvironment in which the Group operates is
constantly changing and new risks may always arise.
Risks are considered in terms of probability and
impact and are based on residual risk rating of: high,
medium and low. Mapping risks in this way helps not
only to prioritise the risks and required actions but
also to direct the required resource to maintain the
effectiveness of controls already in place and
mitigate further where required.
The risks outlined in this section are not set out in
anyorder of priority, and do not include all risks
associated with the Group’s activities.
Additional risks not presently known to management,
or currently deemed less material, may also have an
adverse effect on the business.
The arrows indicate where a risk has
changed from the previous year.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
LINK TO STRATEGY
INVEST IN
OUR CORE
MARKETS
EXPAND
OURMARKET
REACH
CONTINUED
INNOVATION
GROSS RISK IMPACT ON STRATEGY DESCRIPTION
IMPACT ON VIABILITY,
REPUTATION AND HEALTH
AND SAFETY MITIGATION
TIME HORIZON
SHORT
<2YRS
MEDIUM
<2-5 YRS
LONG
>5YRS
1
ORGANIC
GROWTH
— Revenue
— Underlying operating
profit
The risk of stagnation of growth where the product
portfolio is not renewed, where there is any failure
toidentify customer requirements (including pricing
sensitivity and economic models), and the risk
ofconcentration in certain verticals and/or
geographicalmarkets.
— Loss of reputation
— Loss of market value
In 2022 the Group achieved significant revenue growth
for the second year in a row,with improved on-time
delivery although margin was impacted by commodity
pricing/availability and freight costs. Continued
improvement in our in-house manufacturing operations
has increased our capacity to support further growth.
Our diverse product mix mitigates risk in any particular
sector and focus on continued and improved product
management and new product development mitigates
future risk.
MEDIUM
2
ENVIRONMENTAL
AND
GEOLOGICAL
— Revenue
— Underlying operating
profit
The Group’s main manufacturing centre is in Mexico and
its main market is North America. Any impediment to raw
materials getting into Mexico or restrictions on finished
goods entering North America related to natural
disasters could have a large impact on profitability.
Disruption to global markets and transport systems
arising from geological, biological, economic and/or
political events may impact the Group’sability to
operate and the demand for its products.
— Reduced financial
performance
— Loss of market share
— Unforeseen liabilities
The Group maintains appropriate structural risk
mitigations including comprehensive insurance and
contingency planning. With its in-house manufacturing
capacity leveraged across several, geographically
dispersed, sites and through the maintenance of
finished goods inventory the Group is able to reduce
risk relating to meeting customer demands.
MEDIUM
3
FUNDING
— Revenue
— Underlying operating
profit
The Group has a net debt position and there is a risk
related to liquidity.
The Group has not paid a dividend since 2015.
The Group reports in Sterling; however, the majority
ofits revenues, cost base and borrowings are in US
Dollars. Fluctuations in exchange rates between
Sterlingand the US Dollar could cause profit and
balance sheet volatility.
— Covenant compliance
— Volatile financial
performance arising
from translation of
profitfrom overseas
operations
— Most of the Group’s
profitearned is not in
thereporting currency
The Group has significant headroom against its
remaining banking covenants and has sufficient
borrowing capacity following the bank facility renewal
in July 2022. The financial sensitivities run for the
Viability Statement show that the Group expects to
remain compliant with its financial covenants.
Capital allocation policy isused to determine
re-investment or distribution ofcash.
The Group uses natural hedging to cover operational
exposure as the majority of revenue and costs are in
US Dollars. Additionally the RCF was redenominated
from £25m to USD 34m in November 2022.
MEDIUM
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
LINK TO STRATEGY
INVEST IN
OUR CORE
MARKETS
EXPAND
OURMARKET
REACH
CONTINUED
INNOVATION
GROSS RISK IMPACT ON STRATEGY DESCRIPTION
IMPACT ON VIABILITY,
REPUTATION AND HEALTH
AND SAFETY MITIGATION
TIME HORIZON
SHORT
<2YRS
MEDIUM
<2-5 YRS
LONG
>5YRS
4
PRODUCTION
CAPACITY AND
SUPPLY CHAIN
— Revenue
— Underlying operating
profit
— On-time delivery
— Order growth
The Group operates a complex international supply
chain (both inbound and outbound) which can be
impacted by a range of risk factors including political
disruption, border frictions, logistics challenges and
other compliance issues. Supply chain challenges can
inturn impact production capacity and efficiency – as
well as other factors including investment in capacity,
labour-supply issues and costs of production.
— Inability to fulfil demand
— Loss of market share
— Higher costs to
expedite materials
— Loss of revenue and
operating profit
The past year has shown the Group’s ability to
maintaincomponent and finished goods availability
inchallenging market conditions. We are working to
reduce sole supplier dependency, increase the near-
sourcing of components, have increased capacity
through capital expenditure and moving some APAC
production closer to its end markets.
We continue to focus on product and manufacturing
process re-engineering, and streamlining production
processes.
HIGH
5
CYBER AND
DATA SYSTEMS
— Revenue
— Underlying operating
profit
— On-time delivery
— Order growth
Disruption to business systems would have an adverse
impact on the Group. The Group also needs to ensure
the protection and integrity of its data. With the Group’s
dispersed international footprint, increasing automation
and increased homeworking following COVID-19 there
is greater risk of impact on IT infrastructure/
communications between employees.
— Inability to supply
customers
— Loss of revenue and
significant business
disruption
— Loss of commercially
sensitive information
The Group continually reviews its IT systems to ensure
that they are robust and scalable in line with the
expansion of the business. During 2022, EY completed
a full cyber security review and its recommendations will
be progressed in 2023 and beyond.
During 2022, the Group moved the majority of its
systems to cloud hosting to simplify backups and
improve disaster recovery. Third-party systems must
have robust security to host certain applications.
Home workers connect via secure VPN functionality
using multi-factor authentication.
MEDIUM
6
PRODUCT
DEVELOPMENT
STRATEGY
— Revenue
— Underlying operating
profit
— Order growth
Inability to translate market requirements into profitable
products. Failure to deliver technologically advanced
products and to react to disruptive technologies.
— Loss of revenue
— Loss of market share
— Lack of order growth
Our product development cycle includes input from
customers and distributors as well as our highly-
experienced multi-disciplinary in-house engineering
team. We look to leverage our technological innovations
across multiple product lines, based on customer
requirements. The successful roll-out of newproducts
in2021/22 has demonstrated our ability to successfully
enhance existing products, address structural changes
in the market and fill portfolio gaps.
MEDIUM
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
76 77
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
LINK TO STRATEGY
INVEST IN
OUR CORE
MARKETS
EXPAND
OURMARKET
REACH
CONTINUED
INNOVATION
GROSS RISK IMPACT ON STRATEGY DESCRIPTION
IMPACT ON VIABILITY,
REPUTATION AND HEALTH
AND SAFETY MITIGATION
TIME HORIZON
SHORT
<2YRS
MEDIUM
<2-5 YRS
LONG
>5YRS
7
PRODUCT RISK
— Revenue
— Underlying operating
profit
The Group gives a 10-year warranty on Lighting
products which are installed in a variety of high-risk
environments. Risks could arise in relation to product
failure and harm to individuals and damage to property.
— Unforeseen liabilities
— Covenant compliance
We maintain a reserve against potential claims; product
quality is a key focus in the design stage andduring
the manufacturing process. The Group manages
post-sale risk exposure through the distribution of
product specification, safety installation and
maintenance information and throughappropriate
insurance protections.
LOW
8
TALENT AND
DIVERSITY
— Revenue
— Retention
Group performance is dependent on attracting and
retaining high-quality staff across all functions.
— Without good-calibre
staff,the Group will
findit difficult to
expandand achieve
itsstrategic goals
A comprehensive recruitment and ongoing evaluation
process assists in high-quality hiring and employee
development. Our ESG focus assists in the recruitment
and retention of good calibre staff. Considerable time
isspent assessing middle and senior management in
order to identify succession plans.
MEDIUM
9
INTELLECTUAL
PROPERTY
— Revenue
— Underlying operating
profit
Theft or violation of intellectual property (“IPR”) by
thirdparties or third parties taking legal action for
IPRinfringement.
— Proprietary technology
used by competitors
leading to loss of market
share and revenue
— Unforeseen liabilities
Core Group IPR is protected by patents (where
applicable) and potential violations will be pursued
through legal action. By ensuring internal technical IPR
expertise and the use of third-party patent specialists
in the production development process, the risk of
infringing third-party IPR is minimised.
MEDIUM
10
GEO-POLITICAL/
MACRO-
ECONOMIC
IMPACTS
— Revenue
— Underlying operating
profit
The Group faces a range of external geopolitical,
socio-political and macro-economic risks which, after a
period of relative calm in global markets, have recently
emerged as significant potential disruptors.
— Reduced financial
performance
— Lack of growth
The Group operates in end markets focused primarily
inAustralia, Canada, the EU, USA and UK but sources
asignificant amount of key components from China.
The Group provides products to a wide-range of
sectors within these markets, many of which are, or
supply, essential services. Diversification of supply
chain has reduced, to an extent, risk relating to eastern
Asia and the South China Sea area – and the Group
hasno in-house manufacturing operations in this area.
HIGH
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
78 79
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
The underlying EBIT bridge for the
year-on-year movement is:
Underlying EBIT bridge
CCY
2022
£m
Actual
2022
£m
Underlying EBIT 2021 4.7 4.5
Revenue increase impact 9.0 13.6
Change in gross margin (6.0) (6.0)
Change in SG&A costs (2.7) (7.1)
Underlying EBIT 2022 5.0 5.0
DESCRIPTION
Revenue up
29%
Revenue up
£169.7m £119.0m£131.6m
2022 20202021
DESCRIPTION
Underlying EBIT up
*
11%
Underlying EBIT up
*
£5.0m £(6.4)m£4.5m
2022 20202021
Clive Jennings
Chief Financial Officer
CHIEF FINANCIAL OFFICER’S REVIEW
Financial
Review
HIGHLIGHTS
“Continued strong
revenueand underlying
EBIT growth”
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.
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.
* Alternative performance measures are defined in note 28 of the
consolidated financial statements.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
80 81
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
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.
Lighting
2022
£m
2021
£m
Variance
%
2021
at
constant
currency
£m
Constant
currency
variance
%
Revenue 121.0 90.5 +34% 98.8 +23%
Gross profit 40.6 33.7 +20% 36.9 +10%
Gross profit % 33.6% 37.2% -360bps 37.3% -370bps
Overheads (33.7) (28.4) (19%) (31.2) (8%)
Underlying EBIT 6.9 5.3 +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
2022
£m
2021
£m
Variance
%
2021
at
constant
currency
£m
Constant
currency
variance
%
Revenue 48.7 41.1 +18% 45.7 +7%
Gross profit 14.0 13.3 +5% 14.8 (5)%
Gross profit % 28.7% 32.4% -370bps 32.4% -370bps
Overheads (8.3) (7.8) (6%) (8.4) +1%
Underlying EBIT 5.7 5.5 +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.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
82 83
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Non-underlying costs
2022
£m
2021
£m
Sanmina costs 1.0 2.9
Development cost impairment 1.3 –
Release of warranty provision post sale – (0.3)
Other litigation costs 0.4 (0.2)
Total 2.7 2.4
Cash impact 1.4 2.4
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 6.
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
Inventory levels grew £11.2m over 2021 (£6.7m at
constant currency), driven by increased holdings of
sub-assemblies and finished goods.
2022
£m
2021
£m
Raw materials 22.7 22.2
Sub-assemblies 11.9 8.7
Finished goods 18.8 11.2
Spare parts 0.2 0.3
Total 53.6 42.4
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.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
84 85
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
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 1 January 2022 (15.7)
Inflows
Underlying EBITDA 12.3
Net working capital excluding inventory 0.2 12.5
Outflows
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 8 and taxes
paid in note 9. Interest expense will be higher in 2023
following the renegotiation of bank facilities and
higher level of borrowing.
Banking
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.
Covenants
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.
Tax
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 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.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
86 87
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
GOING CONCERN STATEMENT
In accordance with provisions of the UK Corporate
Governance Code and considering the Group’s
current position and its principal risks for a period
longer than the 12 months required by the going
concern statement, the Board has also considered
the Company’s longer-term viability.
Going concern
The Directors have performed a robust going
concern assessment including a detailed review of
the base case financial forecast and considered
potential downside scenarios alongside the principal
risks faced by the Group.
In assessing the going concern assumptions, the
Directors have prepared downside scenarios that
reflect the risk of lower-than-expected revenue
growth in our core Lighting markets, higher revenue
decline in the opto-electronic market, lower gross
margins due to input cost inflation, the associated
forecast outturns alongside identified downside risks
and mitigating actions. The Group has modelled four
main scenarios in its assessment of going concern,
being the base case, a lower revenue scenario, a
lower margin scenario and a combined downside
taking elements of lower revenue and lower margin.
Base case
The base case is derived from the Board approved
2023 budget, which assumes that demand for our
new and existing products remains strong,
component availability and pricing normalises, and
our factories operate as normal. In this scenario, the
Directors consider that the Group will continue to
operate within its available committed facilities of
$34m (£30m) with sufficient headroom and meet its
ongoing financial covenant obligations.
The key assumptions in the base case include:
—continued revenue growth in Lighting due to
ourfocus on markets with growing demand and
wheregrowth is driven by structural, safety and
sustainability factors but at a lower level than seen
in 2022;
—a short-term cyclical downturn in the opto-
electronic segment;
—gross margins normalise to pre-COVID levels as
component price premiums reduce and supply
becomes more readily available, freight costs
normalise, and the benefits from cost reduction
and automation programmes are delivered; and
—operating costs flexed in line with the incremental
revenue and increasing operational leverage.
Downside cases
Lower revenue:
In a severe revenue downside scenario, the Directors
have assumed:
—no growth in Lighting revenue in 2023 followed by
growth in 2024 at less than 50% of that achieved in
2022;
—no growth in Signals and Components revenue
versus 2022; and
—no change in segmental gross margins.
Lower margin:
In the margin downside scenario, the Directors
haveassumed:
—segmental revenues in line with the base case;
—gross margin reduction in 2023 of 1% caused by
continued input cost pressures that are not fully
mitigated by in-year price increases; and
—gross margin improvement in 2024 to achieve a
similar margin to 2021.
Combined downside change:
In the combined downside case, the Directors have
assumed:
—flat volume compared with 2022 but with the price
increases negotiated in November 2022 applying
throughout 2023 and into early 2024;
—gross margin reduction of 2% throughout 2023 and
into early 2024.
In all these scenarios, the Group has a series of
controllable mitigating actions that can be taken
swiftly (a number of which have already been
enacted), including various temporary and permanent
cost and cash saving measures.
The base case and downside cases have been further
modelled to show headroom for any material one-off
costs.
Both the base case and downside cases have been
further modelled on the assumption that the litigation
by the former outsource manufacturing partner is
settled at the maximum liability of their claim and the
Dialight claim for damages in excess of $220m is
unsuccessful. Dialight continues to strongly rebut the
Sanmina claim and, following the US Federal judge
ruling on 14 March 2023, currently expects that the
case will go to trial in 2023. Further details on the
case are provided in note 27.
In the post mitigation downside scenarios, the Group
continues to retain sufficient committed headroom on
liquidity and is able to meet its financial covenant
obligations within the going concern assessment
period. Consequently, the Directors are confident
that the Group will have sufficient funds to continue
to meet their liabilities as they fall due for at least
12 months from the date of approval of the financial
statements and therefore have prepared the financial
statements on a going concern basis.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
88 89
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
VIABILITY STATEMENT
The Directors have assessed the Group’s longer-term
prospects, primarily with reference to the Board-
approved 2023 budget and strategic plan.
This is driven by the Group’s business model and
strategy as detailed on pages 24 to 25, which are
fundamental to understanding the future direction of
the business, while factoring in the Group’s principal
risks detailed on pages 74 to 79.
The Board has assessed the viability of the Group
over a three-year period, taking into account the
Group’s current position and the potential impact of
the principal risks and uncertainties. Whilst the Board
has no reason to believe that the Group will not be
viable over a longer period, it has determined that
three years is an appropriate period.
In drawing its conclusion, the Board has aligned
theperiod of viability assessment with the Group’s
three-year strategic plan and therefore, increases
reliability in the modelling and stress testing of the
Group’s viability. In addition, the Board believes that
this approach also provides an appropriate alignment
with the annual awards under the share-based
incentive plan and our external banking facilities.
In making their assessment, the Board carried out a
comprehensive exercise of financial modelling and
stress-tested the model with various scenarios based
on the principal risks identified in the Group’s annual
risk assessment process. The scenarios modelled
used the same assumptions and mitigations as for the
going concern statement. These scenarios included
lower-than-expected growth in our core Lighting
markets, delayed recovery from the short-term
cyclical downturn in the opto-electronic market, input
costs not fully recovered through pricing actions and
a combination of these scenarios in addition to the
impacts from the Group’s principal risks such as
litigation. In each scenario, the effect on the Group’s
KPIs and remaining borrowing covenants was
considered, along with anymitigating factors.
In reviewing the Company’s viability, the Board has
identified the following factors which they believe
support their assessment:
—continued strong market drivers for LED adoption
due to the increasing focus on sustainability and
high utility costs;
—legislation banning the sale of fluorescent lighting
being introduced in a number of countries;
—the Group operates in diverse end markets, with
nomaterial individual customer concentration;
—positive customer and distributor feedback and
invitations to bid on large projects;
—current order book levels, improved sales
performance in 2022 and pipeline expectations;
—new product development to close portfolio gaps
and support expansion into new verticals;
—the Group’s resilience in addressing the
operational, materials and supply chain challenges
over the last 24 months;
—operational leverage as volumes increase
combined with investment in manufacturing
automation and component standardisation;
—continued strengthening of the balance sheet and
strong cash generation during the assessment
period; and
—the Group’s long-term, strong relationship with
HSBC and its three-year $34m revolving credit
facility with HSBC signed in July 2022, as set out
innote 23.
Based on this assessment, the Board confirms that it
has a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities
asthey fall due over the three-year period to
31 December 2025.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
90 91
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
IN THIS SECTION
GOVERNANCE
Governance
94 – Chair’s introduction to governance
99 – Section 172 statement
104 – Board: Governance
124 – Nominations Committee report
128 – Audit Committee report
136 – Remuneration Committee report
140 – 2022 Remuneration
171 – Directors’ Report
176 – Directors’ responsibility statement
Dialight Lighting installation
at sewerage and wastewater
facility in Bridgewater, New
Jersey
93
OTHER INFORMATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
92
FINANCIAL STATEMENTSGOVERNANCE
STRATEGIC REPORT
BOARD FOCUS AREAS IN 2022
CHAIR’S INTRODUCTION TO GOVERNANCE
Dear shareholders
On behalf of the Board, I am pleased
toreport on Dialight’s corporate
governance during the past financial
year. This part of our Annual Report
explains Dialight’s governance
framework and outlines how it was
applied, on a practical basis, in the
yearunder review.
Overview
The Board’s role in setting the Group’s culture and
core values is a significant one and the Executive
Directors and Non-Executive Directors (“NEDs”)
work as a team to ensure the success of the Group.
Fariyal Khanbabi and I speak frequently with each
other, and I am very grateful to all the Board members
who have given their time to support the management
team, in various capacities, across another
challenging year. The past year has demonstrated
that the Board’s diversity and cohesiveness continue
to enable a culture across the Group of commercial
decision-making and speed of reaction to events,
whilst maintaining the innovative drive that has been
the hallmark of Dialight’s successes in the past.
Leadership and Board changes
There have been two changes across the Board
overthe 12 months to 31 December 2022, but I am
confident that succession planning has operated
well, and we have maintained a balance of core
knowledge of the business with fresh experience,
ideas and approaches.
In November 2022 the Board was considerably
strengthened by the appointment of Nigel Lingwood,
who brought with him 20 years of experience as
Group Financial Director of FTSE-listed Diploma plc
(LSE: DPLM.L), as well as his current experience
asaNon-Executive Director and Chair of the Audit
committee of Volution Group (LSE: FAN.L). This
extensive and recent financial and accounting
experience, together with his international public
company experience, has facilitated Nigel’s
assumption of the Audit Committee Chair role as
aresult of the Board changes summarised below.
Nigelwill be standing for election to the Board at
theforthcoming AGM.
95
OTHER INFORMATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
94
FINANCIAL STATEMENTSGOVERNANCE
STRATEGIC REPORT
David Thomas
Interim Chair
Strategic
overview of
improvements
in financial and
operational
performance.
Continued
investment
inpeople,
products and
delivering our
ESG strategy.
Strengthening
stakeholder
engagement.
Delivery
onBoard
succession
planning.
Risk
management
ofemployee
health and
welfare and of
supply chain
challenges.
CHAIR’S INTRODUCTION TO GOVERNANCE CONTINUED
On 14 December 2022 the Company announced
thatKaren Oliver would step down, with effect
on31 December 2022, as Chair of the Board for
personal reasons. The Board would like to record its
thanks to Karen for her time leading the Board and
wishes her well for the future. As a result of Karen’s
departure, the Company announced that I would step
in as Interim Chair to assist in leading the search
process for a new Chair, as well as leading the Board
in the interim period. The Board also initiated a search
process for a new Chair and announced on 20 March
2023 that Neil Johnson has been appointed to the
role, with effect from the conclusion of the annual
general meeting on 16 May 2023. My assumption of
the Interim Chair role has necessitated some further
changes in Board roles to ensure that the Board as a
whole continued to observe the spirit, as well as the
express requirements, of the UK Corporate
Governance Code 2018 (the “2018 Code”) (a copy
ofwhich is available on the Financial Reporting
Council’s website at www.frc.org.uk). Accordingly,
on13 January 2023, the Company announced, with
immediate effect: that Gaëlle Hotellier would take
over from me as Senior Independent Director (“SID”)
on an interim basis (toensure that shareholders
havea point of contact other than myself); Nigel
Lingwood’s assumption ofthe Audit Committee
Chairrole; the appointment of Gotthard Haug to the
Remuneration Committee; and, that lastly, I would
step down from the Audit Committee. Whilst I will no
longer be a formal member of the Audit Committee,
for the duration ofmy term as Interim Chair, I will
attend Audit Committee meetings and assist Nigel
with regards tothe end-of-year process for the
financial year 2022 and the transition to new auditors.
Further details on Board composition and leadership
can be found on
P104 TO 123
.
Stakeholder engagement
As a Board, we are accountable to all our
shareholders and must have regard to other
stakeholders such as employees, customers,
suppliers and the environment. We maintain an
activedialogue with shareholders throughout the
yearon a number of different levels and believe
thatongoing engagement and listening to the
viewsof allour stakeholders is key to the long-term
success ofDialight. Fariyal Khanbabi and I lead on
shareholder engagement generally, whilst Gaëlle
Hotellier leads on remuneration matters, as the
Workforce Engagement NED and, on an interim
basis,as the SID.
We also welcome the opportunity to answer
shareholders’ questions at our 2023 AGM. As in
2022, the 2023 AGM will be a hybrid meeting – with
facility for shareholders to join the meeting online as
well as in person. Further details of stakeholder
engagement are on pages 99 to 103, and pages 116
to 119.
Diversity
As a Board we continue to prioritise cognitive
andexperiential diversity as a key indicator of
independence and Board strength, and to enable
robust challenge in Board discussions on the range
ofchallenges and opportunities facing the Group.
Notwithstanding this, we are pleased that the Board
has broadly maintained a natural balance in terms of
gender, nationality and ethnic background. Further
details of Board composition are on pages 104 to 111.
Board priorities
Our priorities for 2023 are very much focused on
providing stable leadership at a Board level and
challenge to the Executive Team, to enable a
strengthening of operational performance and to
ensure that executive management deliver on our
growth objectives.
David Thomas
Interim Chair
2 April 2023
97
OTHER INFORMATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
96
FINANCIAL STATEMENTSGOVERNANCE
STRATEGIC REPORT
COMPLIANCE STATEMENTS
UK Corporate Governance
Code 2018
Throughout the year ended
31 December 2022, the Company has
complied with the provisions asset out
in the 2018 Code. An explanation of the
Board’s view on this matter is set out
onpage 120. Asummary of compliance
against the 2018 Code is included on
this page.
Risk management and
internalcontrol
The Group’s approach to risk
management and internal control is
setout on pages 70 to 73 and 130.
Section 172 Companies Act
2006 statement
Section 172 (“s172”) of the Companies
Act 2006 imposes on company
directors a duty to act in theinterests of
a broad range of stakeholders including
shareholders, employees, suppliers
andlocal communities. A statement in
respect of compliance with s172 is on
pages 98 to 103.
Board certification
The Strategic Report, and this Annual
Report generally, has been reviewed
and approved by the Board. The Board
confirms that it considers that the
Annual Report and Accounts, taken
asawhole, are fair, balanced and
understandable and provide the
information necessary for shareholders
to assess the Company’s position
andperformance.
SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE
COMPLIANT SEE PAGE(S)
1. Opportunities and risks/sustainability of business model/governance delivering strategy Yes 14-79, 104-119
2. Board activities/investment in workforce Yes 50-55, 102, 119
3. Communication with shareholders Yes 117
5. Section 172 statement Yes 99-103
6. Mechanism for workforce concerns Yes 59, 119
7. Management of conflicts of interest Yes 121
SECTION 2: BOARD DIVISION OF RESPONSIBILITIES
COMPLIANT SEE PAGE(S)
9. Chair independence on appointment (currentChair) Yes 121
10. Statement on Non-Executive independence Yes 104, 115, 121
11. 50% of Board to be independent Yes 104, 115
12. Identification of Senior Independent NED Yes 109
13. Board review process and independence Yes 120-121
14. Division of responsibilities Yes 110 -111
SECTION 3: BOARD COMPOSITION, SUCCESSION AND EVALUATION
COMPLIANT SEE PAGE(S)
18. Annual re-election of Directors Yes 122
20. Use of external search agency (during 2022) Yes 125
21. Formal and rigorous annual evaluation Yes 120
23. Report on work of the Nomination Committee Yes 124-127
SECTION 4: AUDIT, RISK AND INTERNAL CONTROLS
COMPLIANT SEE PAGE(S)
26. Report on work of Audit Committee Yes 128-135
28. Emerging and principal risks Yes 74-79
30. Going concern statement Yes 88-89
31. Viability statement Yes 90-91
SECTION 5: REMUNERATION
COMPLIANT SEE PAGE(S)
35. External remuneration consultant Yes 137
36. Post-employment shareholding requirements Yes 153
37. Use of discretion to override formulaic outcomes Yes 138, 153
38. Executive Director pension alignment with workforce Yes 141, 145
41. Description of work of the Remuneration Committee:
Engagement with shareholders
Alignment of Executive Director remuneration with wider pay policy
Application of discretion on outcomes
Yes 136-170
Yes 139, 158
Yes 152, 158
Yes 138, 153
UK Corporate Governance Code 2018: compliance statement:
The Board has a duty to promote the long-term, sustainable
success of the Company and of the wider Group. The baseline
duty is set out in s172 of the Companies Act 2006, but in reality,
the breadth of factors considered by the Board in its decision-
making process is far wider – including a range of statutory and
other factors.
Board decision-making will always encompass:
— the likely consequences of any decision in the long term and
the risks to the Group and its stakeholders;
— the interests and wellbeing of our people and of the
communities where we have a presence;
— the impact of our products and businesses on the environment
and the need to “decarbonise” our inbound and outbound
supply chains and our manufacturing and other operations;
— the Group’s relationships with its customers and suppliers; and
— the importance of our reputation for integrity and high
standards of business conduct.
Dialight believes that a key mechanism in ensuring that it makes
good long-term and sustainable decisions is open, two-way
dialogue with all our key stakeholders. We believe that
understanding the perspective and needs of our stakeholders is
vital to the Group’s success.
Good governance and our business ethics and integrity are
essential for Dialight to continue to be an attractive company
forour investors, employer for our employees, partner for our
suppliers and distributors, and manufacturer of our long-life
products for our customers.
This s172 statement signposts some of the main ways in which we
have engaged with stakeholders across 2022 and built confidence
in the sustainability of their relationship with the Group. It should
be read in conjunction with:
— Chairman’s Statement on pages 10 to 13;
— the Group Chief Executive’s Review on pages 14 to 23;
— the ESG reports on pages 36 to 69;
— Risk Management on pages 70 to 79;
— the Group Chief Finance Officer’s Review on pages 80 to 87;
and
— the Governance and related reports on pages 94 to 177.
By order of the Board.
Richard Allan
Company Secretary
2 April 2023
Our approach to
Section 172(1)
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
98 99
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
COMPLIANCE STATEMENTS CONTINUED
COMMUNITIES ENVIRONMENT
CUSTOMERS
PARTNERS
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
Dialight has a long-standing presence
through our manufacturing plants in
Mexico; Roxboro, NC USA; and Penang,
Malaysia. As a responsible employer,
wewant to contribute to theeconomic
development and sustainability of these
communities as part of our efforts to
secure a loyal and motivated workforce
with high levels of training, health and
welfare and employee satisfaction.
— Sponsorship and volunteering
opportunities for employees.
— Membership of local trade
associations and industry bodies.
— Enhanced benefits for employees,
such as transport to and from factory
locations and food vouchers.
— Maintenance of the Dialight
Foundation – with a management
board staffed by employee
representatives from around the
world and tasked with fund-raising
and dispensing Group-provided
funds on charitable projects in the
communities adjacent to our
manufacturing locations.
— Establishment of a hardship fund to
which any employee can apply for
one-off financial and other assistance
in a range of hardship situations.
— Continuing support for the Dialight
Foundation and its continued
fund-raising within ouremployee
andpartner communities.
— Dispersal of funds to local community
charities by the Dialight Foundation.
— Roll-out by management team of
dedicated “volunteering day” across
the whole Group to encourage
employee involvement in local
communities.
— Continuing focus on raising base pay
levels for the lowest-paid workers
within the Group.
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
On a wider perspective, we believe
thatDialight and its product offering canbe
at the forefront of efforts to “decarbonise”
industrial facilities’ construction and
building/facilities management, promote
the successof sustainable GHG-neutral
products and services, and reverse
environmental damage historically caused
by the sectors we operate in. Wesee an
absolute confluence of interest in
promoting GHG-neutral products and the
interests of all our keystakeholders
(notleast our shareholders) – as we believe
that knowledge of the low GHG density of
our products, the inherent power efficiency
of our technology (including LED light
generation generally) and our extended
product life-cycle will be key drivers of the
future success of the Group. We view
engagement with all ourstakeholders on
environmental matters to be a central
element of our future strategy.
— Dialight products already benefit from
high power efficiency (through design
and utilisation of LED technology) and
extended life-cycles (typically 10-year
warranties on solid state lighting
(“SSL”) products). This inherently
positive impact on the environment
isrecognised with our FTSE Green
Economy Mark certification.
— Supply chain codes of conduct
andscreening in respect of raw
material tracing and impacts
(e.g.conflict minerals).
— Roll-out of Environmental Product
Declarations that comply with ISO
14025 and EN 15804 standards on
our key new product types – enabling
customers to make informed
decisions on the GHG potential of all
our products (expressed as kg CO
2
equivalent per unit of product).
— Maintenance of ISO 14064 and
internal GHG audit control
environment as part of the enhanced
efforts at decarbonising our products
and corporate operations and
reporting to investors and other
stakeholders on progress against
carbon-neutrality objectives.
— Ongoing commitment to Net Zero
with SBTi and setting outline plans
forscientific targets to achieve this.
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
Dialight operates in highly differentiated
but competitive markets. To maintain
ourbest-in-class differentiation we
arereliant upon a constant pipeline of
newtechnical innovation and of new
products. The clarity and precision
withwhich we listen to the “voice of the
customer” and map these needs across
to new product design functionality and
pricing is a key determinant of the future
success of the Group.
— Sales proximity to our end users
throughdirect sales force and indirect
distribution partners.
— Dedicated product management
specialists integrated within our sales
and marketing functions.
— Detailed product planning and
innovation pipeline bringing together
product, application and technology
specialists from our dedicated
in-house product innovation teams.
— Detailed new product development
management and review process
integrated with sales and
commercialreviews.
— Incremental improvements in
existingbest-practice, monitoring
new product development
management and reviewprocess.
— Deployment of process engineers in
manufacturing operations to ensure
realisation of programmed NPD
production efficiencies.
— Specific focus on maintaining
development review gates despite
remote working through new
collaborative tools.
— Extension of post-launch product
andcommercial review cycle.
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
Our key commercial partner relationships
are spread across the inbound supply
chain and our outbound distribution
networks. With our high-SKU product
range, we are highly reliant upon the
integrity and efficiency of our supply
chain. We were a first-mover in the
introduction of long-warranty products
(typically 10years for SSL), but this in turn
requires high levels of assurance overthe
consistency and reliability of component
parts for our manufacturing operations.
Our sales model is a hybrid of active
direct selling, active indirect selling and
indirect product supply. We are therefore
highly reliant upon the strength and depth
of our relationships with our distributors
(across all our product ranges).
— Supplier and distributor onboarding due
diligence (financial, quality, business
integrity and compliance, component
supply, Modern Slavery etc)
— Supplier Code of Conduct
— Audits and inspections of suppliers
— Ongoing management of
supplierrelationships
— Further rationalisation and localisation
(where possible) of our supply chain
to mitigate the risk of supply chain
disruption and strengthen product
quality, production efficiency,
inventory management and supplier
relationships generally.
— Further strengthening of supply chain
team and processes.
Section 172 statement continued
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
100 101
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
COMPLIANCE STATEMENTS CONTINUED
EMPLOYEES INVESTORS
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
Dialight has a diverse mix of employees
across four continents ranging from
manufacturing production operatives
tohighly skilled design engineers.
Weare entirely reliant upon our
workforce for our differentiating
innovation, efficient and high-quality
manufacturing production, and for sales
of our product in our end markets. We
need to retain ourskilled staff as well
asattract highlyskilled talent to new
roles. By understanding the motivations,
talents, ambitions, needs and concerns
of our employees we can best secure
aninnovative, adaptable and highly
productive workforce that will operate
asa team and, in turn, secure the future
success of the Group.
— Ongoing focus on communications
with, and policies for, employees
relating toemployee health, safety,
and welfare.
— Employee surveys.
— Training and development.
— One-on-one and skip-a-level
meetings with the designated
Workforce Engagement NED.
— Site visits by members of the Board
(conducted physically and online).
— Update newsletters from the Group
Chief Executive.
— Whistleblowing hotline.
— Monthly all-employee calls with the
CEO and executive team to keep all
our employees updated on progress
in COVID-19 precautions across the
Group and focusing on employee
health and welfare.
— Workforce Engagement NED
meetings at principal manufacturing
and office locations – conducted on
a“skip-a-level” basis without senior
management in the room, to enable
the workforce to share any concerns
directly with an independent
BoardNED.
— Specific welfare precautions for
employees at our manufacturing
plants including additional food
supplies, paid leave (for high-risk
individuals), and in-house
medicalcare.
— Maintenance across the Group
ofadditional health and safety
COVID-19 precautions including
personal protective equipment
andprotocols.
— Enhanced internal audit by senior
management (or third parties where
travel restrictions require) to ensure
COVID-19 precaution compliance
and employee health and welfare.
WHY IT IS IMPORTANT TO ENGAGE WITH THIS
STAKEHOLDER GROUP
BOARD DECISION-MAKING IMPACT AND HOW
WE ENGAGE GENERALLY
BOARD DECISION-MAKING IMPACT AND WHAT
WE DID DIFFERENTLY IN 2022
As a company with a premium listing
onthe London Stock Exchange’s Main
Market and a borrower of bank debt,
weneed to communicate clearly and
effectively with our existing and
prospective shareholders and lenders
todevelop their understanding of how
the Group’s businesses are managed
togenerate sustainable returns and
long-term success.
— Meetings with current and potential
shareholders, current and potential
lenders, and analysts.
— Addressing enquiries from
institutional and retail investors.
— AGM, Annual Report and Accounts,
and preliminary and interim
announcements.
— Regulatory announcements.
— Corporate website.
— Maintained increased depth and
frequency of reporting by senior
management to the Board to provide
assurance to the Board on adequacy
of communications with investors
during supply chain challenges.
— More frequent discussions
withexisting shareholders
andlenders.
— High level of shareholder satisfaction
with governance standards evidenced
by 2022 AGM voting levels.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
102 103
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Executives 2 (25%)
Non-executives 6
(75%)
Executives 2 (29%)
Non-executives 5
(71%)
Chair (independent
on appointment) 1
Non-independent
NED 1
Independent
NEDs 4 (57%)*
* Calculated excluding Chair
Chair (independent
on appointment) 1
Non-independent
NED 1
Independent
NEDs 3 (50%)*
* Calculated excluding Chair
0-3 years 4 (50%)
4-6 years 2 (25%)
7+ years 2 (25%)
0-3 years 3 (42%)
4-6 years 2 (29%)
7+ years 2 (29%)
British 4 (50%)
French 1 (12.5%)
German 1 (12.5%)
South African 1
(12.5%)
USA 1 (12.5%)
British 4 (57%)
French 1 (14%)
German 1 (14%)
USA 1 (14%)
Female 3 (60%)
Male 2 (40%)
* Calculated by individual not
role, (Chair, CEO, CFO, SID &
AuditCo/RemCo/chairs
Female 3 (60%)
Male 2 (40%)
* Calculated by individual not
role, (Chair, CEO, CFO, SID &
AuditCo/RemCo/chairs
Female 3 (37.5%)
Male 5 (62.5%)
Female 2 (29%)
Male 5 (71%)
Female 1 (14%)
Male 6 (86%)
Female 1 (14%)
Male 6 (86%)
Female 1,020 (52%)
Male 950 (48%)
Female 1,020 (52%)
Male 950 (48%)
AS AT 31 DECEMBER 2022 AS AT 1 JANUARY 2023
BOARD: GOVERNANCE AT A GLANCE
Highly skilled and
balanced Board
GOVERNANCE OVERVIEW
This report aims to provide shareholders and other stakeholders with an understanding
ofhow our Group is managed and the governance and control framework within which
weoperate.
Dialight, as a smaller company with a focused
product portfolio, benefits from having a lean and
agile management structure. Our governance and
controls are integral to the organisation’s operating
culture and provide good visibility of the performance
of the business. The Board is focused on getting the
right balance between robustness and pragmatism
inits oversight of governance, controls and risk
management as the best means of delivering the
Group’s strategic aims of growth, customer relevance
and differentiation.
SENIOR ROLES
(GENDER)
SENIOR ROLES
(GENDER)
EXECUTIVE/
NON-EXECUTIVE
EXECUTIVE/
NON-EXECUTIVE
DIRECTORS
(GENDER)
DIRECTORS
(GENDER)
INDEPENDENT NED
S INDEPENDENT NEDS
EXECUTIVE COMMITTEE
(GENDER)
EXECUTIVE COMMITTEE
(GENDER)
DIRECTORS (TERM
PROFILE) TENURE
DIRECTORS
(TERMPROFILE)
ALL EMPLOYEES
(GENDER)
ALL EMPLOYEES
(GENDER)
DIRECTORS
(NATIONALITY)
DIRECTORS
(NATIONALITY)
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
104 105
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
BOARD: GOVERNANCE AT A GLANCE CONTINUED
Drive growth in
core markets
Read more on
pages14-35
Sustainable profit growth is at the heart of Board
oversight and forms the basis for both routine
monthly reporting and function-specific reporting
to the Board.
The Board ensures that the right balance is
achieved between short-term operational and
financial performance and investment in the future
products, technology, markets and product types
that will drive long-term sustainable growth.
— Supply chain: on-shoring and shortening of
supply lines.
— Finance: focus on working capital management
through improved inventory management.
— Markets: strong performance in Signals &
Components division and rejuvenation of
Obstruction sector.
— Operations: manufacturing strategy and process
improvement (process and controls).
— Cyber security review.
Continued
product
innovation
Read more on
pages14-35
The Board reviews and approves the new product
development roadmap and the technology
roadmap – elements of the overarching product
strategy – annually and through ad hoc reviews.
Italso periodically reviews the route-to-market
strategy. It then monitors the tactical
implementation of these strategies throughout
thefinancial year through routine monthly
reportingand function-specific briefings.
— Product: maintenance of R&D innovation
programmes during year.
— Product: momentum on new product
development and launches maintained.
— Product: strategic focus on product
differentiation through performance and
extended life-cycle.
— Operations: materials innovation to strengthen
recyclability and reduce product carbon density.
Expand our
market reach
Read more on
pages14-35
The Board reviews and approves the long-term
elements of the overarching product and sales
strategies annually and through ad hoc reviews.
Itthenmonitors the tactical implementation of
these strategies throughout the financial year
through function-specific briefings and ad
hocconsideration ofmarkets and
commercialstructures.
— Sales: considerable progress on developing new
routes-to-market and sales configurations.
— Sales: sales stability and recapturing MRO
market share.
— Product: designing in product sustainability.
— Product: focus on component and production
commonality between product families.
ESG
Read more on pages
36-69
The Board reviews and approves the Group ESG
strategy (as set out on pages 38 to 39) and reviews
and approves the TCFD report (pages 62 to 69).
— People: strongly promoting health, safety and
welfare priorities for our workforce (upon whom
we rely for future growth).
— ESG: Environmental Product Declarations
certification for key product lines.
— ESG: embedding corporate carbon/ESG systems
and controls.
NED SKILLS & EXPERIENCE MATRIX:
Skills/experience Direct experience Indirect experience
Industry/sector:
—Manufacturing (general)
     
—Manufacturing (high-mix, low volume)
     
—Lighting
 
—Heavy industrial
   
CEO role
     
Strategy
       
UK PLC
     
Accountancy
     
Sustainability
     
Finance/private equity
     
People/social
       
Territories:
—Non-US markets
       
—US markets        
HOW THE BOARD SUPPORTED STRATEGY NED SKILLS & EXPERIENCE MATRIX
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
106 107
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Board departures
inthe year
Karen Oliver
BOARD: LEADERSHIP AND COMPANY PURPOSE
Nigel Lingwood
Independent NED – Chair of
AuditCo, member of NomCo
and RemCo
A N R
Appointed
1 November 2022.
AuditCoChair effective
12 January 2023.
Background and career
Between 2001 and 2021, Nigel was
Group Finance Director and Board
Director at Diploma PLC, the
international group of businesses
supplying specialised technical
products and services. He brings
extensive, relevant and recent
financial and accounting expertise
together with international public
company experience.
Current external
appointments
Non-Executive Director and Chair
ofthe Audit Committee of Volution
Group plc.
Gaëlle Hotellier
Independent NED – Interim
SID, Chair of RemCo, member
of AuditCo and NomCo
R A N
Appointed
3 October 2016. RemCo
Chaireffective 1 June 2018.
WENED effective 1 September
2021. Interim SID effective
12 January 2023.
Background and career
Gaëlle is currently COO of the
Krohne Group, which she joined in
2022. Before that, she worked for
the Siemens Group from 2002 to
2021, during which time she has
held various senior management
roles, most recently in charge
ofGlobal Operations for the
Generation Service unit within
Siemens Energy AG. Between 2013
and 2015, Gaëlle was an Executive
Board member of the EU’s Fuel Cell
Hydrogen Joint Undertaking, a
public-private partnership with the
European Commission. She is also
a former Chairwoman of the
Supervisory Board of Siemens
Industriegetriebe GmbH in Penig
and was a Member of the Advisory
Board of Berthold Vollers GmbH.
Current external
appointments
Chief Operating Officer of the
Krohne Group.
Fariyal Khanbabi
Group Chief Executive
–member of Disclosure
Committee
D
Appointed
CFO – 8 September 2014; CEO
– 10 August 2019.
Background and career
From 2009 until joining Dialight
inSeptember 2014, Fariyal was
CFO at Blue Ocean Group, an
independent privately owned
£4bnrevenue fuel trading and
distribution business. She
hasover10 years’ experience
inseniorfinancial positions,
includingroles at NYSE and
Nasdaq-listed companies.
Fariyal was appointed as Group
Finance Director on 8 September
2014, and on 10 August 2019, she
was appointed as Dialight’s Interim
Chief Executive Officer. She was
appointed Chief Executive Officer
on 5 March 2020.
Current external
appointments
None.
David Blood
Non-independent NED
– member of NomCo
N
Appointed
1 July 2015, and subsequently
as Chair on 5 August 2019.
Resigned as Chair effective
10 September 2021.
Background and career
David Blood is a Founding Partner
and Senior Partner of Generation
Investment Management. He also
serves as Chairperson of Just
Climate. Previously, David spent 18
years at Goldman Sachs including
serving as CEO of Goldman Sachs
Asset Management. David received
a BA from Hamilton College
andanMBA from Harvard
BusinessSchool.
Current external
appointments
Chairperson of Social Finance
UKand co-chair of the World
Resources Institute, and on
theboard of On the Edge
Conservation. David is also a
lifetrustee of Hamilton College.
Clive Jennings
Chief Financial Officer
–member of Disclosure
Committee
D
Appointed
18 January 2022.
Background and career
Clive has over 25 years of finance
experience in large listed
multinationals in the gaming,
entertainment, hospitality and
consumer goods manufacturing
sectors, most recently as Chief
Financial Officer of The Rank
Group PLC and as interim CFO at
McBride plc. Over his 19 years in
the Rank Group, he held a number
of senior global and divisional
finance roles, becoming CFO in
July 2011.
Prior to the Rank Group, Clive’s
career has included senior finance
roles, working for Lex Service PLC
and Forte PLC. Clive has a BSc
inBusiness Economics from
Southampton University and is a
qualified chartered accountant.
Current external
appointments
None.
Gotthard Haug
Independent NED – member of
AuditCo, NomCo and RemCo
A NR
Appointed
1 April 2020.
Background and career
Among his many senior roles in the
manufacturing industry, Gotthard
was previously CEO and CFO
ofTeleplan International, a
Non-Executive Director of Psion,
and he was also the Chairman of
Ultratec Ltd. He was the Executive
Chairman of Ivy Technology, a
leading global electronics repair
and service provider to many of the
world’s largest tech, med-tech and
telecommunications companies.
Gotthard holds a MBA and a BA
from Ludwig-Maximilians
Universität München.
Current external
appointments
Partner of “taskforce –
Management on Demand GmbH”,
an Advisory Board Member
ofiGlobe Partners and an
Independent Consultant and
Interim Executive of Minerva
Management Partners.
David Thomas
Independent on appointment
asinterim Chair – Interim Chair,
Chair of NomCo, member
ofRemCo
N R
Appointed
26 April 2016. Interim Chair
andNomCo Chair effective
1 January 2023.
Background and career
David was CFO at Invensys plc
from 2011 until his retirement in
2014, having held senior roles
across the business since 2002.
Prior to joining Invensys, he was a
Senior Partner inErnst & Young
LLP, specialising inlong-term
industrial contracting businesses,
and is a former member of the
Auditing PracticesBoard.
Current external
appointments
Non-Executive Director and
Chairof the Audit Committee
ofVictrex plc.
Appointments
&committee membership
KEY
N
Nomination Committee
A
Audit Committee
R
Remuneration Committee
D
Disclosure Committee
WE
Workforce Engagement NED
S
Senior Independent Director
Committee Chair
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
108 109
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES
The Board of Directors is the principal decision making body of the Company. The Company’s governance
framework is structured to maintain good oversight and control over: finance and management reporting;
compliance/regulatory matters; risk management; and approval of material decisions. Except for those
Matters Reserved to the Board, it operates through delegating much of its detailed review work to sub-
committees and other committees incorporating a wide spectrum of senior Dialight management. The
schematic on the next page summarises the Company’s governance structure and division of delegated
responsibilities. Within the operations of the Board itself, responsibilities are allocated to individual roles as
shown below.
NON-EXECUTIVE:
CHAIR:
Governance:
— Promoting high standards of corporate governance
— Leading, chairing and managing the Board
— Ensuring all Board Committees are properly structured and operate with appropriate terms of reference
— Regularly considering the composition and succession planning of the Board and its Committees
— Ensuring that the performance of the Board and its Committees is evaluated on a regular basis
— Ensuring adequate time is available for all agenda items and that the Board receives accurate, clear and timely information
— Ensuring that there is effective communication with major shareholders
Strategy:
— Leading the Board in developing the strategy of the business and setting its objectives
— Promoting open and constructive debate in Board meetings
— Ensuring effective implementation of Board decisions with the support of the Chief Executive Officer
— Ensuring that the Board manages risk effectively
— Consulting, where appropriate, with the Senior Independent Director (“SID”) on Board matters
People:
— Chairing the Nominations Committee
— Identifying and meeting the induction and development needs of the Board and its Committees
— Developing a strong working relationship with the Chief Executive Officer
— Ensuring a strong working relationship between Executive and Non-Executive Directors
— Setting clear expectations concerning the Company’s culture, values and behaviours that will support its long-term
sustainablesuccess
— Ensuring effective relationships are maintained with all key stakeholders in the business
SID:
— Acting as a sounding board for the Chair
— Serving as a trusted intermediary for the other Directors
— Providing an alternative channel for shareholders to raise concerns, independent of executive management and the Chair
INDEPENDENT NED
S:
— Contributing independent thinking and judgement, and providing external experience and knowledge, to the Board agenda
— Scrutinising the performance of management in delivering the Company’s strategy and objectives
— Providing constructive challenge to the Executive Directors
— Monitoring the reporting of performance and ensuring that the Company is operating within the governance and risk
framework approved by the Board
WORKFORCE ENGAGEMENT NED:
— Direct engagement with workforce through site visits, one-on-one discussions with managers and other employees selected
by the WENED, and larger engagements with selected groups of employees from different Company locations without
management present
EXECUTIVE:
CEO:
— With the Chair, providing coherent leadership and management of the Company
— Developing objectives, strategy and performance standards to be agreed by the Board
— Providing input to the Board’s agenda
— Ensuring the health and safety, and general wellness of the Group’s workforce
— Providing effective leadership of the Executive Committee to achieve the agreed strategies and objectives
— Securing an Executive Committee of the right calibre, with specific responsibility for its composition, and ensuring that its
succession plan is reviewed annually with the Chair and the Non-Executive Directors
— Monitoring, reviewing and managing emerging and principal risks and strategies with the Board
— Ensuring that the assets of the Group are adequately safeguarded and maintained
— Building and maintaining the Company’s communications and standing with shareholders, financial institutions and the public,
and effectively communicating the Dialight investment proposition to all stakeholders
— Ensuring the Board is aware of the view of employees on issues of relevance to Dialight
EXECUTIVE DIRECTORS:
— Implementing and delivering the strategy and operational decisions agreed by the Board
— Making operational and financial decisions required in the day-to-day management of the Company
— Providing executive leadership to senior management across the business
— Championing the Group’s values and reinforcing the governance and control procedures
— Promoting talent management, encouraging diversity and inclusion
COMPANY SECRETARY:
— Acting as a sounding board for the Chair and other Directors
— Ensuring clear and timely information flow to the Board and its Committees
— Providing advice and support to the Board on matters of corporate governance and risk
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
110 111
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES CONTINUED
THE BOARD
— Principal role is to provide effective leadership, within a framework of controls, to
promote the interests of the Company sustainably over the long term – generating
value for its shareholders as well as benefiting other stakeholders
— Sets the Group’s purpose, values and strategy and has ultimate responsibility for
the Group’s management, direction and performance
— Governed by the Company’s Articles of Association and accountable to
shareholders at least annually at shareholder general meetings
BOARD COMMITTEES
MANAGEMENT COMMITTEES
AUDIT COMMITTEE
— Monitors the integrity
offinancial statements,
formal announcements
relating to the Company’s
financial performance
andthe Company’s
narrative reporting
— Oversees risk management
and internal controls
— Considers the requirement
for an internal audit
function
— Reviews external auditor
independence and leads
the audit tender process
NOMINATIONS
COMMITTEE
— Reviews the structure,
sizeand composition
ofthe Board
— Oversees the Board’s
succession planning
— Keeps under review the
leadership needs of, and
succession planning for,
the Company
REMUNERATION
COMMITTEE
— Sets and keeps under
review the framework and
policy on Executive Director
and senior management
remuneration (including
pension arrangements)
— Evaluates the advice of
external remuneration
consultants when
reviewing remuneration
structures for Executive
Directors and senior
management
— Approves the design and
targets framework for
share incentive plans
DISCLOSURE
COMMITTEE
— Manages compliance
withpublic reporting
andannouncement
requirements
RISK COMMITTEE
— Management Committee
chaired by the Group
General Counsel
— Manages the periodic
review of Group risks
— Maintains the Group
riskregister
EXECUTIVE COMMITTEE
— Management committee
(with senior functional
heads from across the
Group), chaired by the
CEO, which meets weekly
and reviews operational
matters and business
performance
— Reinforces the operational
and governance structures
in place across the Group
— Acts as a forum for
management decision-
making
DIALIGHT FOUNDATION
— Chaired by the CEO, with
the remainder of the Board
comprised of employee
representatives from
across the Group
— Dispenses central funds,
and engages in fund
raising, for charitable
purposes in the
communities where
wearebased
— Maintains an employee
hardship fund
ESG COMMITTEE
— Chaired by CEO
— Acts as a cross-functional
forum for ESG matters
1P5511P701 1P561
DELEGATED AUTHORITIES
— The Board delegates certain decision-making
and compliance monitoring through formal
delegated authorities
— Each Board Committee operates under written
terms of reference – approved by the Board
and published at www.dialight.com
— Powers delegated to management are
managed by a clearly defined Group-
delegated authorities matrix
The role of the Board and its Committees
during the year
The Board retains control over all matters formally
reserved to the Board (see P115 ), but delegates
certain decision-making and monitoring activities
to formal Board Committees and committees
atanexecutive level. The Chair of each Board
Committee reports to the Board on its decision-
making. The Board also appoints ad hoc sub-
committees from time to time as required.
1P1281 1P1241 1P1361
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
112 113
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES CONTINUED
The Board currently comprises seven Directors, who
bring a wide variety of skills and experience to the
Boardroom. With two Executive Directors and five
Non-Executive Directors (including the Chair) of
whom three (excluding the Chair) have been judged
by the Board under Provision 10 of the 2018 Code
tobe independent, there continues to be a strong
independent element to Dialight’s Board which
encourages constructive challenge and ensures that
the balance of power rests with the non-executive
members of the Board. The Board was seeking a
replacement Chair following the departure of Karen
Oliver on 31 December 2022 and it is for this reason
that the reported metrics on page 105 reflect Board
composition asat the date of this report alongside
the Board metrics as at 31 December 2022 – as the
Board considers thatthe metrics as at 31 December
2022 better reflect the aspirations of the Board to
build a balance of experience and cognitive diversity
on the Board. Subject to this ongoing recruitment,
theBoard considers theBoard composition to be
appropriate in terms of size, diversity and the balance
of skills and experience. Further details of recent
Board changes, interim roles and the recruitment
process for a new Chair are set out in the
Nominations Committee report on pages 124 to 127.
BOARD MEMBER
SCHEDULED
MEETING
AD HOC
MEETING TOTAL
Karen Oliver
1
7/7 1/1 8/8
Clive Jennings 7/7 1/1 8/8
David Blood 7/7 1/1 8/8
David Thomas 7/7 1/1 8/8
Fariyal Khanbabi 7/7 1/1 8/8
Gaëlle Hotellier 7/7 1/1 8/8
Gotthard Haug 7/7 1/1 8/8
Nigel Lingwood
2
1/1 1/1 2/2
1 As announced on 14 December 2022, Karen Oliver stepped down as Chair
of the Board with effect on 31 December 2022.
2 Nigel Lingwood was appointed as Non-Executive Director effective from
1 November 2022.
STANDING BOARD
AGENDAITEMS
— Review and approval of the
previous minutes
— Status update on any matters
outstanding from previous
meetings
— Updates from each Board
Committee on the activities
since the last Board meeting
— Health and safety review
— Report from the Group
ChiefExecutive
— Report from the Chief
FinanceOfficer
— Report from the Group
General Counsel/Company
Secretary
— Investor relations report
MATTERS RESERVED FOR
THEBOARD
— Setting the Group’s long-term
objectives and commercial
strategy
— Approving annual operating and
capital expenditure budgets
— Ceasing all or a material part of
the Group’s business
— Significantly extending the
Group’s activities into new
business or geographic areas
— Changing the share capital
orcorporate structure of
theCompany
— Changing the Group’s
management and control
structure
— Approving half-year and full-year
results and reports, dividend
policy and the declaration of
dividends
— Approving significant changes
toaccounting policies
— Approving key policies
— Approving risk management
procedures and policies,
including anti-bribery
andcorruption
— Approving major investments,
disposals, capital projects or
contracts (including bank
borrowings and debt facilities)
— Approving guarantees and
material indemnities
— Approving resolutions to be put
tothe AGM and documents or
circulars to be sent to shareholders
— Approving changes to the Board
structure, size or its composition
(following the recommendation
ofthe Nominations Committee)
INDEPENDENCE
— Board has reviewed the
independence of the Chair and
each Non-Executive Director
and considers all of the
Non-Executive Directors to be
independent of management
and free from business or
other relationships that could
interfere with the exercise of
independent judgement
— The Company meets the
requirement under Provision 11
of the 2018 Code that at least
half of the Board has been
determined by the Board to
beindependent
— The Board believes that any
shares in the Company held
personally by a member of the
Board aligns their interests
with those of the shareholders
— Former Chair, David Blood
(deemed non-independent
under provisions 9 & 10 of the
2018 Code), is considered to
be independent in character
and judgement in performing
his duties as a Director
BOARD RESPONSIBILITIES2022 BOARD MEETING ATTENDANCE:
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
114 115
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
GENERAL ENGAGEMENT
WITHINVESTORS
– Engagement with investors is led by the
CEO but is a collective responsibility of
the Board.
– Board is committed to strengthening
communications with investors
– Primary contact with shareholders,
onaday-to-day basis, is through the
Executive Directors
– Overall responsibility for ensuring the
effectiveness of communication with
shareholders lies with the Chair
COMPANY ANNOUNCEMENTS
AND WEBSITE
– The Company releases
announcements via the regulatory
news service – all of which are publicly
available and can be accessed through
the Company’s website dialight.com
– Copies of formal reports are released
on the Company website (and
deposited with Companies House and
the FCA’s National Storage mechanism
– both of which are publicly accessible)
– Recordings of annual and interim
results can be accessed through the
Company’s website dialight.com
– Shareholders can
register on the website
to receive email alerts.
ANNUAL AND INTERIM RESULTS
– The Company is required to make
half-year and full-year formal
announcements. These are released
via the Regulatory News Service
and can be accessed through the
Company’s website dialight.com
– The COVID-19 pandemic has meant
the suspension of the previous
standard practice of face-to-face
briefings for large investors and
research analysts and other
interested parties in relation to
half-year and full-year results. This
practice has been replaced with
pre-recorded video presentations
(which can be accessed through the
Company’s website dialight.com
followed by one-on-one meetings
with investors and others wishing to
meet the management team.
MEETINGS WITH LARGE
INVESTORS
– In addition to scheduled meetings
withthe Executive Directors (led by
theCEO), Non-Executive members
ofthe Board are available to meet
withinvestors.
– The Chair is generally available
toshareholders and meets with
institutional and other large investors
asrequested.
– The Senior Independent Director
andthe Chair of the Remuneration
Committee are also available to
shareholders as required.
ANNUAL GENERAL MEETINGS
– The 2022 AGM was the Company’s
first hybrid general meeting with
shareholders having the option to
attend in person or online. This format
will be repeated at the 2023 AGM. It is
hoped that, over time, this will result in
a wider range of investors participating.
– Typically, the full Board will attend the
AGM, and be available to answer
questions, and the CEO will give
apresentation.
– Each substantially separate issue is
proposed as a separate resolution
andvoted on by way of a poll.
– Details of the resolutions to be
proposed, and shareholders’ options
for voting, at the forthcoming AGM are
to be found in the notice of the AGM
(which will be dispatched in April 2023).
The 2023 AGM will take place on
16 May 2023.
HOW THE BOARD ENGAGES
SHAREHOLDER
ENGAGEMENT
COMMERCIAL
ENGAGEMENT
ENGAGEMENT WITH
EMPLOYEES AND OUR
LOCALCOMMUNITIES
BOARD: LEADERSHIP AND ENGAGEMENT
The Board engages with its various stakeholders
in a number of different ways and with
responsibilities spread across the Executive and
Non-Executive teams. The Executive members
ofthe Board have contact with all Executive
Committee members and make regular visits to
Group sites. All new Non-Executive members of
the Board will carry out Company visits as part of
their induction and routinely thereafter – with at
least one meeting a year normally taking place
ata Group location outside the UK. The Board
members also engage with our current and
futurebusiness leaders working within the Group
on strategic and other matters. This regular
interaction between the Board and the businesses
provides a vital channel of communication and a
forum for open dialogue, which encourages the
sharing of knowledge and experience.
The role of Workforce Engagement Non-Executive
Director (WENED) is seen as a critical function
enabling the independent NEDs to have direct
interaction with, and reporting from, the wider
workforce. WENED meetings have been carried
out, by Gaëlle Hotellier, at 3 Group sites during
2022 (London, Farmingdale NJ, USA and Roxboro
NC, USA). Separate meetings are carried out with
management teams and the non-management
workforce enabling free and open exchange of
information and issues/concerns – including health
and safety matters, employee welfare and
conditions, workforce morale, and operational
improvement. WENED meetings are conducted
onthe basis of strict confidentiality and non-
attribution for employee comments. The WENED
reports back to the CEO and the Board on any
issues arising from WENED meetings.
What we did in 2022
SHAREHOLDER
ENGAGEMENT
Fariyal Khanbabi
CEO
Clive Jennings
CFO
David Thomas
Interim Chair
Gaëlle Hotellier
SID
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
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EXECUTIVE DIRECTORS
Commercial engagement is an Executive
Director responsibility and led by the
CEO. The Executive Directors have in the
past prioritised proximity with customers
and distributors for themselves and
product development teams, facilitated
by the direct sales force.
COMMERCIAL ENGAGEMENT
– Customers. The Executive Directors
engage with customers directly through
site visits and assisting strategic sales
activity, and indirectly through monthly
reporting by the direct sales teams
(bothterritorially-based and with the
strategic accounts team).
– Distributors. Our indirect sales
model(using distributors) places great
importance on maintaining good relations
with our distribution networks: attending
distributor conferences; attending
meetings of purchasing groups and
otherdistributor bodies; and pursuing
other opportunities to support our
indirect sales team.
– Suppliers. Relations with key suppliers
isgenerally managed indirectly through
Executive Committee-level direct
reportsof the Executive Directors
withoperational and supply chain
responsibilities – i.e. through weekly
andmonthly review meetings and
formalreporting.
– Other commercial partners. The Group
has a range of other partners who are
managed, on a case-by-case basis, by
the Executive Directors or other members
of the Executive Committee team.
REPORTING TO BOARD
The executive team reports monthly to
the Board on a range of corporate,
financial and commercial issues
including feedback from customers,
suppliers and other partners
WORKFORCE ENGAGEMENT NED
– Direct engagement with workforce
through site visits, one-on-one
discussions with managers and other
employees selected by the WENED.
– Larger engagements with volunteer
groups of employees from different
Company locations without
management present.
EXECUTIVE DIRECTORS
– Engagement with the Dialight
workforce is an Executive Director
responsibility and led by the CEO –
butviewed as a fundamental task of
theentire executive team.
– Board-level engagement is facilitated
by monthly Group all-employee calls,
frequent visits to manufacturing and
other Group sites by the Executive
Directors (COVID-19 permitting)
andthrough reporting by Executive
Committee members and the
HRfunction.
DIALIGHT FOUNDATION
– The Dialight Foundation is the
primary conduit for engagement
with local communities. Its
membership is drawn from all
levelsand localities of the Group –
ensuring a direct voice for all
employees in decision-making.
– The Foundation is chaired by the
CEO, enabling the CEO to directly
represent the voice and needs
ofourlocal communities in
Boarddiscussions.
WHISTLEBLOWER HELPLINE
– The Group operates a confidential
whistleblower helpline, facilitated
byanindependent third party.
– Reports are reviewed confidentially
bythe Group General Counsel and
reported tothe Chair of the Audit
Committee (for control/ethics &
integrity issues) and to the CEO and
Head of HR in respect of personnel
issues/HR-relatedcomplaints.
REPORTING TO BOARD
– The executive team reports monthly
tothe Board on people and health &
safety issues as well as the activities
ofthe Dialight Foundation and other
community engagement. The
WENEDreports to the Board
periodically on the employee
engagement programme and on
feedback received from employees.
BOARD: LEADERSHIP AND ENGAGEMENT CONTINUED
WHAT WE DID IN 2022 CONTINUED
COMMERCIAL
ENGAGEMENT
Fariyal Khanbabi
CEO
Clive Jennings
CFO
ENGAGEMENT WITH
EMPLOYEES AND OUR
LOCAL COMMUNITIES
Fariyal Khanbabi
CEO
Gaëlle Hotellier
Workforce EngagementNED
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
1
2
3
4
2022 BOARD PERFORMANCE EVALUATION
In compliance with the 2018
Code, the Board undertakes
aformal evaluation of its
performance, and that of each
Director, on an annual basis.
The principal Committees of the
Board also undertake an annual
evaluation of their effectiveness,
in accordance with their terms
of reference. The outcomes of
the 2021 review (concluded in
March 2022) fed directly into the
Board agenda for the reporting
year and in the execution of the
2022 succession planning,
including the recruitment of
Nigel Lingwood to the Board.
The outcomes of the 2022
review will similarly inform
Boardadministration, agenda
planning, strategy and
succession planning. The Board
was facilitated by Lintstock, an
independent external adviser
(i.e. a third-party adviser with
noconnection to the Company
or any Director other than in
respect of these Board
evaluation services).
Four Stages
QUESTIONNAIRE (NOVEMBER)
— Detailed questionnaire circulated to each member of
theBoard using themes provided by Board members
— Covered all key Board, Committee and support
responsibilities/functions
— Facilitated by independent third-party adviser
— Responses all confidential/anonymised
— Report collated by third-party adviser
BOARD REVIEW (DECEMBER)
— Each Committee met to review the circulated report
anddiscussed key issues/themes
— Board considered feedback from Committees
andreviews, circulated report and discussed key
issues/themes
— Board considered any necessary changes to Committee/
Board structure and/or operations
DIRECTOR REVIEWS (JANUARY/FEBRUARY)
— One-on-one confidential discussions between Chair
andeach Director on: other Board members; individual
Director performance; Committee issues; Board issues
— Chair compiled report for the Board
— One-on-one confidential discussions between SID
andeach Director on the performance of the Chair
— SID compiled report for the Board
FINAL BOARD REVIEWS (MARCH)
— Nominations Committee discussed Board review and
individual Director reviews
— Board considered Board review and individual Director
reviews and feedback from the Nominations Committee
— Each Director reviewed in turn for independence,
performance and potential re-election
— Board’s final recommendation on Director independence
and re-election
— Karen Oliver was Chair through to 31 December 2022
and was independent on appointment (10 September
2021). David Thomas then became Chair on 1 January
2023 on an interim basis and was similarly deemed
independent upon appointment. The Board has
reviewed and agreed that each of Gaëlle Hotellier,
Gotthard Haug and Nigel Lingwood remains
independent.
— Nigel Lingwood was recruited as an independent
Non-Executive Director on 1 November 2022.
— David Blood is not, on a strict interpretation of the
examples that could potentially impair independence
set out in Provision 10 of the 2018 Code, considered
tobe independent as a consequence of his connection
with Generation Management LLP (currently the
Company’s second-largest shareholder). However,
theBoard has always considered, and continues to
consider, David to be independent in character and
judgement in performing his duties as a Director, and
isfully confident that David would absent himself from
any Board discussions at which any conflict might arise
(and would ensure that he did so).
— The Board remains particularly conscious of its duties
under Provision 7 of the 2018 Code to actively manage
general potential conflicts of interest arising from
significant shareholdings and accordingly, David’s
letter of appointment contains additional clauses
covering confidentiality, insider dealings and conflict
ofinterest and the Board considers potential conflicts
arising at each and every meeting.
— The Board benefits from the wide variety of
skills,experience and knowledge that each of the
Directorsbrings to their roles. However, being
availableand committing sufficient time to the
Company is essential. Therefore, the number of
external directorships that aNon-Executive Director
holds is animportant consideration when recruiting
and when performing the annual evaluation of
Non-Executive Director effectiveness.
— Executive Directors are permitted to accept one
external appointment, subject to the prior approval
ofthe Chair. Approval will only be given where the
appointment does not create a conflict of interest with
the Group’s activities and where the role is considered
to be beneficial to the development of the individual
(which will, in turn, benefit the Company).
— In addition to the scheduled Board meetings,
Non-Executive Directors are expected to attend the
AGM, the annual strategy meeting and certain other
Company events and site visits throughout the year.
Atime commitment of at least 20 days per annum is
the anticipated requirement for each Non-Executive
Director and this was exceeded in 2022 (taking into
account Committee and other responsibilities).
Confirmation is obtained on appointment from
eachNon-Executive Director that they can allocate
sufficient time to the role.
— The Chair and Non-Executive Directors also meet
twice a year without Executive Directors present to
ensure there is an opportunity to discuss potentially
sensitive matters. The Senior Independent Director
meets with the Non-Executive Directors, without the
Chair present, at least once per year, to evaluate the
Chair’s performance.
DIRECTORS: INDEPENDENCE
AND CONFLICTS OF INTERESTS
DIRECTORS: TIME ALLOCATION
BOARD COMPOSITION, SUCCESSION AND EVALUATION
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
— Newly appointed Non-Executive Directors follow
atailored induction programme, which generally
includes dedicated time with Group Executives,
timewith Board advisers (including legal briefings),
inductions on Group products and technologies,
andvisits to regional offices.
— There are tailored induction materials which provide
acomprehensive overview of: the Group and its
legaland organisational structure; the governance
framework; the role of the Non-Executive Director;
key business contacts at the Company level; and
details of the Board’s external advisers. In addition
tothe latest Annual Report and Company
announcements, further materials such as recent
broker coverage and the last Board evaluation are
also provided.
— Nigel Lingwood, an experienced FTSE Executive
andNon-Executive Director, has undertaken a
targeted induction process to familiarise him with
theCompany’s products, operations and key areas
of focus. This has included discussions with senior
managers, for example with the sales and legal
functions (in respect of the focus on Lighting product
sales growth and the Sanmina litigation respectively).
He has also visited the Group’s manufacturing
locations in: Tijuana, Mexico; Ensenada, Mexico;
theengineering, product development and finance
operations at Farmingdale NJ, USA; and the Group’s
London headquarters.
— In compliance with the 2018 Code, all of the
Directors in place will stand for election/re-election
(asappropriate) at the forthcoming AGM.
Followingthe annual evaluation of the Board and
itsCommittees the Board has determined that all
Directors standing for election or re-election at
theAGM continue to be effective, hold recent and
relevant experience and continue to demonstrate
commitment to the role.
— Biographical details of each Director standing
forelection or re-election are set out in the notice
ofAGM.
— Each Director is covered by appropriate
Directors’and officers’ liability insurance,
attheCompany’s expense.
— In addition, the Directors are entitled to be
indemnified by the Company to the extent
permittedby law and the Company’s Articles of
Association in respect of all losses arising out of
orinconnection with the execution of their powers,
duties and responsibilities.
— In addition to having responsibility for succession
planning of senior executive roles below Board
level,the Nominations Committee (and the Board
generally) are responsible for succession planning
ofBoard Directors and the key Board roles. Board
succession plans have been in place across 2022
and resulted in the recruitment of Nigel Lingwood in
November 2022 (with a view to him assuming the
Chair role of the Audit Committee in 2023).
— As outlined on
P120 , the Board’s recent approach
tosuccession planning and recruitment has achieved
a broad balance in terms of cognitive approach,
diversity, skills, knowledge and experience, and
length of service. This is maintained through a
combination of an open-minded approach to
recruitment, use of external advisers, a thorough
recruitment process for all potential appointees
tothe Board and active management of
successionplanning.
— In January 2023, a number of major shareholders
approached the Company and proposed that Neil
Johnson be appointed as Chair and further
requested that the process focus solely on Neil.
Having regard to the initial specification for the role,
and following interviews with all the Board members,
the appointment of Neil was endorsed and it has
been agreed that he will join the Board at the
conclusion of the Annual General Meeting on 16 May
2023.
DIRECTORS: INDUCTIONDIRECTORS: RE-ELECTION DIRECTORS: LIABILITY INSURANCEDIRECTORS: SUCCESSION PLANNING AND RECRUITMENT
BOARD COMPOSITION, SUCCESSION AND EVALUATION CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
NOMINATIONS COMMITTEE REPORT
Dear shareholders
Both the Nominations Committee and the Board as a
whole recognise their crucial roles in nurturing talent
and diversity at management and executive levels at
Dialight; and whilst 2022 saw further changes at
Board level, this was driven primarily by the previous
planning work of the Nominations Committee with
regards to Board succession.
Board changes
Clive Jennings joined the Board in January 2022
following a period as interim CFO, assuming the
leadership role in the finance and IT teams as well as
his commitments as an Executive Director. Clive is an
experienced CFO and listed company board director
having been CFO at The Rank Group Plc and his
extensive experience across several senior financial
and operational roles has already brought significant
benefits to the business.
Nigel Lingwood joined the Board on 1 November
2022. Nigel joined the Board’s Audit Committee with,
as part of the Board’s succession planning, a view to
assuming the Audit Committee Chair role following
the2023 AGM. In light of his extensive listed board
experience, he also joined the Nominations and
Remuneration Committees. From 2001 to 2021 Nigel
was Group Finance Director and Board Director at
Diploma PLC (LSE: DPLM.L) and he is currently
aNon-Executive Director and Chair of the Audit
Committee of Volution Group plc (LSE: FAN.L).
Inparticular Nigel brings extensive and recent
financial and accounting expertise together with a
track record, as both an Executive and Non-Executive
Director, of delivering growth in shareholder value in
international public companies.
2022 HIGHLIGHTS
— Implementation of AuditCo succession planning
— Recruitment of a new Chair
— Stabilisation of CFO role
— Enhanced workforce engagement NED role
2023 PRIORITIES
— Strengthen senior executive succession planning
— Review of recruitment of additional NED
ROLE AND RESPONSIBILITIES
— review the size, balance and composition of the Board
and its Committees and make recommendations for
any changes, and oversee Board and senior executive
succession planning;
— periodically review any objectives for the
implementation of diversity on the Board and monitor
progress towards these objectives;
— lead the process for Board appointments, including
the evaluation of skills, knowledge, experience and
diversity on the Board and prepare role descriptions
for any particular appointment, and ensure all new
Directors receive appropriate induction training;
— review the results of the annual Board performance
evaluation process that relate to the composition of
the Board; and
— review senior executive leadership requirements for
the Group.
David Thomas
Chair of the
NominationCommittee
COMPOSITION
Committee member Member from/until Attendance
Karen Oliver Member from 30 July 2020
(Chair from 10 September
2021) – until 31 December
2022
6/7
David Blood Member from 23 July 2015
- until 30 March 2023
6/7
David Thomas From 26 April 2016 6/7
Gaëlle Hotellier From 3 October 2016 7/7
Gotthard Haug From 30 July 2020 7/7
Nigel Lingwood From 1 November 2022 1/1
We were sad to see Karen Oliver step down from the
Board on 31 December 2022 for personal reasons.
Her unplanned departure led to various interim
changes at Board level (as described below) and the
search for a new Chair. I have stepped into an interim
role as Board Chair and Chair of the Nominations
Committee whilst we complete the recruitment
process.
In January 2023, a number of major shareholders
approached the Company and proposed that Neil
Johnson be appointed as Chair and further requested
that the process focus solely on Neil. Having regard
to the initial specification for the role, and following
interviews with all the Board members, the
appointment of Neil was endorsed and it has been
agreed that he will join the Board at the conclusion of
the Annual General Meeting on 16 May 2023.
On 30 March 2023, we announced that David Blood
will be stepping down as a non-independent Non-
Executive Director. During his eight years on the
Board, David has made a significant contribution to
the business, including over two years as Chair, and
everyone at Dialight extends him our best wishes for
the future.
In 2022, the Nominations Committee received advice
from the following independent external search firms in
respect of various Board roles; Egon Zehnder,
Communicate RS and Korn Ferry. None of these
search firms had any disclosable connections with any
Board Directors or with the Group.
Diversity
The Board recognises the benefits of Board cognitive
diversity (and we report elsewhere in this Annual
Report on pages 52 and 104 on workforce diversity)
Terms of reference
A copy of the terms of reference (“ToR”) for the
Nominations Committee is available on the Company’s
website or on request from the Company Secretary at
theregistered office. The ToR are reviewed annually by
the Committee.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
NOMINATIONS COMMITTEE REPORT CONTINUED
so I am pleased to see the level of diversity broadly
maintained on the Board (and indeed acrossthe
Group) in terms of experience, gender, qualifications
and background. The fact that we are one of the few
listed companies with two of the most senior Board
roles (CEO and Senior Independent Director) filled by
women illustrates well that Dialight isa place where
any person, regardless of their background, can
thrive. The Board is currently comprised of seven
Directors, two of whom are women (29%). The
spread of nationalities is: four British, one American,
one German and one French. The Board remains
strongly committed to enhancing cognitive and other
forms of diversity in its futureappointments.
Activities during 2022
The activities of the Committee are summarised on
these pages and have included discussions on the
need to develop greater strength in depth in senior
management and ongoing succession planning.
Post year-end activities
Following the departure of Karen Oliver, the
Company announced, on 13 January 2023, several
changes to Board appointments were necessitated
by my assumption of the interim Board Chair role.
Gaëlle Hotellier has stepped up to replace me as the
Senior Independent Director, on an interim basis, and
she will carry out this role alongside her appointments
as the Chair of the Remuneration Committee and the
Workforce Engagement Non-Executive Director.
Under the terms of reference of the Remuneration
Committee, a Board Chair can be a member of the
Remuneration Committee but does not count towards
the independent Non-Executive Director quorum of 3
Directors. Accordingly, Gotthard Haug kindly agreed
to be a member of the Remuneration Committee,
whilst I have remained a member. Lastly, once I
assumed the Board Chair role it was no longer
appropriate for me to chair, or be a member of, the
Audit Committee. The Board had a succession plan
inplace for the Audit Committee Chair role in the
recruitment of Nigel Lingwood, and accordingly it
was decided to accelerate that planning and for
Nigelto assume the Audit Committee Chair role
withimmediate effect. As I was Chair of the Audit
Committee for the entirety of the 2022 reporting
period, I attended the Audit Committee meeting that
reviewed the Company’s FY2022 preliminary results
and these Annual Report and Accounts in order to
provide continuity.
Priorities for the coming year
The key priority for the Committee in early 2023 was
tocomplete the recruitment of a new Board Chair.
Alongside this, the Committee will consider the
recruitment of an additional independent
Non-Executive Director to further strengthen the
Board’s independent outlook, and will also focus
onsuccession planning and talent development
atExecutive and Board level.
On behalf of the Nominations Committee.
David Thomas
Chair of the Nominations Committee
2 April 2023
COMMITTEE ACTIVITIES IN 2022
January
— Review and approval of appointment of Clive Jennings
to CFO and Executive Director role.
March
— Annual review of Chair role and of the Board and
itsCommittees.
— Annual review of Directors and approval of election/
re-election of Directors.
— Reviewand approval of the annual Nominations
Committee report.
— Review of Non-Executive Director recruitment process.
June
— Review and approval of search agents for
Non-Executive recruitment process, review of
rolespecifications, and discussion of long-list
andinterview processes.
July
— Update on Non-Executive Director recruitment
process and review of CEOsecondment to USA.
September
— Update on Non-Executive Director recruitment,
short-list process and conduct of final interviews.
October
— Review and approval of appointment of Nigel
Lingwood as a Non-Executive Director, subject to
final terms.
December
— Annual governance review.
— Board Chairrole.
— Terms of reference
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
AUDIT COMMITTEE REPORT
Nigel Lingwood
Chair of the
AuditCommittee
2022 HIGHLIGHTS
— Review of the potential quantum, duration, and
denomination of the new banking facilities
— Approved the revised inventory provisioning policy
— Completed audit tender process, leading to the
proposal to appoint Grant Thornton for 2023 audit
— Group-wide cyber security review completed
— Review of internal audit activity carried out by both
outsourced providers and Group Finance staff
— Review of management judgement in key areas
including going concern and annual impairment
reviews, inventory provisions, development
capitalisation and litigation cases.
— Expanded oversight of the Group risk management
process to include departmental risk registers and
mitigating actions.
— Consideration of business forecasts versus available
banking facilities as part of going concern and
viabilityreviews
— Assessment of the significant risks and issues to be
disclosed in the financial statements and how these
should be addressed
— Updated Committee terms of reference to include
TCFD and environmental reporting
— Consideration of the BEIS consultation on ‘Restoring
Trust in Audit and Corporate Governance’ and its
potential impact on the Group
— Reviewed correspondence from the Financial
Reporting Council following their review of the 2021
Annual Report and Accounts, which suggested limited
improvements to disclosures
2023 PRIORITIES
— Onboard Grant Thornton as the new Group auditor
— Continue the focus on working capital management,
particularly inventory levels and ageing
— Oversee the implementation of the recommendations
from the latest external cyber security review
— Expand the scope of internal audit activity to cover all
Group locations
— Continue to consider the impact of BEIS on the Group
(including the proposed introduction of an audit and
assurance policy)
— Review the governance and disclosures surrounding
TCFD and environmental reporting by the Group
RESPONSIBILITIES
The role of the Committee is primarily to support the
Board in fulfilling its corporate governance obligations in
so far as they relate to the effectiveness of the Group’s
risk management systems, internal control processes and
financial reporting. Its key responsibilities include:
— reviewing the integrity of financial statements and any
announcements relating to financial performance
— reviewing and challenging key accounting judgements
and narrative disclosures
— monitoring internal control and risk management
processes
— performing a robust assessment of the Company’s
principal and emerging risks
— monitoring and reviewing the effectiveness of internal
audit activity
— considering the appointment of the external auditor,
their reports, performance, effectiveness and
independence
— agreeing the external auditor’s terms of engagement
and the appropriateness of the audit fee
COMPOSITION
Committee member Member from/until Attendance
Nigel Lingwood
(Chair)
Member from 1November
2022 – Chair from
12January 2023
1/1
David Thomas Member from 26 April 2016
– Chair to 11January 2023
3/3
Gaëlle Hotellier 3 October 2016 3/3
Gotthard Haug 10 September 2021 3/3
COMMITTEE ACTIVITIES IN 2022
March
— Review of 2021 annual accounts and preliminary
announcement
— Approval of key 2021 accounting judgements,
including going concern and viability reviews
— Receive and discuss KPMG audit report
— Review and re-appoint KPMG as auditor for 2022
— Review heads of terms for revolving creditfacility
— Approved the audit tender process and timing
— Annual risk management review
— Receive reports on internal audit activity
July
— Review of interim results and announcement
— Approval of key accounting judgements forinterim
results, including going concernreview
— Approval of KPMG audit plan and fees for2022
— Receive reports on internal audit activity
— Receive update on audit tender and approved
selection of Grant Thornton as group auditor
December
— Completed Committee’s annual governance
review and evaluation
— Receive reports on internal audit activity, including
cyber security review
— Review of key year-end accounting judgements
— Approve new inventory provisioning policy
— Review of internal control framework
andeffectiveness
— Reviewed correspondence following FRC review
of 2021 accounts and addressed the minor
disclosure changes recommended
— Approval of non-audit services
Dear shareholders
I am pleased to present the Audit Committee Report
for the year ended 31 December 2022. This report
provides an insight into the activities undertaken
oroverseen by the Audit Committee (‘Committee’)
inwhat has been another challenging year for
theGroup.
During the year, the Committee has continued
todiscuss and challenge the assumptions and
judgements made by management in the preparation
of the published financial information, provided input
and oversight of the internal controls processes and
risk management, challenged management over
theincreased inventory levels and managed the
relationship with the Group’s external auditor,
KPMGLLP (“KPMG”).
The Committee has an annual work plan linked to the
Group’s financial reporting cycle, which ensured that
it has considered all matters delegated to it by the
Board and ensured that the interests of shareholders
are properly protected. Additionally, the Committee
has considered the impact of global supply chain and
logistics challenges on our business, and you will find
important detail on this in other sections of the
Annual Report (see page 81).
Committee meetings
The Committee met three times during 2022 and
hasa programme of business that reflects the
Committee’s terms of reference and issues that
couldimpact the effectiveness of the Group’s risk
management systems, internal control processes
andfinancial reporting.
Terms of reference
A copy of the terms of reference (“ToR”) for the
AuditCommittee is available on the Company’s website
or on request from the Company Secretary at the
registered office. The ToR are reviewed annually by
theAudit Committee.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
128 129
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
AUDIT COMMITTEE REPORT CONTINUED
Internal control and risk management processes
The Board has overall responsibility for the risk
management framework, as explained on page 70.
Itdelegates responsibility for reviewing the
effectiveness of the Group’s systems of internal
control to the Committee. This covers all material
controls including financial, operational and
compliance controls and risk management systems.
During the year, the Committee received detailed
reports that enabled them to maintain oversight
anddiscuss the risks and challenges to the Group.
The structures within the Group that track and report
on controls include:
—a formally constituted Risk Committee that meets
periodically, made up of members of the Group
Executive Committee and representing each
primary function of the business;
—allocation of identified risk to a specific risk owner
with responsibility for monitoring and mitigating
that risk;
—periodic, externally facilitated, briefings on new
and emerging risk themes across our sector
andgenerally;
—the Board of Directors and Audit Committee
oversight on risk register and risk review process;
—monthly operational reporting;
—the control structure for delegated authorities; and
—external and outsourced “internal” auditors.
The Committee also reviews the Group’s internal
control systems and their effectiveness prior to
reporting any significant matters to the Board. Internal
controls are the responsibility of the Chief Financial
Officer. Confirmation that the controls and processes
are being adhered to throughout the business is the
responsibility of the relevant managers and is
continually tested by the work of Group Finance.
Thesecontrols includes monthly management
accounts, balance sheet reviews, regular forecasting
and investigation of variances against budget/forecast.
The Committee reviews the Group whistleblowing
register at each meeting to ensure investigations are
properly completed and that any control implications
or common themes are identified and addressed.
Internal audit
Dialight outsources the internal audit function and
supplements this with reviews by members of Group
Finance. Each year, the Committee reviews and
approves the internal audit plan. The plan is kept
under review, depending on operational or other
business requirements, with any proposed changes
being discussed andagreed with the Committee.
TheChief Financial Officer and/or the external
provider submits reports on completed audits to
eachCommittee meeting. The findings are discussed
by the Committee, together with any implications
arising from such findings on the broader control
environment. Recommendations arising from internal
audit reviews are communicated to the relevant
business area for implementation of appropriate
corrective measures and the Committee monitors
senior management’s responsiveness to the same.
The work undertaken by outsourced providers
covered inventory and payroll controls at the primary
manufacturing locations in Mexico, cyber security,
and business continuity planning. Group Finance
reviewed controls in our largest region focusing on
purchasing commissions, expenses, and compliance
with delegation of authority across the Group.
The internal audit work concluded that appropriate
controls were in place and made some
recommendations for improvement. The review of
cyber security in particular, identified areas for
improvement which will be implemented in 2023.
Fair, balanced and understandable
One of the key compliance requirements of a Group’s
financial statements is for the Annual Report to be fair,
balanced and understandable. The coordination and
review of Group-wide contributions to the Annual Report
follows a well-established process, which is performed
inparallel with the formal process undertaken by the
external auditor. A summary of the process is as follows:
—the Annual Report and Accounts is drafted by
theappropriate senior management with overall
coordination by a team comprising the Group
General Counsel & Company Secretary, the
ChiefFinancial Officer, and the Group Financial
Controller to ensure consistency;
—comprehensive reviews of the drafts of the
AnnualReport and Accounts are undertaken by
management, the Board Chair and respective
Chairs of each Committee to ensure that (i) all key
events and issues which had been reported to the
Board in the Executive Board reports during the
year had been appropriately referenced or
reflected within the Annual Report; and (ii) the
completeness and accuracy of definitions of
alternative performance measures used in the
Annual Report and Accounts, their consistency of
use, relevance to users of the Annual Report and
Accounts and balance with statutory metrics;
—a near-final draft is reviewed by the Committee;
—a final draft is reviewed by the Board; and
—formal approval of the Annual Report and
Accountsis given by a committee of the Board.
In addition to Committee members, meetings are also
attended by the:
Chief Executive Officer
Chief Financial Officer
Group General Counsel & Company Secretary
Group Financial Controller
External Auditor
The Committee met separately during the year to
discuss matters without management present. In
addition, KPMG was provided with the opportunity
ateach meeting to discuss any issues with the
Committee without the presence of management.
The Chair meets with members of the Executive and
management teams as well as KPMG outside of
formal Committee meetings to discuss matters which
fall within the Committee’s terms of reference.
Governance
All members of the Committee are independent
Non-Executive Directors whose qualifications are
outlined in the Directors’ biographies on pages
108and 109. Each member of the Committee has
adetailed understanding of Dialight’s strategy,
business model and the Group’s culture and core
values together with significant knowledge and
business experience in financial reporting, risk
management, internal control, and strategic
management. In addition, the present and former
Chairman meet the requirement to bring recent and
relevant financial experience to theCommittee and
further information about their experience can be
found on page 108. The Board is satisfied that the
Committee has the resources and expertise to fulfil
its responsibilities and has competence relevant to
the sector in which the Company operates.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
130 131
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
This approach enabled the Committee, and then theBoard, to confirm that the Company’s 2022 Annual
Report taken as a whole is fair, balanced andunderstandable and provides the information necessary for
shareholders to assess the Company’sposition and performance, business model and strategy.
Key judgements and financial reporting matters
The Committee assesses and challenges whether during the year suitable accounting policies have been
adopted and whether management has made appropriate estimates and judgements. Key accounting
judgements considered, conclusions reached and their financial impacts during the year under review are
setout in the table below. These were also the key judgements challenged by KPMG during their audit.
Additionally, the Committee discussed with the external auditor the significant issues addressed during the
year and the areas of particular focus, as described in the independent auditor’s report on pages 178 to 190.
Key judgements and financial reporting matters 2022 Audit Committee review and conclusions
Going concern and viability statement
The Directors must determine that the business will
continue as a going concern for the 12-month period
from the date of signing the accounts. Furthermore,
the Directors are required to make a statement in the
Annual Report as to the longer-term viability of the
Group. This has been analysed in detail, particularly
the downside scenarios modelled in the viability
statement, in light of the current economic
environment and world-wide commodity and
logisticschallenges.
The Committee conducted an annual assessment
pursuant to which the Directors were able to conclude
that it is appropriate to prepare the financial statements
on a going concern basis, as set out in more detail on
pages 88-89. The Committee also evaluated
management’s work in conducting a robust assessment
of the Group’s longer-term viability, affirmed the
reasonableness of the assumptions, considered whether
a viability period of three financial years remained most
appropriate, and confirmed that it was as part of a
recommendation to the Board. These conclusions were
subject to robust challenge from KPMG. Further detail
can be found on page 181.
Valuation of inventory
The Committee reviewed the nature of the costs
absorbed into inventory, the level of production over
which these costs were absorbed, the variances,
including in respect of material usage and purchase
price, between standard cost and actual cost and
thereasons for movements in inventory value period
to period. The basis for and level of provisioning,
including for aged, and obsolete product which are
judgemental or require a high degree of estimation,
were presented to the Committee by management.
The Committee and the Auditors discussed and
assessed the information provided by management
and concluded, after appropriate challenge, that
thevaluation of inventory and level of provisioning
werereasonable.
The Committee approved the implementation of the
revised two-year provisioning policy (see note 2(c)).
AUDIT COMMITTEE REPORT CONTINUED
Key judgements and financial reporting matters 2022 Audit Committee review and conclusions
Capitalised development costs
Data in relation to historic and current year
development cost capitalisation was reviewed and
the appropriate application of the development costs
capitalisation policy in line with accounting standards
was considered. The adequacy of Dialight’s
disclosures was reviewed with management,
including the judgement involved in assessing the
carrying amount and degree of estimation involved
inassessing the recoverable amount of capitalised
development costs.
The Committee and KPMG challenged the
assumptions used to determine development
department capitalisation and concluded they
wereappropriate and that the carrying values at
31 December 2022 were supported by forecast
cashflows.
The Committee reviewed and approved the write-
offof Obstruction development costs (seenote 6).
Impairment review
For goodwill and indefinite-life assets, the Group
performs an annual impairment review. In addition,
the Group reviews assets that are subject to
amortisation or depreciation for events or changes
incircumstances that indicate that the carrying
amount of an asset or cash-generating unit may
notbe recoverable. If an asset has previously been
impaired the Group considers whether there has
been a change in circumstances or event that may
indicate the impairment is no longer required.
The Committee and KPMG reviewed management’s
impairment review process including, where
applicable, the potential indicators of impairment
and/or reversal, cash flow projections, growth margin
and discount rates used to derive a value in use as
well as the sensitivity to assumptions made and
consistency withthe prior year.
The Committee and KPMG concluded after robust
challenge that no impairment chargewas required.
Further details are disclosed innote 14.
Non-underlying items
The Group separately discloses certain costs and
income that impair the visibility of the underlying
performance and trends between periods. The
separately disclosed items are material and infrequent
in nature and/or do not relate to underlying business
performance. Judgement is required in determining
whether an item should be classified as non-
underlying or included within the underlying results.
The Committee reviewed the presentation
treatmentof non-underlying items and agreed that
the items listed in note 6 are appropriately classified
and disclosed.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
132 133
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
AUDIT COMMITTEE REPORT CONTINUED
Key judgements and financial reporting matters 2022 Audit Committee review and conclusions
On-going litigation with Sanmina Corporation
The Committee considered the disclosures of
theongoing legal proceedings with its former
manufacturing partner, Sanmina Corporation, and
thepossible impact it has when assessing the going
concern and long-term viability statement of the
Group (see further details in note 27).
The Committee concluded that the disclosure in the
accounts was appropriate, and that management
hadconsidered the downside range of potential
outcomes in assessing the Group’s going concern
and longer-term viability.
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities)
Order 2014.
KPMG is engaged to express an opinion on the
financial statements. It reviews the disclosures
contained in the financial statements to the extent
necessary to express its opinion. It discusses with
management the reporting of operational results and
the financial position of the Group and presents
findings to the Committee. The Directors in office at
the date of this report are not aware of any relevant
information that has not been made available to
KPMG and each Director has taken steps to be aware
of all such information and to ensure it is available to
KPMG. KPMG’s audit report is published on pages
178 to 190.
In order to assess the effectiveness and independence
of the external auditor and the audit process, the
Committee carried out a structured review of the
external audit process, including the planning,
execution, and quality of the audit. This included:
—discussing and agreeing at the planning stage the
draft list of specific audit risks to audit effectiveness
and quality (specific audit quality risks);
—KPMG reporting against audit scope at subsequent
meetings providing the Committee with an
opportunity to monitor progress and
raisequestions;
—KPMG report on specific audit risks applicable to
Dialight and how these have been addressed at the
planning and final stages of theaudit;
—obtaining written assurance from KPMG that all
partners and staff complied with their ethics and
independence policies and procedures; and
—ensuring regular rotation of lead audit partner and
other senior audit staff.
Feedback was sought from members of the
Committee and senior management of the business
areas subject to the audit. The feedback was
considered, discussed and summarised by
management and reported to the Committee and
Board. Having conducted such review, and reviewed
overall performance, we have concluded that KPMG
has demonstrated appropriate qualifications and
expertise throughout the period under review, and
that the audit process was effective and independent.
The Committee analysed and discussed the results of
the inspection of KPMG’s 2021 audit by the FRC’s
Audit Quality Review team. The discussions gave no
cause for concern regarding the FRC’s observations.
Non-audit services
The Committee oversees the nature and amount of all
non-audit work undertaken by the external auditor to
ensure that it remains independent. When seeking
external accountancy advice in relation to non-audit
matters, the Group’s policy is to invite competitive
tenders where appropriate. In 2022, EY provided
internal audit services at the Group’s Mexican
operations and are also retained to provide taxation
services to the Group. It is also the Group’s policy
tobalance the need to maintain audit independence
with the desirability of taking advice from the
leadingfirm in relation to the matter concerned
andbeing efficient. No non-audit fees were paid to
KPMG during the period under review.
Audit Committee evaluation
It is incumbent on the Board to ensure that a formal
and rigorous review of the effectiveness of the
Committee is conducted each year. This was
accomplished through a self-assessment process at
the December 2022 meeting, which included a review
of the Committee terms of reference and was
reported to the Board in December. The terms of
reference were updated to reflect the Committee’s
responsibilities relating to TCFD and environmental
reporting and are available on the Group website.
In concluding this report, and particularly bearing in
mind the disruption caused by global supply chain
and logistics difficulties, on behalf of the Committee,
I would like to recognise and thank the Dialight
management and finance team, and KPMG for their
commitment and valuable contributions during what
has been a challenging year for the business.
I will be available to answer any questions in relation
to this Audit Committee report before the Annual
General Meeting. Please email your questions to the
contact details in the AGM notice.
Nigel Lingwood
Chair of the Audit Committee
2 April 2023
External audit effectiveness and independence
KPMG has been the Company’s external auditor
since 2001 but under the Statutory Auditors and Third
Country Auditors Regulations 2016, the Company
was required to re-tender its external audit by
31 December 2023. During 2022 the Committee
completed the process to identify a new audit firm for
the 2023 audit. There are no contractual obligations
that restricted the Company’s choice of external audit
firm, but the restrictions on audit rotation set out in
the 2016 Regulations precluded KPMG from being
considered in the tender process.
Invitations to tender were sent out to two “Big Four”
and three “Challenger” audit firms. Four firms
submitted detailed proposals, which were evaluated
by a selection panel comprising the former
Committee Chair,the Chief Financial Officer,
andGroup Financial Controller. Two firms were
short-listed and presented to the full Committee.
Following careful consideration of the proposals, the
Committee decided to recommend the appointment
of GrantThornton UK LLP at the forthcoming AGM
on16 May2023.
The Company confirms that, during the period under
review, it has complied with the provisions of The
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
134 135
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
REMUNERATION COMMITTEE REPORT
Gaëlle Hotellier
Chair of the
RemunerationCommittee
COMMITTEE ACTIVITIES IN 2022
January
— Review of benchmarking advice on CFO role and
finalising CFO remuneration package.
March
— Review of annual pay increment policy and application
(for Chair, Executive Director roles and general policy
acrossGroup); review and approval of outcomes for
2021 bonus plan and 2019 PSP/RSP plan; review and
approval of 2022 bonus plan structures; drafting
andapproval of Annual Remuneration Report; and
review and approval of 2022 RSP grant structures
(excluding Directors).
April
— Finalisation of 2022 RSP grants and 2022 bonus plan.
July
— Review of H1 performance against 2022 bonus plan
metrics and review of 2022 hedging of current PSP/
RSP awards.
September
— Review of proposed terms for CEO secondment
toUSA.
December
— Review of Committee composition, year-to-date
performance against annualbonus plan, annual
governance review, review of remuneration
arrangements upon Karen Oliver’s resignation,
andconfirmation of 2023 remuneration timetable.
Terms of reference
A copy of the terms of reference (“ToR”) for the
Remuneration Committee is available on the Company’s
website or on request from the Company Secretary at the
registered office. The ToR are reviewed annually by the
Remuneration Committee.
ROLE AND RESPONSIBILITIES
The primary responsibilities of the Remuneration
Committee are to:
— set the Remuneration Policy for all Executive Directors
(including interim roles) and the Company’s Chair
including, whereappropriate, bonuses, incentive
payments, share-based incentive schemes and
post-retirement benefits;
— determine the remuneration packages for the
Executive Directors (including interim roles), the
Company’s Chair and the Company Secretary, within
the terms of the policy;
— recommend and monitor the structure of the
remuneration of the senior management group as
defined by the Board;
— approve the design of, and determine targets for,
anyperformance-related and share-based incentive
schemes operated by the Company and approve the
total annual payments made under such schemes
(inaccordance with the Provisions of the UK
Corporate Governance Code 2018); and
— review the design of all share incentive plans requiring
approval by the Board and shareholders (for any such
plans, the Remuneration Committee shall determine
each year, taking into account the recommendations
of the Chief Executive Officer, whether awards will be
made and, if so, the amount of such awards to the
Executive Directors, Company Secretary, members
ofthe Executive Committee and other senior Group
employees from time to time as nominated by the
Chief Executive Officer, and any performance targets
to be used).
STATEMENT OF SHAREHOLDER
VOTING(2022 AGM)
% votes for
% votes
against Votes withheld
Directors’
Remuneration
Report FY2021
99.73 0.27 (238 out of
28,126,421
votes cast)
2021 Remuneration
Policy
96.30 3.70 205,478 (out of
18,865,959
votes cast)
COMPOSITION
The names of those who served on the Remuneration
Committee during the year and through to the report date
can be found in the table below:
Committee member Member from/until Attendance
Gaëlle Hotellier
(Committee Chair)
From 8 January 2018
(Chairfrom 1 June 2018)
7/7
David Thomas From 26 April 2018 7/7
Karen Oliver From 30 July 2020 until 31
December 2022
6/7
Nigel Lingwood From 1 November 2022 1/1
Gotthard Haug From 12 January 2023
All members of the Remuneration Committee are
considered independent within the definition set out in
the 2018 Code. None of the Remuneration Committee
has any personal financial interest in Dialight (other than
as shareholders), conflicts of interests arising from cross
directorships, or day-to-day involvement in running
thebusiness.
During the year, the Remuneration Committee met seven
times. Of these, four meetings were formal scheduled
meetings and the other three were meetings held to deal
with the review and approval of specific technical
remuneration matters. Attendance by individual members
of the Remuneration Committee is disclosed in the
tableabove.
Only members of the Remuneration Committee have
theright to attend Remuneration Committee meetings.
The Chief Executive Officer and the Company
Secretaryattend the Remuneration Committee’s
meetings by invitation but are not present when their own
remuneration is discussed. The Remuneration Committee
also takes independent professional advice as required.
External advice to the Remuneration Committee
The Remuneration Committee has access to the advice of the
Chief Executive Officer, Company Secretary and the Group HR
Director as well as external advisers as required. During the
year ended 31 December 2022, the Remuneration Committee
consulted Mercer Limited, a business of Marsh McLennan Inc,
which provided independent advice (for a total fee of £28,300
excluding VAT) on: the CFO salary, benefits and variable
remuneration package; remuneration arrangements on the
departure of Karen Oliver; incentive design, external market
context; general remuneration matters; and corporate
governance best practice and disclosure (including the
draftingof this report). The Remuneration Committee retains
the responsibility for the appointment of remuneration advisers
and their associated fees and undertakes due diligence
periodically to ensure that its advisers remain independent and
that the advice provided is impartial and objective. Mercer
Limited is a signatory to the Remuneration Consultants Group
Code of Conduct and abides by its requirements to provide
advice that is transparent and impartial. Mercer Limited does
not provide any other services to the Group.
Compliance statement
This Remuneration Report (inclusive of this introduction and
report by Gaëlle Hotellier, the policy outlined on pages 140
to158 and the report on the implementation of the policy on
pages 159 to 170) has been prepared in accordance with the
provisions of the Companies Act 2006 and Schedule 8 of the
Large and Medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013. It also meets the
requirements of the FCA Listing Authority’s Listing Rules and
the Disclosure Guidance and Transparency Rules. The sections
of the Remuneration Report that are subject to audit are
marked asAudited Information. The remaining sections of the
Remuneration Report are not subject to audit.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
136 137
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
REMUNERATION COMMITTEE REPORT CONTINUED
reward structures across the Group, bonus setting
and review, and annual equity-based awards.
Board changes in 2022
Clive Jennings was appointed as CFO and as an
Executive Director on 18 January 2022, having
previously beeninterim CFO since4 May 2021.
Details of Clive’sremuneration are set out on pages
159 and 160. On 14 December 2022, the Company
announced thatKaren Oliver had notified the Board
that she wished to step down as Chair and Non-
Executive Director of theGroup on 31 December
2022 for personal reasons. Inthecircumstances,
Karen was entitled to the payment of her three-month
contractual notice period(equating to £30,000)
Thissum was paid toKaren on 6 January 2023.
Exercise of discretion
The Remuneration Committee has not exercised any
discretion during the reporting year in respect of
approving awards under Schemes that, without the
exercise of such discretion, would not have vested.
To provide context, however, the Committee has in
prior years exercised discretion in the downwards
adjustment of remuneration. In the 2020 reporting
year the Remuneration Committee exercised
discretion in reducing PSP/RSP awards to reflect the
decline in the share price (in respect of the 12-month
period prior to grant of the 2020 PSP/RSPs). In light
of the 2022 financial results, the Committee has
exercised its discretion and decided that no
payments will be made against the personal
objectives element of the APBP.
Post year-end activities
As reported in the Nominations Committee report,
Neil Johnson has been appointed with effect from the
conclusion of the Annual General Meeting on 16 May
2023 and, as part of that search process, the
Committee has received advice from itsremuneration
consultants (Mercer Limited). That advice was
focused on the appropriate level and structure of
remuneration for a successor in the role taking
account of prevailing governance standards, market
practice and the context of the specification for the
role. The Board has additionally received various
representations from a number of major shareholders
with regards to the Chair role andpotential
remuneration structures that they believe would
bemost appropriate in the current context. These
representations from shareholders have included a
suggestion that the Remuneration Committee
considers a value creation plan for the Chair role and/
or executive management.
The Remuneration Committee is committed to
maintaining an ongoing dialogue with the Company’s
major shareholders and welcomes any direct
correspondence from shareholders on remuneration
matters. Equally, the Remuneration Committee will
continue to robustly, and with an independent
mindset, scrutinise any proposed remuneration
structures for the Chair role and/or for senior
management – taking account of prevailing external
governance codes and regulatory requirements, the
advice from its remuneration and legal advisers, the
views of its major shareholders (including any
dissenting views), theincentivisation requirements
todrive Group performance, and the needs and
interests of the Group’s other stakeholders
(includingemployees).
Following Karen Oliver’s departure, David Thomas
has stepped in as interim Chair, I have stepped in as
interim Senior Independent Director (“SID”) and the
appointment of Nigel Lingwood as Audit Committee
Chair (to replace David Thomas as part of the
Board’sstructured succession planning) has been
accelerated. The Remuneration Committee reviewed
the level of fees payable for the interim Chair role
(receiving advice from its remuneration consultants)
and determined that within the context of the interim
nature of the role it was appropriate to pay fees at the
same level as those paid to Karen Oliver. Whilst it is
the Board and not the Remuneration Committee that
is responsible for setting fees for Non-Executive
Directors, it is noted that the fees payable for the
interim SID role and the Audit Committee chair role
were also agreed at their previous rates. Further
details of all fees payable to Non-Executive Directors
are on pages 159 and 160. Additionally, as
announced on 13 January 2023, Gotthard Haug
hasjoined the Remuneration Committee.
Having regard to the businesses’ operations centred
in North America and Mexico, the Committee agreed
to the CEO taking a temporary secondment to this
region from January 2023. No amount has been paid
to the CEO in this respect.
Matters to be considered at the 2023 Annual
General Meeting
In addition to the routine resolution relating to this
Remuneration Report, the Notice of Annual General
Meeting will contain a proposal for the renewal of the
Company’s 2014 Performance Share Plan (the 2014
Plan). The 2014 Plan is due to expire on 15 April 2024
– a date which could fall within the 2024 annual RSP
awards grant window. The decision has therefore
been taken, as a precaution, to renew the Plan a year
early to avoid any administrative challenges in2024.
The new Plan is permitted by the Remuneration Policy
approved by shareholders in 2021.
Gaëlle Hotellier
Chair of the Remuneration Committee
2 April 2023
Dear shareholders
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the year ended
31 December 2022. As in previous years, this report
issplit into three sections: this Annual Statement
(pages 136 to 139); the current Remuneration Policy
(pages 140 to 158); and the annual report on the
implementation of the Remuneration Policy during
2022 (pages 159 to 170). We have also included
“ataglance” summaries on pages 141 and 159
toaidthe reader.
Implementation of the 2021 Remuneration Policy
during the year
Following extensive consultation with major
shareholders, the Remuneration Committee proposed
a strengthened Remuneration Policy at the 2021
AGM. This policy was passed with the support
of96.30% of voting shareholders. The key
improvements in the 2021 Remuneration Policy were:
(a) replacement of the Performance Share Plan
(“PSP”) policy with the Dialight Restricted Share Plan
(“DRSP”) – granting restricted shares (at a 50%
reduction in value) free of performance criteria other
than retention in role and Remuneration Committee
discretion as to Group performance being in line with
strategy; (b) an increase in the Executive Director
shareholding guidelines to 200% of base salary; (c)
retention of allbonus and DRSP shares to meet
shareholding guidelines; and (d) post-employment
retention of shares for a two-year period. Following
the introduction of the 2021 Remuneration Policy and
thefinal stage of implementation of the restricted
share plan (as reported in 2021), the Remuneration
Committee’s activities during 2022 were primarily
focussed upon the routine implementation of that
Policy with regards to the annual cycle of review of
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
138 139
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW
A new Remuneration Policy was introduced in 2021 as the final stage of a two-year review
and change process. The process involved a series of consultations with key shareholders
in2020 and 2021 and there has additionally been a wider consultation with shareholders
inearly 2023. The Committee is confident that the Company’s Remuneration Policy now
delivers an optimal degree of shareholder alignment for Executive Directors’ remuneration
structures. This page provides an “at a glance” summary of the 2021 Remuneration Policy.
The policy is set out in detail on pages 142 to 158.
Executive Director remuneration under the 2021 policy
Total Executive Director remuneration is made up of the following five components:
BASE SALARY BENEFITS PENSION BONUS (CASH
ANDSHARES)
SHARE PLAN
ANDHOLDINGS
Benchmarked
alignment
Competitive salary
aligned tomarket
and individual
factors.
Annual review
Within context of
wider workforce
conditions and
Company
performance.
Benchmarked
alignment
Market competitive,
but cost effective,
toattract and
retainhigh calibre
executives.
Aligned with
employees
CEO and CFO
aligned with
standard UK
employee benefits:
car allowance;
medical; life
assurance.
Aligned with
employees
Aligned to majority
of employees
inapplicable
jurisdiction. CEO
and CFO roles
bothat 5%.
Maximum bonus
CEO: 150% of
basesalary
CFO: 125% of
basesalary
Financial metrics
Minimum of 75% of
bonus pot against
financial targets.
Shareholder
alignment
Up to on-target
pay-out (50%)
paidin cash. Any
payment over
on-target paid in
Dialight shares
(50% vest in two
years, 50% vest
inthreeyears).
Restricted Share
Plan maximum
award
—CEO: 62.5% of
base salary
—CFO: 50% of
base salary
—three-year DRSP
vesting period
—two-year post-
vesting holding
period.
In-role
shareholding
guidelines
200% of base
salary.
Post-employment
shareholding
guidelines
two-year post-
employment
holdingperiod.
REMUNERATION: DIRECTORS’ REMUNERATION POLICY (2021)
Policy approval
This section of the report details the Remuneration Policy for Executive and Non-Executive Directors.
TheRemuneration Policy was approved at the 2021 AGM and is effective for up to three years. Of voting
shareholders, 96.3% voted in favour of this policy. Following the approval of the policy, major shareholders
were again consulted, in Autumn 2021, on its implementation and as part of an ongoing dialogue between the
Remuneration Committee and shareholders. The Remuneration Committee welcomes input from all
theGroup’s stakeholders on remuneration matters.
Extended consultation
% of shareholders consulted in 2020 and 2021 on new Remuneration Policy.
72.4%+
As a % of total issued
share capital
New in 2021
% reduction in maximum CEO share awards.
50%
(from 150% of salary
for PSPs to 62.5% of
salary for RSPs)
New in 2021
% increase in shareholding requirement for Executive Directors
under new Remuneration Policy.
100%
(to 200% of salary)
New in 2021
Maximum pension payable to Executive Directors
(%ofbasesalary).
5%
New in 2021
Post-employment shareholding period introduced.
2 years
Policy adoption
% of voting shareholders voting in favour of new 2021 Remuneration Policy.
96.3%
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
140 141
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Background and overview of the policy
The Committee has a clear policy on remuneration: that base salary and benefits for Executive Directors
should represent a fair and incentivising return for employment but that the majority of remuneration should be
dependent on the continued success of the Company and be aligned with delivery of Dialight’s strategic plan
and the creation of shareholder value. The policy has been designed, consulted on and reviewed so that it
reinforces these principles. The 2021 policy implemented certain key improvements to the policy that brought
it fully into line with best practice and the Remuneration Committee is now confident that it delivers on the key
principles of fair return, alignment with shareholder interests, and alignment with the level of remuneration and
pay awards made generally to employees of the Group.
2022 REMUNERATION POLICY OVERVIEW CONTINUED
LINK TO STRATEGY OPERATION OPPORTUNITY PERFORMANCE METRICS
BASE SALARY
To recruit, retain and motivate individuals of high
calibre, and reflect the skills, experience and
contribution of the relevant Director; to ensure that
fixed pay represents a fair return for employment.
The Remuneration Committee sets base salary with
reference to relevant market data and an individual’s
experience, responsibilities and performance. Base
salary is considered by the Remuneration Committee
on an individual’s appointment and then generally
reviewed once a year or when an individual changes
position or responsibilities.
When making a determination as to the appropriate
level of remuneration, the Remuneration Committee
firstly considers pay and conditions for employees
across the Group, the general performance of the
Company and the wider economic environment.
The Remuneration Committee may also undertake
periodic benchmarking for similar roles in comparable
organisations.
Any base salary increases are applied in line with
theoutcome of the review. In respect of existing
Executive Directors, it is anticipated that salary
increases will generally be in line with the broader
employee population. In exceptional circumstances
(including, but not limited to, material increases in role
size or complexity), the Remuneration Committee has
discretion to make appropriate adjustments to salary
levels to ensure that they remain market competitive.
Itis not envisaged that this will be a frequent occurrence.
Detail of current salaries for the Executive Directors
can be found on
P159 TO 160 .
None
REMUNERATION POLICY TABLE
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
142 143
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW CONTINUED
LINK TO STRATEGY OPERATION OPPORTUNITY PERFORMANCE METRICS
BENEFITS
To provide market competitive, yet cost
effective,benefits to attract and retain
high-calibreexecutives.
Executive Directors receive benefits which consist
primarily of the provision of a car allowance, life
insurance and medical insurance, although they
mayinclude such other benefits as the Remuneration
Committee deems appropriate including in
circumstances where new benefits are introduced
forother employees in the location where an
Executive Director is based.
Benefits vary by role and individual circumstances;
eligibility and cost are reviewed periodically. The
Remuneration Committee retains the discretion to
approve a higher total benefit cost in exceptional
circumstances (e.g. relocation) or in circumstances
where factors outside the Company’s control
havechanged materially (e.g. increases in life
insurance premiums).
The value of benefits awarded to the Executive
Directors can be found in the table on
P166 .
None
PENSION
To provide market competitive, yet cost
effective,benefits to attract and retain
high-calibreexecutives.
A Company contribution to a defined contribution
pension scheme or provision of a cash payment in
lieu of a pension contribution (or combination of
such) for UK-based Directors. In the US, Dialight
operates a 401(k) and SERP (or cash equivalent
payment in lieu in respect of the latter).
Salary is the only element of remuneration that
ispensionable.
Executive Directors will receive pension arrangements
consistent with the majority of employees in the
relevant jurisdiction:
—UK-based Executive Directors will be entitled to
join the existing defined contribution scheme
offering employer contributions of up to 5% of
salary, or to receive an equivalent cash payment
inlieu.
—US-based Executive Directors will be entitled to
participate in the 401(k) and the SERP (or to receive
a cash equivalent payment in lieu of employer
contribution in respect of the latter) on terms
consistent with the majority of US employees.
None
REMUNERATION POLICY TABLE CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
144 145
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW CONTINUED
LINK TO STRATEGY OPERATION OPPORTUNITY PERFORMANCE METRICS
ANNUAL PERFORMANCE BONUS PLAN (“APBP”)
The APBP incentivises the achievement of annual
objectives which support the short-term
performance goals of the Company.
APBP measures, weightings and targets are set by
the Remuneration Committee at the beginning of
each financial year following the finalisation of the
budget for that year.
Bonuses up to target are paid in cash, with pay-outs
above target delivered in Dialight shares.
Where the executive receives Dialight shares, half of
these vest after two years with the balance vesting
after three years, subject to continued employment
with the Group.
Dividends are accrued on these deferred shares and
are paid to the participant on release of shares that
are subject to the award.
Awards under the APBP are subject to malus and
clawback provisions, further details of which are
included as a note to the policy table.
The maximum bonus opportunity is 150% of salary.
Threshold performance will deliver pay-outs of up
to20% of maximum, while pay-outs for target
performance will be up to 50% of maximum.
Performance is assessed on an annual basis, as
measured against specific objectives set at the start
of each year. Financial measures will make up at
least 75% of the total annual bonus opportunity in
any given year, with up to 25% based on individual
objectives linked to Dialight’s strategy.
The Committee has discretion to adjust the
formulaic bonus outcomes both upwards (within the
plan limits) and downwards (including to zero) to
ensure alignment of pay with performance, e.g. in
the event of one of the targets under the bonus
being significantly missed or if there are unforeseen
circumstances outside management control.
The Committee also considers measures outside
the bonus framework (including ESG factors) to
ensure there is no reward for failure and that
outcomes are fair in the context of overall
performance and the Group’s wider environmental
and societal impact.
REMUNERATION POLICY TABLE CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
146 147
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW CONTINUED
LINK TO STRATEGY OPERATION OPPORTUNITY PERFORMANCE METRICS
RESTRICTED SHARE PLAN (“DRSP”)
The DRSP replaced the PSP for awards to
Executive Directors in 2021 and thereafter. No new
PSP awards will be granted to Executive Directors
(except, potentially, in the case of “buy-outs”
under the Recruitment Policy shown on page 155).
PSP awards made in 2020 or earlier will continue
tooperate under the terms of the shareholder-
approved PSP.
The DRSP provides a simple and transparent
long-term incentive award to help ensure alignment
between the interests of shareholders and those of
the Executive Directors, and is aligned to the plans
operated below Board level.
DRSP awards may be structured as conditional
shares or nil-cost options with a two-year exercise
window from the date of vesting.
The release of awards may, at the discretion of the
Committee, be deferred in whole or in part following
the end of a three-year vesting period.
The Committee’s intention is that all vested
awardswill be subject to a two-year post-vesting
holding period.
The Remuneration Committee has the power to
authorise the payment of dividends or dividend
equivalents under the rules of the DRSP.
Awards under the DRSP are subject to malus and
clawback provisions, further details of which are
included as a note to the policy table.
The DRSP provides for an award up to a normal limit
of 62.5% of salary for Executive Directors, with an
overall limit of 75% of salary for use in exceptional
circumstances.
These maximum opportunities under the DRSP
represent a 50% reduction against the maximum
opportunity that was available under the legacy
PSPscheme.
The Committee has discretion to reduce awards in
the event that there has been a significant fall in the
share price.
Vesting of awards will require:
(a) that the recipient remains in role as at the date
ofvesting (subject to the “leaver” provisions of
theshareholder approved share plan); and
(b) that the Committee is satisfied that Dialight’s
underlying performance and delivery against
strategy are sufficient to justify the level of
pay-out, taking into consideration factors such
as absolute total shareholder return (“TSR”),
relative TSR, environmental impact and
operational performance over the period, as well
as individual contribution and the workforce and
wider stakeholder experience.
The Committee will have discretion to reduce the
vesting of awards (including to zero) in the event
that it considers that the outcome would be
otherwise misaligned with the experience of
shareholders and other stakeholders.
REMUNERATION POLICY TABLE CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
148 149
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW CONTINUED
LINK TO STRATEGY OPERATION OPPORTUNITY PERFORMANCE METRICS
NON-EXECUTIVE DIRECTOR FEES
The Company sets fee levels to attract and retain
Non-Executive Directors with the necessary
experience and expertise to advise and assist
withestablishing and monitoring the strategic
objectives of the Company.
Fee levels are typically considered every year,
takinginto account fees paid for equivalent roles
atcompanies of similar size, time commitment and
complexity. The fees paid to the Chair are determined
by the Remuneration Committee, while fees for
Non-Executive Directors are determined by the
Board. Additional fees are payable for acting as
Senior Independent Director and as Chair of any of
the Board’s Committees. Non-Executive Directors do
not receive any bonus, do not participate in awards
under the Company’s share plans and are not eligible
to join the Company’s pension scheme.
The Company’s policy in relation to fees is to reflect
the time commitment and responsibilities of the roles,
normally by paying up to median level fees, compared
to market, depending on the experience and
background of the Non-Executive Directors.
The Company also reimburses the Non-Executive
Directors for expenses reasonably and properly
incurred in the performance of their duties. In normal
circumstances, increases to fees will be broadly in
line with price inflation, subject to cases of material
misalignment with the market or a change in the
complexity, responsibility or time commitment
required to fulfil a Non-Executive Director role.
Itremains important for the Board to have the
necessary flexibility to step outside this general
policy should the requirement be clear that a certain
type of individual is required to conform with new
governance requirements or legislation.
Aggregate fees for all Non-Executive Directors will
bewithin the limits set by the Company’s Articles
ofAssociation. Details of current Non-Executive
Director fees can be found on
P159 TO 160 .
None
REMUNERATION POLICY TABLE CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
150 151
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
NOTES TO THE REMUNERATION POLICY TABLE
Explanatory detail for future Remuneration
Policytable
For the avoidance of doubt, in approving this
Directors’ Remuneration Policy, authority was given to
the Company to honour any commitments previously
entered into with current or former Directors (such as
the vesting or exercise of past share awards).
Performance measures and targets
Measures used under the APBP are selected annually
to reflect Dialight’s main short-term objectives and
reflect both financial and non-financial priorities, as
appropriate. The performance underpins attached
toDRSP awards will be based on those which best
reflect the overall performance of the business.
Thesemight include, but not be limited to, absolute
TSR, relative TSR, ESG metrics and operational
performance over the period, as well as individual
contribution and broader stakeholder experience.
Forthe APBP, EBIT continues to be used as the
primary measure to provide a direct link to one of
ourKPIs. The Committee introduced a net debt/cash
metric for the 2021 APBP, reflecting the importance
ofcareful cash management in ensuring we are able
to fund the Company’s strategic objectives over the
short and longer term. Up to 25% of the APBP may
bebased on individual strategic goals in order to
reflect the importance of incentivising non-financial
objectives linked to Dialight’s strategy. Targets are
seton an annual basis taking into account the
Company’s budget as well as external expectations
for Dialight and the sector. If an event occurs which
causes the Remuneration Committee to consider that
an outstanding DRSP, PSP award or bonus award
2022 REMUNERATION POLICY OVERVIEW CONTINUED
would not achieve its original purpose without
alteration, the Remuneration Committee has
discretion to amend the targets, provided the new
conditions are materially no less challenging than was
intended when originally imposed. Such discretion
could be used to appropriately adjust for the impact
of material acquisitions or disposals, or for
exceptional and unforeseen events outside the
control of the management team and would be
disclosed in the relevant Remuneration Report.
Difference between the Directors’ Remuneration
Policy and that for other employees
All employees receive salaries and benefits which
areconsistent with local market practice, with any
review of fixed pay taking into account experience,
responsibility, individual performance and salary
levels at comparable companies.
Senior management is typically eligible to participate
in the APBP, with opportunities and performance
measures reflecting organisational level and business
area, as appropriate.
DRSP awards at senior management level and to
other key employees also take the form of restricted
share units with vesting subject only to continued
employment over a number of years. This helps
Dialight remain competitive in the main talent markets
in which it operates, while also continuing to align
allplan participants (Executive Directors and senior
employees alike) with the interests of shareholders in
growing the value of the Company over the longer
term. Share awards to participants below Executive
Director level are not subject to a holding period.
Shareholding guidelines
Executive Directors are required to accumulate and
maintain a holding of Dialight shares equivalent in
value to 200% of their base salary (an increase from
the 100 – 125% of salary requirement in the previous
remuneration policy). The net of tax number of vested
shares under the Company’s DRSP (and awards that
vest under the legacy PSP) will normally be required
to be retained until the guideline has been met.
Current shareholding levels are set out on page 169.
The Committee has also introduced post-
employment guidelines for Executive Directors.
From2021, Executive Directors have been required
toretain shares equivalent to the in-post shareholding
guideline (or actual shareholding, if lower) for a
period of 24 months following the cessation of
theiremployment.
Committee discretion
As it is not possible for any Remuneration Policy to
anticipate every possible scenario, the Remuneration
Committee retains the ability to apply various
discretions and judgements in order to ensure the
achievement of fair outcomes and to maintain the
flexibility required to balance the interests of
individuals and those of the Company. For example,
the Committee may be required to exercise discretion
when determining whether or not the outcomes of
performance measures and targets applicable to
variable incentives are fair in context, or if realities
encourage the use of upward or downward
adjustments (within scheme limits).
Accordingly, the Committee retains a number of
discretions including the ability to determine the
following: (a) scheme participants; (b) the timing of
grant and size of awards, subject to the maximum
levels set out above; (c) appropriate treatment of
vesting of awards in the context of a change of
control; (d) appropriate adjustments to awards in
theevent of variations to the Company’s share
capital; (e)treatment, size and grant of awards in a
recruitment context; and (f) the application, scope,
weighting and targets for performance measures and
performance conditions. Although it is not possible
togive an exhaustive list of Remuneration Committee
discretions, the exercise of any such discretion and
the rationale underpinning their use, would be
provided in context, as part of the Annual Report
onRemuneration.
Malus and clawback
Payments and awards under the APBP bonus and
DRSP (as well as awards already made under the
legacy PSP scheme) are subject to malus and
clawback provisions which can be applied to both
vested and unvested awards. Circumstances in
whichmalus and clawback may be applied include
amaterial misstatement of the Company’s financial
accounts, fraud or gross misconduct on the part of
the award-holder, an error in calculating the award
vesting outcome, material reputational damage
andcorporate failure. In respect of the APBP,
theprovisions apply for up to two years following
payment. In respect of DRSP and PSP awards, the
provisions applied remain subject to the provisions
throughout the vesting and holding periods (where
applicable). Participants in both schemes will be
required to acknowledge their understanding of
thewithholding and recovery provisions as a pre-
condition to participation in order to help ensure
thatthe provisions would be enforceable should
thecircumstances arise.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
152 153
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Pay for performance
The following charts provide an estimate of the
potential future rewards for the Group Chief
Executive and Chief Finance Officer, and the
potential split between different elements of pay,
under four different performance scenarios:
“Fixed”,“On-target”, “Maximum” and “Maximum
including share price appreciation” using the
following assumptions:
—the “Minimum” scenario reflects base salary,
pension and benefits (i.e. fixed remuneration)
which are the only elements of the remuneration
package not linked to performance;
—the “Target” scenario reflects fixed remuneration
as above, plus APBP pay-out of 50% of maximum
and DRSP vesting at 100% of the award; and
—the “Maximum” scenario is shown on two bases:
excluding and including the impact of share price
appreciation on the value of DRSP outcomes.
Inboth cases, the scenario includes fixed
remuneration and full pay-out of all incentives,
withthe final scenario also including the impact
ofa 50% increase in Dialight’s share price on the
value of the DRSP.
Forward-looking pay scenario charts
CEO
Minimum
On-target
Maximum
Maximum
+50% share
price growth
Fixed APBP DRSP
100% 511
1,153
1,503
1,649
45% 30% 25%
34% 47% 19%
31% 42% 27%
CFO
Minimum
On-target
Maximum
Maximum
+50% share
price growth
100% 321
49%
38%
36%
28% 23%
44% 18%
40% 24%
654
838
912
Fixed APBP DRSP
Note that any DRSP awards granted will not normally
vest until the third anniversary of the date of grant,
and the projected value is based on the face value at
award rather than vesting (i.e. the scenarios exclude
the impact of any share price movement over the
period). The exception to this is the last scenario
which, in line with the relevant reporting requirements,
illustrates the maximum outcome assuming 50%
share price appreciation for the purpose of
DRSPvalue.
2022 REMUNERATION POLICY OVERVIEW CONTINUED
Recruitment policy
In cases of appointing a new Executive Director from outside the Company, the Remuneration Committee may
make use of all the existing components of remuneration as follows:
COMPONENT: SALARY BENEFITS PENSION APBP DRSP
Approach:
Executive
Directors will
receive a base
salary which will
be determined
byreference to
relevant market
data, experience
and skills of the
individual, internal
relativities and
their current basic
salary. Where
new appointees
have initial basic
salaries set below
market, any
shortfall may be
managed with
phased increases
over a period of
two to three years
subject to the
individual’s
development in
the role.
New appointees
will be eligible to
receive benefits
inline with the
current policy,
aswell as
expatriation
allowances or
benefits and
anynecessary
expenses relating
to an Executive’s
relocation on
appointment.
New appointees
will be eligible
toparticipate
inoneof the
Company’s
defined
contribution
plans, or
receivea cash
supplement or
local equivalent
on the same basis
as the majority of
employees in
therelevant
jurisdiction.
The scheme as
described in the
policy table will
apply to new
appointees, with
the relevant
maximum
typically being
pro-rated
toreflect the
proportion of
employment over
the year. Where
applicable,
targets for the
individual
strategic element
will be tailored to
each Executive.
New appointees
will be granted
restricted share
awards under the
DRSP on the
same terms as
other Executives,
as described in
the policy table.
The normal limit
of 62.5% of salary
will apply, save
inexceptional
circumstances
where up to 75%
of salary may
beawarded.
Maximum:
n/a n/a n/a 150% of salary 62.5% of salary
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
154 155
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 REMUNERATION POLICY OVERVIEW CONTINUED
In determining appropriate remuneration, the
Remuneration Committee will take into consideration
all relevant factors (including quantum, nature of
remuneration and the jurisdiction from which
thecandidate was recruited) to ensure that
arrangements are in the best interests of both
Dialightand shareholders.
In addition to the remuneration structure outlined
above, the Committee may, in certain circumstances,
choose to make an award in respect of a new
appointment to “buy out” incentive arrangements
forfeited on leaving a previous employer on a like-for-
like basis. If the Remuneration Committee determines
that it is appropriate to do so it will apply the
following approach:
—the fair value of these incentives will be calculated
taking into account: the proportion of the
performance period completed on the date of
theExecutive’s cessation of employment; the
performance conditions attached to the vesting
ofthese incentives; the likelihood of them being
satisfied; and any other terms and conditions
having a material effect on their value (“Lapsed
Fair Value”); and
—the Remuneration Committee may then grant up to
the same fair value as the Lapsed Fair Value where
possible under the Company’s incentive plans
(subject to the limits under these plans) – the
Remuneration Committee, however, also retains
the discretion to provide the Lapsed Fair Value
under specific arrangements in relation to the
recruitment of the particular individual within
theconstraints set out in the Listing Rules.
Notice periods
Executive Directors’ service contracts require up to
12 months’ notice to be given by Dialight in the event
of termination. Fariyal Khanbabi’s contract can be
terminated with and without cause and requires up
to12 months’ notice from either party, whilst Clive
Jennings’ contract requires six months notice on a
similar basis. Both contracts provide for pay in lieu
ofnotice but does not contain any additional
compensation provisions, nor does it contain
liquidated damages clauses. If a contract is to be
terminated, the Remuneration Committee will
determine such mitigation as it considers fair and
reasonable in each case.
In determining any compensation, it will take into
account the best practice provisions of the UK
Corporate Governance Code and published
guidance from recognised institutional investor
bodies, and will take legal advice on the Company’s
liability to pay compensation and the appropriate
amount. The Remuneration Committee periodically
considers what compensation commitments an
Executive Director’s contract would entail in the
eventof early termination. There are no contractual
arrangements that would guarantee a pension with
limited or no abatement on severance or early
retirement. The Remuneration Committee will
exercisediscretion in making appropriate payments
inthe context of outplacement, settling legal claims
or potential legal claims by a departing Executive
Director, including any other amounts reasonably due
to the Executive Director; for example, to meet the
legal fees incurred in connection with the termination
of employment, where the Company wishes to enter
into a settlement agreement and the individual must
seek independent legal advice.
The approach to the recruitment of internal
candidates would be similar but the Remuneration
Committee would continue to honour existing
contractual commitments prior to any promotion.
Forthe avoidance of doubt, this would not extend
topension arrangements which, as above, would
bealigned with the majority of employees in the
relevant jurisdiction.
For Non-Executive Directors, the Remuneration
Committee and the Company would seek to pay fees
in line with the Company’s existing Policy. A base fee
in line with the prevailing fee schedule would be
payable for Board membership, with additional fees
payable for acting as Senior Independent Director
and/or as Chair of a Board Committee.
Service contracts
Executive Directors’ service contracts, including
arrangements for early termination, are carefully
considered by the Remuneration Committee.
Executive Directors’ service contracts contain
provisions that require up to 12 months’ notice of
termination on either side. Such contracts do not
contain any provisions for payments outside the
scope of those contained in the contract. Executive
Director service contracts are available to view at
theCompany’s registered office. Non-Executive
Directors have specific terms of engagement
provided in formal letters of appointment, which
contain three-month notice periods that are mutual.
The Non-Executive Directors are appointed for a
three-year term, subject to annual re-election by the
shareholders at the Company’s AGM.
Treatment of departing Executive Directors
The below summarises how the awards under the
APBP, DRSP and PSP are typically treated in specific
circumstances, with the final treatment remaining
subject to the Committee’s discretion.
—Annual bonus: In the event of an Executive Director
leaving Dialight before the end of a bonus year or
prior to the payment of a bonus, the Remuneration
Committee has discretion to allow them to be paid
a portion of bonus relative to their point of leaving.
This will be highly contingent on the manner of
theExecutive Director’s departure – specifically,
payment would only be made if they are classified
as a “good leaver” pursuant to the rules of the
APBP as well as business performance. For good
leavers, deferred bonus shares will normally be
retained by the participant and will be released in
full following completion of the applicable deferral
period. For other leavers, deferred bonus shares
will lapse.
—DRSP/PSP Leavers before the end of the
performance or vesting period: In most
circumstances, awards will lapse. If the Executive
Director is classed as a “good leaver”, outstanding
DRSP/PSP shares would typically be pro-rated
forthe proportion of the vesting or performance
periodserved and released, subject to applicable
performance conditions for PSP awards, at the
normal vesting date. The Remuneration Committee
has flexibility to allow awards to vest earlier than
above when an individual leaves; however, the
default position will be for awards not to be released
early except in compassionate circumstances.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
156 157
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
—DRSP/PSP leavers after the end of the
performance or vesting period: Any awards in a
holding period will normally be released following
completion of the holding period.
For the purpose of the above, “good leaver” is
defined as a participant ceasing to be employed by
the Group by reason of death, disability, ill health,
redundancy, retirement with agreement of the
Company or any other reason that the Remuneration
Committee determines in its absolute discretion. As
noted above, should the Executive Director leave the
Company in any other circumstances, outstanding
awards would typically lapse. The Remuneration
Committee also retains discretion in the event of a
change of control to release awards under the DRSP
and/or the PSP. It is usual in this situation that awards
would be pro-rated for time and performance subject
to the discretion of the Committee. In relation to the
APBP, the scheme rules allow the Remuneration
Committee to determine that all deferred share
elements of the bonus awards will vest on a change
of control and may be exercised within such period
as the Remuneration Committee shall specify.
External appointments
It is the Company’s policy that, except in
extraordinary circumstances, Executive Directors
should only accept one appointment with a third
party as a Non-Executive Director. Any such
appointment is subject to prior Board approval
andconsideration will be given to potential conflicts
of interest with Dialight and the time demands of
theexternal appointment. The Executive Director
concerned is entitled to retain any fees from such
aNon-Executive Directorship.
Employment conditions elsewhere in the Group
The Remuneration Committee takes into account
what the general rise in employee salaries was across
the Group at the review date when considering
changes to the remuneration of the Executive
Directors. The Remuneration Committee did not
expressly seek the views of employees when drawing
up the Remuneration Policy, but does carry out an
annual review of salaries across the Group, and the
Board and Remuneration Committee are regularly
updated on employee matters. The Workforce
Engagement NED meets with employees across
theGroup, and remuneration levels (including
remuneration arrangements across the Group and for
Executive Directors) may be discussed in such fora.
Shareholder views
The Remuneration Committee maintains a regular
dialogue with its major shareholders and monitors
trends and developments in corporate governance
and market practice to ensure that the structure of
Executive Director remuneration under the prevailing
Remuneration Policy is appropriate. As outlined in
2020, the Remuneration Committee reviewed aspects
of the Remuneration Policy in 2020 and consulted
with its major shareholders as part of this process.
During the 2020 shareholder consultation process
theRemuneration Committee had responses from
investors representing 72.4% of Dialight’s issued
share capital (at that time). The feedback was
positive, with comments received being taken into
account in the drafting of this policy. Following the
consultation, and as noted in the Annual Statement,
the Remuneration Committee proposed a new
Remuneration Policy at the Company’s 2021 AGM
and this revised Remuneration Policy was supported
by 96.3% of voting shareholders.
2022 REMUNERATION POLICY OVERVIEW CONTINUED REMUNERATION: POLICY IMPLEMENTATION IN 2022 AND 2023
The Remuneration Committee is responsible for implementation of the Remuneration Policy. This page
provides an “at a glance” summary of the implementation of the Remuneration Policy in 2022. The details
ofthat policy implementation and details on how the policy will be implemented in 2023 are set out on
pages167 to 170.
CEO (FARIYAL KHANBABI) CFO (CLIVE JENNINGS) NON-EXECUTIVE DIRECTORS
Fixed components:
Base salary*: £453,200
Pension: 5%
Benefits: Car, health insurance,
life assurance
Fixed components:
Base salary: £295,000
Pension: 5%
Benefits: Car, health insurance,
lifeassurance
Chair fee: £120,000
NED base fee*: £43,260 / €58,813
SID uplift fee*: £5,253
AuditCo chair uplift fee*: £5,253
RemCo chair uplift fee*: €7,210
Workforce Engagement NED: £5,000
Variable components (CEO):
Bonus metrics: 150% of salary
(50%EBIT, 25% cash,
25% strategic goals)
Bonus outcome: £0
PSP vesting: Nil (2019 grant)
DRSP awards**: 79,120 (2022 grant)
Variable components (CFO):
Bonus metrics: 125% of salary
(50%EBIT, 25% cash,
25% strategic goals)
Bonus outcome: £0
PSP vesting: n/a
DRSP awards*: 41,201 (2022 grant)
Variable components (NEDs):
Nil
* Annual increment of 3% effective from 1 April 2022.
** Restricted share awards made under the 2021
Remuneration Policy and awarded on 5 April 2022.
* Restricted share awards made under the 2021
Remuneration Policy and awarded on 5 April 2022.
* Annual increment of 3% effective from 1 April
2022 on these roles.
CEO (FARIYAL KHANBABI) CFO (CLIVE JENNINGS) NON-EXECUTIVE DIRECTORS
Fixed components:
Base salary*: £466,796 (+3%)
Pension: 5%
Benefits: Car, health insurance,
life assurance
Fixed components:
Base salary*: £295,000 (no change)
Pension: 5%
Benefits: Car, health insurance,
lifeassurance
Chair fee: £120,000
NED base fee*: £44,558 / €60,577
SID uplift fee*: £5,411
AuditCo chair uplift fee*: £5,411
RemCo chair uplift fee*: €7,426
Workforce Engagement NED*: £5,150
Variable components (CEO):
Bonus metrics: 150% of salary
(50%EBIT, 25% cash,
25% strategic goals)
DRSP awards: Up to 62.5% of
basesalary
Variable components (CFO):
Bonus metrics: 125% of salary
(50%EBIT, 50% cash)
DRSP awards: Up to 50% of
basesalary
Variable components (NEDs):
Nil
* Annual increment to be reviewed in
March/April2023.
* Annual increment to be reviewed in
March/April 2023.
* Annual increment to be reviewed in
March/April 2023.
2022 REMUNERATION OUTCOMES
2023 IMPLEMENTATION OF REMUNERATION POLICY
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
158 159
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 OUTCOMES
Single figure of total remuneration (audited information)
The following tables provide details of the Directors’ remuneration for the 2022 financial year, together with
their remuneration for the 2021 financial year, in each case before deductions for income tax and national
insurance contributions (where relevant):
2022 Directors’ pay (£’000s) Salary/fees Benefits Pension
Sub-total
fixed Bonus PSP
Sub-total
variable
Total
remuneration
Executive Directors
Fariyal Khanbabi 463 21 23 507 - – - 507
Clive Jennings 294 11 15 320 - – - 320
Non-Executive Directors
David Blood 44 – – 44 – – – 44
Gotthard Haug 44 – – 44 – – – 44
Gaëlle Hotellier €73 – – €73 – – – €73
Karen Oliver 123 30 – 153 – – – 153
David Thomas 55 – – 55 – – – 55
Nigel Lingwood 7 – – 7 – – – 7
1 The CEO received an annual salary increment of 3% with effect from 1 April 2022 (see pages 159 and 164).
2 Clive Jennings was appointed as a Director on 18 January 2022.
3 The Remuneration Committee exercised its discretion to reduce the personal objectives element of each Executive Directors’ 2022 bonus to zero.
4 Karen Oliver resigned with effect from 31 December 2022 but received a contractual notice period payment of £30,000 (equating to 3 months’ notice) on 6 January 2023.
5 The Non-Executive Directors received an annual fee increment of 3% with effect from 1 April 2022 on base fees and role-specific increments.
6 Nigel Lingwood was appointed with effect from 1 November 2022.
2021 Directors’ pay (£’000s) Salary/fees Benefits Pension
Sub-total
fixed Bonus PSP
Sub-total
variable
Total
remuneration
Executive Directors
Fariyal Khanbabi 443 21 22 486 425 – – 911
Clive Jennings 187 – 9 196 – – – 196
Past Executive Directors
Wai Kuen Chiang 127 5 6 138 – – – 138
Non-Executive Directors
David Blood 97 – – 97 – – – 97
Gotthard Haug 42 – – 42 – – – 42
Gaëlle Hotellier €67 – – €67 – – – €67
Karen Oliver 66 – – 66 – – – 66
David Thomas 49 – – 49 – – – 49
Past Non-Executive Directors
Stephen Bird 33 – – 33 – – – 33
1 Fariyal Khanbabi’s bonus was paid as £340,000 cash (under the bonus scheme, the cash element of the bonus is capped at 50% of the maximum bonus opportunity) and the
balance was deferred into shares under the APBP.
2 Clive Jennings was not a Director in 2021. From May 2021 to December 2021 he was engaged as Interim CFO and attended Board meetings. Financial data in respect of
CliveJennings for FY2021 is disclosed in the interests of transparency and to facilitate year-on-year comparison.
3 Wai Kuen’s appointment was terminated on 14 June 2021. No payments were made to Wai Kuen Chiang over and above contractual salary, pension and benefits through to the
date of termination.
4 David Blood stepped down as Chair with effect from 10 September 2021, but remained as a Non-Executive Director. He received an annual fee increment of 3% from
October2021.
5 Gotthard Haug received an annual fee increment of 3% with effect from 1 October 2021.
6 Gaelle Hotellier was appointed as Workforce Engagement NED (superseding David Thomas) with effect from 1 September 2021. She received a fee uplift of £5,000 per annum
inn respect of this role. She also received an annual fee increment of 3% with effect from 1 October 2021 in respect of her basic NED fee and her uplift fee for chairing the
Remuneration Committee.
7 Karen Oliver was appointed as Chair with effect from 10 September 2021 on an annualised fee of £120,000.
8 Stephen Bird stepped down from the Board with effect on 10 September 2021 and received a pro-rated amount of his annual fee of £42,000 and his SID uplift.
Additional disclosures (audited information)
Executive Directors’ benefits
Executive Directors receive benefits comprising life insurance, healthcare and car allowances.
Pensions
The figure includes the amount of Company contributions to Fariyal Khanbabi’s and Clive Jennings’s pensions
during the year. Fariyal Khanbabi received Company contributions of 5% of her base salary (electing, mid-
year, to receive a cash payment in lieu of the employer contribution). Clive Jennings received Company
contributions of 5% of his base salary for the period from his appointment as a Director on 18 January 2022
(paid in cash). The Company is fully compliant with the requirement that Executive Directors’ (both UK-based)
pension contributions are aligned with the average pension contribution of the Group’s UK workforce (a rate
of 5%).
APBP: structure
Following adoption of the 2021 Remuneration Policy, the APBP for Executive Directors operates on the basis
that is set out in the Remuneration Policy report on pages 146 and 147. Maximum bonus potential, paid in a
mixture of cash and, in respect of performance above target, shares, is 150% of salary for the CEO and
125%of salary for the CFO. Applying the 2021 Remuneration Policy, the 2022 Executive Director APBP was
based on three elements: 50% of the available bonus pot being payable against an EBITmetric; 25% against
Absolute Net Debt; and 25% against individual strategic objectives set personally for each ExecutiveDirector.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
160 161
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
2022 OUTCOMES CONTINUED
APBP: personal objective element
The personal objectives were structured around goals of a largely quantifiable nature as follows:
CEO role CFO role
Securing value (7.5% of available bonus pot). Measured against
quantified performance in securing new business for: new
customers; strategic accounts; and production efficiencies.
Sustainability (10% of available bonus pot). Measured against
binary sustainability targets: “net-zero” strategy scenarios;
publication ofenvironmental product declarations; and
implementation of ESG training.
Culture (7.5% of available bonus pot). Measured against binary
objectives targeted at improving theculture of engagement,
leadership and actively sponsoring diversity and inclusiveness
through; succession planning; and internal communications.
Production efficiency (10% of available bonus pot). Measured
against binary production efficiency targets for: product costings;
inventory reduction; and CAPEX controls improvement.
Transformation (5% of available bonus pot). Measured against
delivery plan targets for: finance team building; improvements in
cash forecasting; and business continuity planning.
Controls (10% of available bonus pot). Measured against binary
control-related targets for: IT; external audit; and internal audit.
ABPB: financial element
The performance ranges in respect of quantitative elements of the 2022 EBIT and Absolute Net Debt
performance (collectively comprising 75% of the applicable bonus pot) were as follows:
Threshold Target Maximum Actual
EBIT element (after provision for bonus) £8.0m £9.0m £10.5m £5.0m
Absolute Net Debt £10.5m £9.5m £8.0m £20.9m
APBP: 2022 outcomes
As set out above, neither EBIT nor absolute net debt performance met the threshold targets and therefore
none of these elements of the available bonus pot was payable.
In light of the results for the year ended 31 December 2022, the Remuneration Committee also decided that
no payments will be made against the personal objectives element of the APBP.
PSPs and RSPs (audited information)
Under the 2021 Remuneration Policy the Company’s PSP scheme was replaced by a DRSP scheme
(seepages 148 and 149). Accordingly, awards of DRSPs were made to the Executive Directors in the awards
window following the release of the Group’s preliminary results in March 2022 as set out on page 166.
ThePSP awards made in 2020 to Fariyal Khanbabi (with the applicable three-year performance testing
periodended on31 December 2022) lapsed in their entirety as the relevant performance conditions were
notachieved:
CEO pay: pay ratio methodology
The table on page 164 discloses the ratio of the CEO’s pay against the remuneration of the Group’s UK
workforce in 2022. The ratios have been calculated in accordance with “Option A” of the three methodologies
provided under the applicable regulations, which we believe to be the most statistically appropriate approach.
This data is presented against the comparable, indicative, full-time equivalent total remuneration of those
employees whose pay is ranked at the 25th percentile, median and 75th percentile in the Group’s UK
workforce. Where possible, employee pay was calculated based on actual pay and benefits for the 12-monthly
payrolls within the full financial year. Given the small size of the Group’s UK workforce, we have adopted the
following protocols to avoid skewing the figures: if a role was maintained but the individual(s) in such role
changed, the figure provided in respect of such role has been calculated on a pro rata basis for the two or
more relevant individuals; and if there was a new role or a role was eliminated, the figure provided was
calculated as an annualised rate for such role. It should be noted that all the Group’s manufacturing
operations and most of its employees are located outside of the UK and therefore do not fall within the
reporting requirements.
CEO pay – pay ratio distorting events in 2020 and 2021
The 2020 and 2021 ratios were impacted by the COVID-19 pandemic and resulted in adjustments in Group
Remuneration Policy to achieve a more equitable outcome for all employees across the Group at a challenging
time for our employees, supply chain and markets. In 2020, the impact was primarily the non-payment of any
variable remuneration, and by the voluntary reduction in CEO base pay across five months of the year by 20%
(a progressive COVID-19 salary reduction policy under which the most highly paid executives in the Group
voluntarily surrendered a higher percentage of their salary), and by layered salary reductions (with the
reductions for employees declining in percentage terms at lower pay thresholds). These voluntary deductions
have not been subsequently paid to the CEO or any employee. In 2021 the impact was lessmarked (as all
elements of variable remuneration were paid), but the annual incremental pay review was deferred for those
Executives on the highest salaries until 1 October 2021 (for employees in our manufacturing operations the
equivalent date was 1 May 2021).
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
162 163
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Year
25th
percentile
ratio
50th
percentile
ratio
75th
percentile
ratio
2022 8.2:1 6.3:1 3.7:1
2021 8.3:1 6.0:1 3.6:1
2020 11.7:1 7.7:1 5.6:1
2019 10.8:1 8.4:1 5.3:1
Director pay – Percentage change in the remuneration of the Directors
The following table sets out the change in remuneration paid to the Directors from 2021 to 2022 compared
with the average percentage change for employees as a whole. The above notes in respect of comparison of
pay ratio calculations apply. It should also be noted that no CEO PSPs vested in 2021 or 2022. The main
benefits provided include healthcare, life insurance and car allowance. There has been no change in the level
of benefits provided to Group employees.
% change 2021-2022
CEO CFO
Non-Executive
Directors
(excluding
Chair fee
which was
unchanged)
Group
employees
Salary 3% 0% 3% 3%
Bonus (100%) 0% - 0%
Benefits 3% 0% - 3%
Relative importance of spend on pay
The table below shows the total amount paid by the Company to its employees (excluding severance costs)
for each of 2021 and 2022 relative to the total amount of distributions in each year:
Spend on pay Distributions
2022 £36.6m £0m
2021 £29.1m £0m
2022 OUTCOMES CONTINUED
Performance graph and table
The graph below sets out the Company’s TSR performance over the past 10 years relative to the FTSE
250 Mid Index (excluding investment trusts), the FTSE SmallCap Index (excluding investment trusts) and the
FTSE All-Share Electronic & Electrical Equipment Index, indices of which Dialight has been a constituent
during the period:
Dialight FTSE250 Index (excl. investment trusts)FTSE250 SmallCap Index (excl. investment trusts) FTSE AllShare Electronics & Electrical Equipment Index
400
350
300
250
200
150
100
50
0
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
Source: Datastream
Total CEO remuneration
The table below sets out the “single figure” of total remuneration of the CEO over the past ten years:
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
R Burton R Burton
R Burton
R Stuckes
M Sutsko
1
M Sutsko M Sutsko M Rapp
M Rapp
F Khanbabi
2
F Khanbabi
3
F Khanbabi F Khanbabi
Total remuneration
(£’000) £1,261 £930 £697 £1,182 £602 £605 £573 £447 £911 £507
Bonus outcome
(%ofmaximum) 0% 29% 0% 74% 0% 0% 0% 0% 62.5% 0%
PSP vesting outcome
(%of maximum) 100% 0% 0% 0% 0% 0% 0% 0% 0% 0%
1 R Burton January and February, R Stukes March to June and M Sutsko July to December
2 M Rapp to 09 August, F Khanbabi from 10 August
3 F Khanbabi as Interim CEO to 04 March and as permanent CEO from 05 March
4 All historic USD figures translated using the average 2022 GBP:USD rate of 1.24 to avoid currency impacts
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
164 165
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
RSP awards made in 2022 (audited information)
RSPs were granted to Fariyal Khanbabi and Clive Jennings as set out below. In accordance with the
Remuneration Policy, awards will vest solong as: (a) the recipient remains in role as at the vesting date; and
(b) the Remuneration Committee is satisfied that Dialight’s underlying performance and delivery against
strategy are sufficient to justify the level of pay-out. Amandatory two-year post-vesting holding period will
apply to any shares received by Executive Directors on the vesting or exercise of these awards (as well as any
other applicable restrictions – see pages 152 to 158). In prior years the Remuneration Committee has
considered a reduction in awards to reflect any prior-year fall in the share price – so for instance, in 2020, the
awards under the then PSP scheme were reduced by 25% to reflect a significant fall in the Company’s share
price between March 2019 and March 2020 – a total fall in the share price of 55.9%. A similar analysis was
conducted prior to all awards of RSPs in 2021. Across the previous 12 months (to April 2022), the share price
had risen by 36.1% and accordingly no reduction was made against the level of RSPs awarded.
Director
Fariyal Khanbabi Clive Jennings
Plan RSP RSP
% of salary awarded 62.5% 50%
Nature of interest Nil-cost option Nil-cost option
Exercise price per share n/a n/a
Number of shares subject to anaward
1
79,120 41,201
Face value of an award
1
£276,366 £143,915
Performance conditions Recipient remains in role as at the date of vesting, and the Remuneration Committee is
satisfied that the Company’s underlying performance and delivery against strategy is
sufficient to justify the level of pay-out
Date of grant of award 5 April 2022
Date of end of performance period 5 April 2025
1 Based on five-day average share price on date of award of £3.4930.
Payments to past Directors or for loss of office (audited information)
Karen Oliver stepped down as Non-Executive Chair with effect from 31 December 2022. She was entitled
to,and was paid, a sum equivalent to three months’ fees (her contractual notice period). No exit or other
termination payments were made to her with the exception of £2,600 in respect of legal fees.
2022 OUTCOMES CONTINUED IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2023
2023: Executive Director salaries, pensions and benefits
Remuneration for all Executive Directors in 2023 will continue to comply with the 2021 Remuneration Policy
(asmay be amended through an ordinary shareholder resolution). The Committee has adopted a clear and
principled approach to the setting of Executive Director pension contributions, and this is set out in the 2021
Remuneration Policy. All Executive Director pension contributions will be capped at the amount offered in the
applicable jurisdiction to the majority of employees. At the present time, in the case of UK-based Executive
Directors, this means pension contributions being limited to 5% of base salary.
2023: APBP
The 2023 APBP bonus scheme for Executive Directors will be in line with that set out in the 2021 Remuneration
Policy. Specifically: 50% against a cash conversion metric (for which a net debt target is used); and 50%
against an EBIT metric. The use of personal strategic objectives in 2023 will be suspended and details of the
performance metrics will be released in the Company’s 2023 Annual Report. Any bonus payable in excess of
target performance (50% of the bonus opportunity) will be paid in shares. 50% of such shares will vest after
two years from award date and 50% after three years from award date. Any shares vesting will have to be
retained until such time as the recipient meets the applicable shareholding guidelines.
2023: RSP
The 2023 share scheme awards for Executive Directors will be made in the awards window following release
of the Group’s preliminary announcement (27 March 2023). Any awards made will comply with the structure
set out in the 2021 Remuneration Policy (as set out on pages 140 to 158) – i.e. to a maximum of 62.5% of base
salaryand with vesting based on continuation in role. Any shares that vest after the three-year performance
period and two-year holding period will have to be retained until such time as the recipient meets the
applicable shareholding guidelines.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
166 167
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Outstanding awards under the PSP and APBP (audited information)
Type of
award
Award
date
Number
at
01.01.22
Awarded
in year
Vested in
year
Exercised
in year
Lapsed
in year
Number
at
31.12.22
Exercise
price
Earliest
vesting/
exercise
date
Expiry
date
Fariyal
Khanbabi
PSP NCO 05.03.19 68,803 – – – (68,803) – – 05.03.22 05.03.24
PSP NCO 27.03.20 201,367 – – – – 201,367 – 27.03.23 27.03.25
RSP NCO 19.05.21 89,547 – – – – 89,547 – 19.05.24 19.05.26
RSP NCO 05.04.22 – 79,120 – – – 79,120 – 05.04.25 05.04.27
APBP NCO 05.04.22 – 24,327 – – – 24,327 – 31.01.24 05.04.27
Total 359,717 103,447 (68,803) 394,361
Clive Jennings
RSP NCO 05.04.22 – 41,201 – – – 41,201 – 05.04.25 05.04.27
Total – 41,201 – – – 41,201
Notes:
NCO denotes nil-cost options. Those under the PSP are subject to applicable performance conditions.
Post the year ended 31 December 2022, it was determined that Fariyal Khanbabi’s PSP award made on 27 March 2020 would lapse in its entirety due to the performance
conditions not being met
The average closing market price of a share over the five trading days of 29 March 2022 to 4 April 2022, which was used for the purpose of calculating award values on 5 April
2022 (the date of the awards recorded in the tables above as made during the year) was 349.30 pence.
Options under the PSP scheme are exercisable for two years from the date of vesting. Awards granted since 2018 are subject to a mandatory two-year post-vesting
holdingperiod.
Options under the APBP are exercisable for five years from the date of grant.
Under the APBP scheme, awards vest 50% on or after 31 January in the second year after grant with the remaining 50% vesting on or after 31 January in the third year after grant.
During the year, the range of share prices was 230 pence to 371 pence, with the price on 31 December 2022 being 330 pence.
Executive Directors’ shareholding guidelines
Executive Directors are required (under the 2021 Remuneration Policy) to accumulate and maintain a holding
of Dialight shares equivalent in value to 200% of base salary and are required to retain all net of tax APBP
andPSP/RSP share vestings until the guidelines have been met. All Dialight shares, whether purchased on
theopen market or received through vestings and/or exercises under the various Dialight share plans, are
included in the relevant calculation. The Dialight share price used to value a holding for the purposes of the
guidelines will be the higher of: (a) the prevailing price on the date that the holding is valued (on the last
working day of the relevant financial year); and (b) the acquisition price (i.e. the price on the date on which
theshares were acquired/awards vested).
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2023 CONTINUED
The Remuneration Committee is aware of the significance of Executive Directors having a personal holding
ofshares in Dialight (to align management’s interests with those of the shareholders) and acted to further
strengthen the shareholding guidelines under the terms of the 2021 Remuneration Policy. Fariyal Khanbabi’s
current shareholding position reflects the fact that neither her APBP or PSP awards have vested in recent
years, whilst Clive Jennings’s current shareholding position reflects his short tenure to date. Although the
Committee recognises that neither Executive Director has yet acquired the shareholding required, the
Remuneration Committee acknowledges the mitigating circumstances surrounding this issue. The holdings
ofordinary shares in the Company as at 31 December 2022 by the Executive Directors are shown below.
Total shareholding of Directors (audited information)
The table below shows the holdings of ordinary shares in the Company as at 31 December 2022 by each of
the Directors:
Beneficially held shares
1
Year
Ordinary shares at
1January
2022
Ordinary shares
at31December
2022
Unvested and/or
subject to performance
conditions
2
Fariyal Khanbabi 12,389 21,504 394,361
Clive Jennings – 4,556 41,201
David Blood – – –
Gotthard Haug 2,500 2,500 –
Gaëlle Hotellier 882 882 –
David Thomas 5,994 5,994 –
Nigel Lingwood – – –
1 Some of these shares may be held through nominees.
2 Relates to outstanding awards under the PSP and APBP.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
168 169
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
DIRECTORS’ REPORT
The Directors present their report and the audited
consolidated financial statements of Dialight plc
forthe year ended 31 December 2022.
Activities
Dialight plc is a holding company. A list of its
subsidiary companies, including its overseas
branches, is set out on pages 238-240. Our
businesses by sector and their activities are set
outon pages 4 to 7.
Ordinary dividends
Under the terms of the remaining COVID-19 CLBILS
(£1.6m) and associated additional commercial loan
(£0.4m) facilities, distributions are not permitted
where there is an outstanding amount under either
facility. It is intended that the balance of the
outstanding £2m CLBILS and associated commercial
loan will be repaid at a monthly rate of £333k with the
last repayment scheduled for June 2023, whereupon
any associated restrictions will fall away. The Board is
therefore not proposing any final dividend payment
for 2022 (2021: nil). The Group has a clear capital
allocation discipline and is committed to returning
future excess funds to shareholders via future
dividend or share repurchase, subject to any
restrictions under these facilities.
The Company has established the Dialight
Employees’ Share Ownership Plan Trust (”ESOT”),
inrespect of which all employees of the Group,
including Executive Directors, are potential
beneficiaries. The ESOT held 225,451 shares in the
Company as at 31December 2022 (2021: 205,026)
and it is likely that it will acquire further shares in the
Company in 2023 in anticipation of future vestings
under the DRSP. It is anticipated that the ESOT will
waive any right to dividends payable in respect of
anyDialight shares held by the ESOT.
Share capital and capital structure
Details of the share capital, together with details of
the movements in the share capital during the year,
are shown in note 19 to the financial statements.
TheCompany has one class of ordinary share which
carries no right to fixed income. Each share carries
the right to one vote at general meetings of the
Company. There are no other classes of share
capital. There are no specific restrictions on the size
of a holding nor on the transfer of shares, with both
governed by the general provisions of the Articles of
Association (the “Articles”) and prevailing legislation.
No person has any special rights of control over the
Company’s share capital and all issued shares are
fully paid. No purchases by the Company of its own
shares were made in 2022 under the authority granted
at the 2022 Annual General Meeting (“AGM”).
Rights and obligations of ordinary shares
Holders of ordinary shares are entitled to attend and
speak at general meetings of the Company and to
appoint one or more proxies or, if the holder of
sharesis a corporation, one or more corporate
representatives. On a show of hands, each holder
ofordinary shares who (being an individual) is
present in person or (being a corporation) is present
by a duly appointed corporate representative, not
themselves being a member, shall have one vote,
asshall proxies (unless they are appointed by more
than one holder, in which case they may vote both
forand against theresolution in accordance with the
holders’instructions).
Directors’ service agreements and letters of appointment
The dates on which Directors’ initial service agreements/letters of appointment commenced and the expiry
dates as at 31 December 2022 are as follows:
Directors Commencement date Expiry date of current employment/service agreement or letter of appointment
David Blood 1 July 2015 Following his resumption of an NED role (on stepping down as Chair on 10 September
2021), David’s engagement reverted to his previous appointment terms with a term ofup
to three years. On 30 March 2023, he decided to step down from the Board.
Gotthard Haug 1 April 2020 Letter of appointment was for an initial term of three years (ending on 31 March 2023).
Gaëlle Hotellier 3 October 2016 Letter of appointment was for an initial term of three years. A subsequent three-year
extension was agreed in 2022 (ending in 2 October 2025).
Clive Jennings 18 January 2022 The contract is terminable by the Company or the Director on six months’ notice.
Fariyal Khanbabi 8 September 2014 The contract is terminable by the Company or the Director on 12 months’ notice. Fariyal
entered into a new service agreement on 4 March 2020 upon assuming the CEO role.
Sheretains continuity of service from her earlier agreement entered into on 8 September
2014 (in respect of her CFO role) and supersedes both the arrangements put in place
upon her assuming the interim CEO role and her previous contractual entitlement to a
higher pension contribution.
Nigel Lingwood 1 November 2022 Letter of appointment was for an initial term of three years (ending on 31 October 2025).
David Thomas 26 April 2016 Letter of appointment was for an initial term of three years. A subsequent three-year
extension was agreed in 2022 (ending in 25 April 2025).
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2023 CONTINUED
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
170 171
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
DIRECTORS’ REPORT CONTINUED
On a poll, every holder of ordinary shares present
inperson or by proxy shall have one vote for every
share of which they are the holder. Electronic and
paper proxy appointments and voting instructions
must be received not later than 48 hours before the
meeting. A holder of ordinary shares can lose the
entitlement to vote at general meetings where that
holder has been served with a disclosure notice and
has failed to provide the Company with information
concerning interests held in those shares. Except as
set out above and as permitted under applicable
statutes, there are no limitations on voting rights of
holders of a given percentage, number of votes or
deadlines for exercising voting rights.
Restrictions on transfer of shares
There are no specific restrictions on the transfer of
the Company’s shares, although the Articles contain
provisions whereby Directors may refuse to register a
transfer of a certificated share which is not fully paid.
There are no other restrictions on the transfer of
ordinary shares in the Company except certain
restrictions which may from time to time be imposed
by laws and regulations (for example, insider trading
laws). The Directors are not aware of any agreements
between holders of the Company’s shares that may
result in restrictions on the transfer of securities or on
voting rights.
Employee share plans
Details of employee share plans are set out in note 16
to the financial statements. The Company currently
has in place two share plans: the Restricted Share
Plan (“DRSP”) (which under the 2021 Remuneration
Policy succeeded the Dialight Performance Share
Plan (“PSP”)) and the Annual Performance Bonus
Plan (“APBP”). It also has a Sharesave Plan, but this
was not used for subscriptions in 2022 as it is a
UK-orientated scheme and was considered
insufficiently responsive to the Group’s international
employee footprint. There are currently no active
savers under the Sharesave Plan. Further details of
these share plans are provided in the report of the
Remuneration Committee. The 10-year term for the
DRSP ends in April 2024. Accordingly, and to allow
for any potential delays in 2024 DRSP grants that
could arise, a new DRSP will be put to shareholders
for approval at the 2023 AGM. Further details on the
new DRSP are given in the report of the Remuneration
Committee and will be provided in the notice of AGM
(to be circulated in April 2023), but there will not be
any material changes to the form or functioning of the
current DRSP plan.
The rules of the DRSP (and the preceding PSP)
provide that, in the event of a change of control
through a general offer or scheme of arrangement,
shares subject to awards under the DRSP (and the
preceding PSP) could be released within one month
of the date of notification of the likely change of
control. The rules of the Sharesave Plan have special
provisions which also allow for early exercise in the
event of a change of control, reconstruction or
winding-up of the Company. Internal reorganisations
do not automatically trigger the early exercise of
options. The ESOT held 225,451 shares as at
31 December 2022 (2021: 205,026) and it is likely that
Substantial interests in shares
As at 13 March 2023, the Company had been notified, in accordance with DTR chapter 5, of the following
voting rights as a shareholder of the Company.
SHAREHOLDER HOLDING
%
VOTING RIGHTS
Aberforth Partners LLP 7,677,998 23.30
Generation Investment Management LLP 6,532,248 19.83
Schroder Investment Management 3,835,991 11.64
Sterling Strategic Value Fund S.A., SICAV-RAIF 3,342,517 10.15
Odyssean Capital 3,000,000 9.11
Impax Asset Management 2,757,494 8.37
Blackmoor Investment Partners 1,138,979 3.46
it will acquire further shares in the Company in 2023
in anticipation of future vestings under the DRSP
(andthe preceding PSP). The Trustees of the ESOT
retain the voting rights over the shares held in the
ESOT and may exercise these rights independent
ofthe interests of the Company.
Appointment and replacement of Directors
With regard to the appointment and replacement of
Directors, the Company is governed by its Articles,
the UK Corporate Governance Code (the “2018
Code”), the Companies Act 2006 and related
legislation. Directors can be appointed by the
Company by ordinary resolution at a general meeting
or by the Board. If a Director is appointed by the
Board, such Director will hold office until the next
AGM and shall then be eligible subject to Board
recommendation, for election at that meeting. In
accordance with Provision 18 of the 2018 Code each
of the Directors, being eligible, will offer themselves
for election or re-election at the 2023 AGM (subject
to any retirements). The Company can remove a
Director from office, either by passing a special
resolution or by notice being given by all the other
Directors. The Articles themselves may be amended
by special resolution of the shareholders.
Powers of Directors
The powers of Directors are described in the Articles
and in the Matters Reserved to the Board, copies of
which are available on the Company’s website at
www.dialight.com/ir, and are summarised in the
Corporate Governance report on page 115.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
172 173
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
Directors’ indemnities
Qualifying third-party indemnity provisions
(asdefined by s234 of the Companies Act 2006)
werein force in the reporting period for the benefit
ofthethen Directors of the Company and the then
Directors of certain subsidiaries of the Company in
relation to certain losses and liabilities which they
may incur (or have incurred) in connection with their
duties, powers and/or office. The Group also
maintains Directors’ & Officers’ liability insurance
which gives appropriate cover for legal action
brought against any Directors of the Company and/
or its subsidiaries.
Essential contracts and change of control
The Directors are not aware of there being any
significant agreements that contain any material
change of control provisions to which the Company
is a party, other than in respect of the five-year
unsecured $34m multi-currency revolving credit
facility with HSBC Bank plc (“HSBC”) which was
entered into on 21 July 2022 for an initial duration of
three years expiring 20 July 2025. A £10m CLBILS
facility and commercial loan facility was completed
on 15 June 2020. Under the terms of both facilities,
and in the event of a change of control of the
Company, HSBC can withdraw funding and all
outstanding loans; accrued interests and other
amounts due and owing become payable within
20business days of the change.
Allotment authority
Under the Companies Act 2006, the Directors may
only allot shares if authorised by shareholders to do
so. At the 2023 AGM, an ordinary resolution will be
proposed which, if passed, will authorise the
DIRECTORS’ REPORT CONTINUED
Directors to allot and issue new shares up to an
aggregate nominal value that is in line with Investment
Association guidelines. In accordance with the
Directors’ stated intention to seek annual renewal,
anauthority granted at the 2022 AGM will expire at
the conclusion of the AGM of the Company in 2023.
Passing this resolution will give the Directors
flexibility to act in the best interests of shareholders,
when opportunities arise, by issuing new shares.
The Companies Act 2006 also requires that, if the
Company issues new shares for cash or sells any
treasury shares, it must first offer them to existing
shareholders in proportion to their current holdings.
At the 2023 AGM, a special resolution will be
proposed which, if passed, will authorise the
Directors to issue a limited number of shares for cash
and/or sell treasury shares without offering them to
shareholders first. The authority is for an aggregate
nominal amount of up to 10% of the issued share
capital of the Company as at the relevant date set
outin the notice of the 2023 AGM, of which 5% of
theissued share capital can only be issued for the
purposes of financing an acquisition or other capital
investment. Whilst it believes that it is entirely
appropriate (not least for administrative purposes),
and in line with good corporate practice, to seek
theallotments that will be set out in the notes
accompanying the resolutions to be considered at
the 2023 AGM (the “Notes”), it has again provided
additional assurance, in the Notes, for shareholders
with regard to the circumstances under which such
powers may be exercised. In particular, the Company
notes that in excess of 89% of voting shareholders
supported the allotment resolutions at the 2022 AGM.
Auditor
Each of the persons who is a Director at the date
ofapproval of this Annual Report and Accounts
confirms that:
—so far as the Director is aware, there is no relevant
audit information of which the Company’s Auditor
is unaware; and
—the Director has taken all the steps that he/she
ought to have taken as a Director in order to
makehimself/herself aware of any relevant audit
information and to establish that the Company’s
Auditor is aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section
418ofthe Companies Act 2006. The Board is
recommending to shareholders the appointment
ofGrant Thornton as auditor of the Company and
aresolution authorising the Directors to set its
remuneration will be proposed at the forthcoming
AGM. KPMG has been the Company’s auditor for 22
years. Accordingly, during 2022 a competitive tender
exercise was run to seek a replacement auditor,
resulting in the selection of Grant Thornton by the
Board. Further details of this audit re-tender process
are set out in the report by the Audit Committee.
AGM
The Company’s AGM will be held on Tuesday 16 May
2023. The Notice of Meeting, together withan
explanation of the proposed resolutions, isenclosed
with this Annual Report and Accounts andisalso
available on the Company’s website at
www.dialight.com/ir.
Scope of the reporting in this Annual Report
andAccounts
The Directors present their Annual Report on the
affairs of the Group, together with the financial
statements and Auditor’s Report, for the year ended
31 December 2022.
The Corporate Governance report set out on pages
94 to 176, which includes details of the Directors
whoserved during the year, forms part of this report.
There have been no significant events since the
balance sheet date, other than the Sanmina ruling as
set out in note 27. An indication of the likely future
developments in the business of the Company and
details of research and development activities are
included in the Strategic Report on pages 26 to 29.
Details related to employee matters are in the “Our
people” section on pages 50 to 55. Environmental
matters, including greenhouse gas emissions
reporting, are included within the ESG Report on
pages 36 to 69. Information about the use of
financialinstruments by the Company and its
subsidiaries is given in note 24 to the financial
statements. Information on the Company’s political
and charitable contributions during the year is set out
on pages 54 and 58.
For the purposes of compliance with DTR R(2) and
DTR 4.1.8 R, the required content of the management
report can be found in the Strategic Report and
theseregulatory disclosures, including the sections
of the Annual Report and Accounts incorporated
byreference.
By order of the Board.
Richard Allan
Company Secretary
2 April 2023
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
174 175
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
DIRECTORS’ RESPONSIBILITY STATEMENT
Directors are responsible for preparing the Annual
Report (including the Directors’ Report, the Strategic
Report, the Directors’ Remuneration Report and the
Corporate Governance Statement) and the Financial
Statements of the Group and the parent Company,
inaccordance with applicable law andregulations.
Company law requires the Directors to prepare
Group and parent company financial statements
foreach financial year. Under the law they are
required to prepare the Group financial statements
inaccordance with UK-adopted international
accounting standards and applicable law and have
elected to prepare the parent company financial
statements in accordance with UK accounting
standards and applicable law, including FRS 102
(theFinancial Reporting Standard applicable in
theUK and Republic of Ireland). Under the law the
Directors must not approve the financial statements
unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and parent
company andof the Group’s profit or loss for
thatperiod.
In preparing each of the Group and parent company
financial statements, the Directors are required to:
—select suitable accounting policies and to then
apply them consistently;
—make judgements and accounting estimates that
are reasonable, relevant, reliable and prudent;
—for the Group financial statements, state whether
they have been prepared in accordance with the
UK-adopted international accounting standards;
—for the parent Company financial statements, state
whether applicable UK accounting standards have
been followed, subject to any material departures
disclosed and explained in the parent Company
financial statements;
—assess the Group and parent company ability
tocontinue as a going concern, disclosing, as
applicable, matters related to going concern; and
—use the going concern basis of accounting unless
they either intend to liquidate the Group or the
parent Company or to cease operations, or have
no realistic alternative but to do so.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group and parent company’s transactions
and disclose with reasonable accuracy at any time
the financial position of the Group and parent
company and enable them to ensure that its financial
statements comply with the CA 2006. They are
responsible for such internal control as they
determine is necessary to enable the preparation
offinancial statements that are free from material
misstatement, whether due to fraud or error, and
havegeneral responsibility for taking such steps as
are reasonably open to them to safeguard the assets
ofthe Group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the directors
are also responsible for preparing a Strategic Report,
Directors’ Report, Directors’ Remuneration Report
and Corporate Governance Statement that complies
with that law and those regulations.
In accordance with Disclosure Guidance and
Transparency Rule 4.1.14R, the financial statements
will form part of the annual financial report prepared
using the single electronic reporting format under the
TD ESEF Regulation. The auditor’s report on these
financial statements provides no assurance over the
ESEF format.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website
(www.dialight.com), on which this Annual Report
andAccounts are published. Legislation in the UK
governing the preparation and publication of
financialstatements may differ from legislation
inother jurisdictions.
Responsibility statement of the Directors in
respect of the annual financial report
Each of the Directors at the date of approval of this
Annual Report and Accounts confirm that to the best
of his/her knowledge:
—the Annual Report and Accounts, taken as a whole,
are fair, balanced and understandable and provide
the information necessary for shareholders to
assess the Group’s position and performance,
business model and strategy;
—the Group and parent company financial
statements, prepared in accordance with the
applicable set of accounting standards, give a
trueand fair view of the assets, liabilities, financial
position and profit or loss of the Company and the
undertakings included in consolidation taken as a
whole; and
—the Strategic Report and corporate governance
reports include a include a fair review of the
development and performance of the business and
the position of the issuer and the undertakings
included in the in the consolidation taken as a
whole, together with a description of the principal
risks and uncertainties that they face.
On behalf of the Board
Fariyal Khanbabi
Group Chief Executive
2 April 2023
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
176 177
FINANCIAL STATEMENTS OTHER INFORMATIONGOVERNANCE
STRATEGIC REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC
1. Our opinion is unmodified
We have audited the financial statements of Dialight plc (“the Company”) for the year ended 31 December 2022 which comprise the
Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity,
Consolidated statement of total financial position, Consolidated statement of cash flows, Company balance sheet, Company
statement of changes in equity, and the related notes, including the accounting policies in note 1.
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2022
andof the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
– The Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 102
TheFinancial Reporting Standard applicable in the UK and Republic of Ireland; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for
our opinion. Our audit opinionis consistent with our report to the AuditCommittee.
We were first appointed as auditor by the directors in 2001. The period of total uninterrupted engagement is for the 21 financial years
ended 31 December 2022. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance
with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services
prohibited by that standard were provided.
Overview
Materiality: Group financial statements as a whole £0.83m (2021: £0.67m)
0.5% (2021: 0.5%) of Group revenue
Coverage 99% (2021:97.9%) of Group profit before tax
Key audit matters vs 2021
Recurring risk Inventory valuation
Termination of outsourced manufacturing supply agreement
New: Going concern
New: Capitalisation of development costs
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our
audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our
results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of,
and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate opinion on these matters.
The risk Our response
Inventory
Valuation
(£53.6 million;
2021: £42.4million)
Refer to page 128
(Audit Committee
Report), page
198-199
(accounting
policy) and page
222 (financial
disclosures).
Subjective estimate: Inventory Provision
The Group has a significant inventory balance
representing 37% (2021: 34%) of the total
assets.
The Group operates in an industry whereby
development in product technology may result
in inventory becoming slow moving or obsolete.
This factor, in turn means that certain finished
goods items cannot be sold for at least the
carrying amounts and raw materials and sub–
assembly inventory cannot be used in the
manufacture of products.
Significant levels of longer dated inventory may
indicate an element of slow moving or obsolete
inventory that requires provision.
Furthermore, we consider there is a fraud risk
relating to inventory provisioning as
management could alter the provision in order
to create an artificial improvement in the Group’s
trading performance.
The effect of these matters is that, as part of our
risk assessment for audit planning purposes, we
determined that the provision for inventory has a
high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater
than our materiality for the financial statements
as a whole. In conducting our final audit work,
we reassessed the degree of estimation
uncertainty to be less than that of materiality.
Further details are set out in Note 2 and Note 17.
Our procedures included:
– Methodology implementation: we assessed the methodology
behind the provision calculation to consider whether judgments
applied in the methodology are reasonable and incorporates
the accounting standards appropriately.
– Reperformance: we independently recalculated the provision
for raw materials and sub-assemblies based on the
methodology provided by the directors, using inventory aging
data. We also formed our own expectation of the provision
based on alternate methodology, using inventory aging and
usage data and compared this to the Group’s provision.
For variances noted, we challenged the directors on their
judgment for not recognising a provision in respect of
suchitems.
– Reperformance: we independently recalculated the finished
goods provisions based on the methodology provided by the
directors, using historic sales and backlog data.
– Tests of detail: we verified the aging data element in the
provision calculation for raw materials and sub-assemblies.
– Test of detail: We tested that finished goods on hand at the
end of the year were recorded at the lower of cost and net
realisable value by testing a sample of inventory items to the
most recent sales price or prices in backlog data.
– Sensitivity analysis: We performed sensitivity analysis on
judgemental assumptions such as determination of the excess
stock that bears a risk of not being recoverable.
– Assessing transparency: We assessed the adequacy of the
Group’s disclosures about the degree of estimation involved in
arriving at the provision.
We performed the detailed tests above rather than seeking to rely
on any of the Group’s controls because our knowledge of the
design of these controls indicated that we would be unlikely to
obtain the required evidence to support reliance on controls.
Our results
– We found the resulting estimate of the carrying value to be
acceptable (2021: acceptable).
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
178 179
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
The risk Our response
Termination of
outsourced
manufacturing
supply
arrangement:
Company and
Group
Refer to page 128
(Audit Committee
Report), page
198-199
(accounting
policy) and page
222 (financial
disclosures).
Dispute outcome
On 20 December 2019, a claim was brought
against the Company by its former outsourced
manufacturing partner relating to excess and
obsolete inventory and unpaid trade payables
balances netted off with an amount held in
Escrow. Following the termination of the Group’s
manufacturing outsourcing agreement, the
claimant has alleged it should be reimbursed for
this excess and obsolete inventory. This has
been disclosed as a contingent liability ($0 -
$8.3m) and has not been recognised as a
provision in the Group’s financial statements.
There is a significant judgement involved in
determining the likelihood of success of the
claim, and if the claimant is successful, the
potential range of reasonable financial outflows
in the settlement could be greater than our
materiality for the financial statements as a
whole, and possibly many times that amount.
Our procedures included:
– Enquiry of lawyers: we assessed the status and likely outcome
of the claim through enquiries of the Group’s internal legal
counsel, and inspection of internal notes and reports, as well
asdiscussions with the Group’s external counsel, review of
summary judgement requests, and formal legal confirmations
from the Group’s external counsel as to the status of
proceedings.
– Accounting analysis: we evaluated the treatment of
outstanding balances with Sanmina, and the assessment
performed by the Directors in determining whether the criteria
for recognising a provision or a contingent liability was met at
year end.
– Assessing transparency: we assessed whether the Group’s
and Company’s disclosures relating to the contingent liability
and related balances adequately disclose the circumstances
and judgement applied.
We performed the tests above rather than seeking to rely on any of
the Group’s controls because the nature of the balance is such that
we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results
We found the treatment and disclosure of this contingent liability to
be acceptable. (2021: acceptable).
2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk Our response
Going Concern
Refer to page 128
(Audit Committee
Report), page
198-199
(accounting
policy) and page
222 (financial
disclosures).
Disclosure quality
The financial statements explain how the Board
have formed a judgement that it is appropriate
to adopt the going concern basis of preparation
for the Group and Company.
That judgement is based on an evaluation of the
inherent risks to the Group’s and Company’s
business model and how those risks might
affect the Group’s financial resources or ability
to continue operations over a period of at
leasta year from the date of approval of the
financial statements.
The key risks relate to continuity and on time
supply of materials into the business, pricing
and inflationary cost pressures which have been
impacted as a result of the challenges in the
global economic environment and also the
timely delivery of final product to customers.
Challenges in these key risks have contributed
to lower margins in 2022 compared with 2021.
With potential for further impact from the key
risks crystallising, these risks might affect the
Group’s and Company’s ability to comply with
covenants over a period of at least a year from
the date of approval of the financial statements.
The risk for our audit was whether or not those
risks were such that they amounted to a material
uncertainty that may have cast significant doubt
about the ability to continue as a going concern.
Had they been such, then that fact would have
required to have been disclosed.
We considered whether these risks could plausibly affect the
liquidity or covenant compliance in the going concern period. We
did this by assessing the directors’ sensitivity analysis over the level
of available financial resources and covenant thresholds indicated
by the Group’s financial forecasts taking account of severe, but
plausible, adverse effects that could arise from these risks
individually and collectively.
Our procedures included:
– Funding assessment: obtaining confirmation letters for the
loan and cash balances at 31 December 2022. Obtaining and
inspecting the facilities’ agreements in respect of covenant
amendments and assessed the forecasts going forward in light
of the terms to identify any expected future covenant breaches
or liquidity shortfalls.
– Historical comparisons: we compared previous cash flow
forecasts against actual cash flows achieved in the year and in
previous years to assess historical reliability of the forecasting.
– Benchmark assumptions: we considered sensitivities over the
level of available financial resources indicated by the Group’s
forecasts taking account of severe but plausible downsides that
could arise individually and collectively.
We challenged the directors’ sensitivities over forecast revenue
and gross profit margin in the calculation of the forecast
covenant tests;
– Our experience: used our own sector experience to assess
and challenge the key assumptions in the cash flow forecasts.
– Evaluating directors’ actions and intent: we evaluated the
impact of both actions already taken, as well as those intended
to be taken, by the directors in respect of the timing and
achievability for cost savings and improving manufacturing
productivity, should the risks materialise, by reference to our
understanding of the business.
– Assessing transparency: considered whether the going
concern disclosure in note 2 to the financial statements gives a
full and accurate description of the directors’ assessment of
going concern, including the identified risks and, dependencies,
and related sensitivities.
Our results
We found the going concern disclosure in note 2 without any
material uncertainty to be acceptable.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
180 181
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
The risk Our response
Capitalisation
ofdevelopment
costs
(£9.5 million;
2021:£10.3 million)
Refer to page 128
(Audit Committee
Report), page
198-199
(accounting
policy) and page
222 (financial
disclosures).
Accounting treatment
The Group has significant intangible assets
including capitalised development costs.
Judgement is applied in assessing compliance
with IAS38 Intangible Assets and the ultimate
commercial viability of the projects and
therefore whether related costs should be
capitalised or should be expensed.
Once capitalised, there remain risks that costs
may not be recovered in full. We have identified
a fraud risk that development costs could be
incorrectly capitalised to manipulate the results
for the year.
Our procedures included:
– Personnel interview: we enquired with the Technology and
Engineering Director about specific projects to understand their
status. For closed projects, we enquired whether they were
revenue generative or included within the forecasts to be
revenue generative. For open projects, we enquired about and
challenged the commercial viability of those projects against
our understanding of the Group.
– Test of details: we assessed the Group’s policy for
capitalisation of development costs and its compliance with
accounting standards. We selected costs on a sample basis
that were capitalised and checked the nature and amount of
these costs to invoices and timesheets.
– Benchmarking assumptions: for a sample of capitalised
projects, costs, we challenged the commercial viability of the
projects through assessing forecast sales data, with reference
to external evidence (where available), actual sales and gross
margin achieved during the year and the directors’ intent to
continue development.
– Accessing transparency: we assessed the adequacy of
theGroup’s disclosures outlining the judgement involved
inassessing the carrying amount of the capitalised
developmentcosts.
We performed the detailed tests above rather than seeking to rely
on any of the Group’s controls because our knowledge of the
design of these controls indicated that we would be unlikely to
obtain the required evidence to support reliance on controls.
Our results
We found the carrying value of the capitalised development costs
to be acceptable.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
2. Key audit matters: our assessment of risks of material misstatement (continued) 3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £0.83m (2021: £0.67m), determined with reference to a benchmark
of Group Revenue of £169.7m, of which it represents 0.5% (2021: 0.5%).
Materiality for the Company financial statements as a whole was set at £0.45m (2021: £0.37m), determined with reference to a
benchmark of Company total assets, of which it represents 0.6% (2021: 0.6%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual
account balances add up to a material amount across the financial statements as a whole.
Performance materiality was set at 65% (2021: 65%) of materiality for the financial statements as a whole, which equates to £0.54m
(2021: £0.44m) for the Group and £0.29m (2021: £0.24m) for the Company. We applied this percentage in our determination of
performance materiality based on the level of identified misstatements and control deficiencies during the prior period.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.04m (2021: £0.03m),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s eight (2021: eight) reporting components, we subjected three (2021: three) to full scope audits for Group purposes and
two (2021: two) to specified risk-focused audit procedures. The latter were not individually financially significant enough to require a full
scope audit for Group purposes, but did present specific individual risks that needed to be addressed. We conducted reviews of
financial information (including enquiry) at a further two (2021: two) non-significant components to confirm cash balances and identify
any unusual financial trends.
The components within the scope of our work accounted for the percentages illustrated on page 184.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved the component materialities, which ranged from £0.35m to £0.72m
(2021: £0.18m to £0.54m), having regard to the mix of size and risk profile of the Group across the components. The work on two of the
five components (2021: two of the five components) was performed by component auditors and the rest, including the audit of the
Company, was performed by the Group team.
The scope of the audit work performed was predominately substantive as we placed limited reliance upon the Group’s internal control
over financial reporting.
Video- and telephone conference meetings were held with the component auditors. At these meetings, the findings reported
totheGroup team were discussed in more detail, and any further work required by the Group team was then performed by the
componentauditor.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
182 183
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
3. Our application of materiality and an overview of the scope of our audit (continued)
£0.83m
Whole financial statements materiality (2021: £0.67m)
£0.54m
Whole financial statements performance materiality (2021: £0.44m)
£0.72m
Range of materiality at 5 components:
(£0.35m to £0.72m) (2021: £0.18m to £0.54m)
£0.04m
Misstatements reported to the Audit Committee
(2021: £0.03m)
Revenue
£169.7m (2021: £131.6m)
Group materiality
£0.83m (2021: £0.67m)
Revenue
Group materiality
Full scope for Group audit purposes 2022
Specified risk-focused audit procedures 2022
Full scope for Group audit purposes 2021
Specified risk-focused audit procedures 2021
Residual components
99%
(2021: 98%)
13%
85%
84%
15%
99%
(2021: 98%)
8%
91%
81%
17%
95%
(2021: 99%)
15%
80%
84%
15%
Group revenue
Group profit before tax
Group total assets
4. Going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded that the Group and the Company’s financial position means that
this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
An explanation of how we evaluated management’s assessment of going concern is set out in the related key audit matter in section 2 of
this report.
Our conclusions based on this work:
– we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements
isappropriate;
– we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on the Group’s or Company’s ability to continue as a going
concern for the going concern period;
– we have nothing material to add or draw attention to in relation to the directors’ statement in note 2 to the financial statements on
theuse of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and
Company’s use of that basis for the going concern period, and we found the going concern disclosure in note 2 to be acceptable;
and
– the related statement under the Listing Rules set out on page 98 is materially consistent with the financial statements and our
auditknowledge.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the
Company will continue in operation.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
184 185
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive
or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
– Enquiring of directors and the Audit Committee as to the Group’s high level policies and procedures to prevent and detect fraud,
andthe Group’s channel for “whistleblowing” as well as whether they have knowledge of any actual, suspected or alleged fraud.
– Reading Board and Audit Committee minutes.
– Considering remuneration incentive schemes and performance targets for management and directors.
– Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
This included communications from the Group auditors to component audit teams of relevant fraud risks identified at the Group level
and to request component audit teams to report to the Group audit team any instances of fraud that could give rise to a material
misstatement at Group.
As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk
that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in
accounting estimates, such as inventory valuation, capitalisation of overheads and labour, capitalisation of development costs and
recoverability of goodwill and other intangible assets. On this audit we do not believe there is a fraud risk related to revenue recognition
as the calculation of revenue recognition is non-complex with limited opportunity for manipulation of recognition under IFRS 15.
We also identified fraud risks in relation to allocation of overhead and labour costs to inventory cost, inventory provision manipulation,
and capitalisation of development costs, in response to possible pressures to meet profit targets and identified opportunities to
manipulate results.
Further details in respect of inventory provision manipulation and capitalisation of development costs are set out in the key audit matter
disclosure in section 2 of this report.
We also performed procedures including:
– Identifying journal entries to test for all full scope components based on a risk criteria and comparing the identified entries to
supporting documentation. Those included journals with unusual account pairings to cash, revenue, inventory, and journals to seldom
used accounts, journals with missing descriptions or journals containing selected risk terms.
– Agreeing a sample of capitalised development cost to underlying support, including direct confirmation of timesheets with personnel.
– Assessing a sample of projects against the IAS 38 criteria, through review of the business case and challenge of management.
– Agreeing a sample of capitalised inventory costs to underlying support, and re-calculating the allocation of overheads.
– Assessing the appropriateness of the overhead allocation methodology and performing sensitivities over the underlying assumptions.
– Assessing whether the judgements made in making accounting estimates are indicative of a potential bias, including assessing
inventory valuation, capitalisation of overheads and labour and recoverability of goodwill and other intangible assets.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from
our general commercial and sector experience, through discussion with the directors (as required by the auditing standards), and
discussed with the directors the policies and procedures regarding compliance with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance
throughout the audit. This included communication from the Group audit team to full-scope component audit teams of relevant laws
and regulations identified at the Group level, and a request for full scope component auditors to report to the Group team any instances
of non-compliance with laws and regulations that could give rise to a material misstatement at Group.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements, including financial reporting legislation
(including related companies’ legislation), distributable profits legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the
following areas as those most likely to have such an effect: health and safety, data protection laws, anti-bribery, employment law, and
certain aspects of company legislation recognising the nature of the Group’s activities. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and
inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not detect that breach.
Further detail in respect of Termination of outsourced manufacturing supply arrangement is set out in the key audit matter disclosures in
section 2 of this report.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
inthe financial statements, even though we have properly planned and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement.
We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws
andregulations.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
186 187
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
6. We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or,except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that
work we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
– we have not identified material misstatements in the strategic report and the directors’ report;
– in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
– in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in
respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
– the directors’ confirmation within the viability statement on page 90 that they have carried out a robust assessment of the emerging
and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and
liquidity;
– the Emerging and Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they
are being managed and mitigated; and
– the directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they
have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set out on page 90 under the Listing Rules. Based on the above procedures,
wehave concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our audit. As we cannot predict
allfuture events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were
reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s
andCompany’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate
governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our
audit knowledge:
– the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to assess the Group’s position and performance, business
model and strategy;
– the section of the annual report describing the work of the Audit Committee, including the significant issues that the Audit Committee
considered in relation to the financial statements, and how these issues were addressed; and
– the section of the annual report that describes the review of the effectiveness of the Group’s risk management and internal
controlsystems.
We are required to review the compliance statements relating to the Group’s compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect.
7. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
– the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
188 189
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DIALIGHT PLC CONTINUED
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 176, the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual financial
report has been prepared in accordance with that format.
9. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we
haveformed.
Lynton Richmond (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
2 April 2023
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2022
Note
2022
£m
2021
£m
Revenue 5 169.7 131.6
Cost of sales (115.1) (84.6)
Gross profit 54.6 47.0
Distribution costs (25.5) (21.3)
Administrative expenses (26.8) (23.6)
Profit from operating activities 5 2.3 2.1
Underlying profit from operating activities 5.0 4.5
Non underlying items 6 (2.7) (2.4)
Profit from operating activities 5 2.3 2.1
Financial expense 8 (1.8) (1.4)
Profit before tax 5 0.5 0.7
Taxation 9 (0.1) (0.4)
Profit for the year 10 0.4 0.3
Profit for the year attributable to:
Equity owners of the Company 0.4 0.1
Non-controlling interests – 0.2
Profit for the year 0.4 0.3
Profit per share
Basic 11 1.2p 0.9p
Diluted 11 1.2p 0.9p
These results are all from continuing operations.
The accompanying notes form an integral part of these financial statements.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
190 191
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2022
Note
2022
£m
2021
£m
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations 8.1 0.7
Income tax on exchange differences on translation of foreign operations (0.6) –
7.5 0.7
Items that will not be reclassified subsequently to profit and loss
Remeasurement of defined benefit pension liability 16 0.3 2.5
Income tax on remeasurement of defined benefit pension liability 9 (0.1) (0.5)
0.2 2.0
Other comprehensive income for the year, net of tax 7.7 2.7
Profit for the year 0.4 0.3
Total comprehensive income for the year 8.1 3.0
Attributable to:
Owners of the parent 8.1 2.8
Non-controlling interests – 0.2
Total comprehensive income for the year 8.1 3.0
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Note
Share
capital
£m
Merger
reserve
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Share
premium
£m
Own
Shares
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 1January2022 0.6 0.5 10.0 2.2 – (0.7) 47.0 59.6 0.6 60.2
Profit for the year – – – – – – 0.4 0.4 – 0.4
Other comprehensive income:
Foreign exchange translation differences,
netoftax – – 7.5 – – – – 7.5 – 7.5
Remeasurement of defined benefit pension
liability, net of tax 16 – – – – – – 0.2 0.2 – 0.2
Total other comprehensive income – – 7.5 – – – 0.2 7.7 – 7.7
Total comprehensive income for theyear – – 7.5 – – – 0.6 8.1 – 8.1
Transactions with owners, recorded
directly inequity:
Share-based payments 7 – – – – – – 0.5 0.5 – 0.5
Re-purchase of own shares 20 – – – – – (0.1) – (0.1) – (0.1)
Minority interest purchase 30 – – – – 1.0 – (0.6) 0.4 (0.4) –
Total transactions withowners – – – – 1.0 (0.1) (0.1) 0.8 (0.4) 0.4
Balance at 31December 2022 0.6 0.5 17.5 2.2 1.0 (0.8) 47.5 68.5 0.2 68.7
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
192 193
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Note
Share
capital
£m
Merger
reserve
£m
Translation
reserve
£m
Capital
redemption
reserve
£m
Own
Shares
£m
Retained
earnings
£m
Total
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at 1January2021 0.6 0.5 9.3 2.2 – 44.3 56.9 0.4 57.3
Profit for the year – – – – – 0.1 0.1 0.2 0.3
Other comprehensive income:
Foreign exchange translation differences,
netoftax – – 0.7 – – – 0.7 – 0.7
Remeasurement of defined benefit pension
liability,net of tax 16 – – – – – 2.0 2.0 – 2.0
Total other comprehensive income – – 0.7 – – 2.0 2.7 – 2.7
Total comprehensive income for theyear – – 0.7 – – 2.1 2.8 0.2 3.0
Transactions with owners,
recordeddirectlyinequity:
Share-based payments 7 – – – – – 0.6 0.6 – 0.6
Re-purchase of own shares 20 – – – – (0.7) – (0.7) – (0.7)
Total transactions withowners – – – – (0.7) 0.6 (0.1) – (0.1)
Balance at 31December 2021 0.6 0.5 10.0 2.2 (0.7) 47.0 59.6 0.6 60.2
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED
for the year ended 31 December 2022
Note
2022
£m
2021
£m
Assets
Property, plant and equipment 12 13.9 12.0
Right-of-use assets 13 10.5 11.3
Intangible assets 14 21.4 21.4
Deferred tax assets 15 2.4 1.3
Employee benefits 16 4.5 3.9
Other receivables 18 5.6 4.7
Total non-current assets 58.3 54.6
Inventories 17 53.6 42.4
Trade and other receivables 18 30.2 26.2
Income tax recoverable 0.6 1.2
Cash and cash equivalents 19 1.7 1.2
Total current assets 86.1 71.0
Total assets 144.4 125.6
Liabilities
Trade and other payables 21 (37.3) (32.9)
Provisions 22 (0.6) (0.6)
Tax liabilities (2.3) (1.7)
Lease liabilities 13 (1.2) (1.2)
Borrowings 23 (2.0) (4.0)
Total current liabilities (43.4) (40.4)
Provisions 22 (1.6) (1.3)
Borrowings 23 (20.6) (12.9)
Lease liabilities 13 (10.1) (10.8)
Total non-current liabilities (32.3) (25.0)
Total liabilities (75.7) (65.4)
Net assets 68.7 60.2
CONSOLIDATED STATEMENT OF TOTAL FINANCIAL POSITION
at 31 December 2022
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GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Note
2022
£m
2021
£m
Equity
Issued share capital 20 0.6 0.6
Merger reserve 20 0.5 0.5
Share premium 20 1.0 –
Other reserves 18.9 11.5
Retained earnings 47.5 47.0
68.5 59.6
Non-controlling interests 0.2 0.6
Total equity 68.7 60.2
The accompanying notes form part of these financial statements. These financial statements were approved by the Board of Directors
on 2 April 2023 and were signed on its behalf by:
Fariyal Khanbabi Clive Jennings
Group Chief Executive Chief Finance Officer
Company number: 2486024
CONSOLIDATED STATEMENT OF TOTAL FINANCIAL POSITION CONTINUED
at 31 December 2022
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
Note
2022
£m
2021
£m
Operating activities
Profit for the year 0.4 0.3
Adjustments for:
Financial expense 8 1.8 1.4
Income tax expense 9 0.1 0.4
Share-based payments 0.5 0.6
Depreciation of property, plant and equipment 12 2.9 3.1
Depreciation of right-of-use assets 13 1.8 2.2
Amortisation of intangible assets 14 4.4 3.5
Impairment losses on intangible assets 14 1.3 –
Operating cash flow before movements in working capital 13.2 11.5
(Increase) in inventories (6.7) (9.6)
(Increase) in trade and other receivables (1.1) (5.8)
Increase in trade and other payables 1.3 11.1
Increase/(decrease) in provisions 22 0.3 (0.8)
Pension contributions in excess of the income statement charge 16 (0.4) (0.4)
Cash generated by operations 6.6 6.0
Income taxes paid (0.8) (0.6)
Interest paid
2
8,13 (1.8) (1.4)
Net cash generated by operations 4.0 4.0
Investing activities
Capital expenditure 12 (3.4) (2.1)
Capitalised expenditure on development costs and other intangible assets 14 (3.6) (3.2)
Purchase of software and licences 14 (0.2) (0.3)
Purchase of Dialight Australia shares 30 (0.1) –
Net cash used in investing activities (7.3) (5.6)
Financing activities
Drawdown of bank facility 23 8.5 4.2
Repayment of bank facility 23 (4.0) (4.0)
Arrangement fee for revised facility (0.5) –
Re-purchase of own shares 20 (0.1) (0.7)
Repayment of lease liabilities
1
13 (1.7) (1.7)
Net inflow/(outflow) from financing activities 2.2 (2.2)
Net decrease in cash and cash equivalents (1.1) (3.8)
Cash and cash equivalents at beginning of year 1.2 5.3
Effect of exchange rates 1.6 (0.3)
Cash and cash equivalents at end of year 19 1.7 1.2
The Group has classified:
1 cash payments for the principal portion of lease payments as financing activities;
2 cash payments for the interest portion as operating activities consistent with the presentation of interest payments chosen by the Group.
The accompanying notes form an integral part of these financial statements.
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GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Reporting entity
Dialight plc is a public listed company which is listed on the London Stock Exchange and is incorporated and domiciled in England and
Wales under registration number 2486024. Details of the Company’s registered office are set out on page 252 under the “Directory
and shareholder Information” section. The consolidated financial statements of the Company for the year ended 31 December 2022
comprise the Company and its subsidiaries (together referred to as the “Group”).
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards in
conformity with the requirements of the Companies Act 2006. The Company has elected to present its parent company financial
statements in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” .
(b) Consolidated basis of preparation
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in
the Strategic Report on pages 4 to 48. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
discussed in the Chief Financial Officer’s Review on pages 80 to 87.
The uncertainty as to the future impact on the financial performance and cash flows of the Group from the uncertainty in the economic
environment and current world-wide commodity challenges have been considered as part of the Group’s adoption of the going concern
basis in the preparation of the consolidated financial statements. The consolidated financial statements are prepared on a going
concern basis which the Directors believe to be appropriate for the reasons stated below.
The Group’s multicurrency revolving credit facility with HSBC of £25m was re-negotiated in July 2022 to a sustainability-linked loan and
runs until July 2025. In November 2022, the £25m facility was redenominated to a $34m facility as most drawings are in USD and recent
fluctuations in the GBP:USD exchange rate had adversely impacted headroom. The new facility contains normal covenants, covering
maximum net leverage and minimum interest cover levels and contains options for two one-year extensions.
The Group increased its banking facility with HSBC on 15 June 2020 by adding a further £10m facility on a three-year basis, utilising a
combination of a £8m Coronavirus Large Business Interruption Loan Scheme (CLBILS) loan and a £2m commercial loan. The £10m
additional facilities are repayable over 30 months, in equal instalments, from January 2021. £8m has been repaid to date (2022 £4.0m),
with the remaining £2m to be fully repaid by June 2023 at the latest. During the year the debt service cover ratio (DSCR) covenant ,
which only applies to the CLBILS loan, was waived for Q2 and Q3 as the covenant penalises investment in working capital and capex.
In December 2022, HSBC waived the remaining covenant tests for Q4 2022 and Q1 2023. At 31 December the Group had £30m
(2021: £31m) in facilities of which £22.6m was drawn and £1.7m of cash on hand.
Further details, including the relevant covenant tests, are included in note 23.
In assessing the going concern assumptions, the Directors have prepared downside scenarios that reflect the risk of lower-than-
expected revenue growth in our core Lighting markets, higher revenue decline in the opto-electronic market, lower gross margins due
to input cost inflation, the associated forecast outturns alongside identified downside risks and mitigating actions. The Group has
modelled four main scenarios in its assessment of going concern, being the base case, a lower revenue scenario, a lower margin
scenario and a combined downside taking elements of lower revenue and lower margin.
Base case
The base case is derived from the Board approved 2023 budget, which assumes that demand for our new and existing products remains
strong, component availability and pricing normalises, and our factories operate as normal. In this scenario, the Directors consider that
the Group will continue to operate within its available committed facilities of $34m (£30m) with sufficient headroom and meet its
ongoing financial covenant obligations.
The key assumptions in the base case include:
– continued revenue growth in Lighting due to our focus on markets with growing demand and where growth is driven by structural,
safety and sustainability factors but at a lower level than seen in 2022;
– a short-term cyclical downturn in the opto-electronic segment;
– gross margins normalise to pre-COVID levels as component price premiums reduce and supply becomes more readily available;
freight costs normalise, and the benefits from cost reduction and automation programmes are delivered; and
– operating costs are flexed in line with the incremental revenue and increasing operational leverage.
Downside cases
Lower revenue
In a severe revenue downside scenario, the Directors have assumed:
– no growth in Lighting revenue in 2023 followed by growth in 2024 at less than 50% of that achieved in 2022;
– no growth in Signals and Components revenue versus 2022; and
– no change in segmental gross margins.
Lower margin
In the margin downside scenario, the Directors have assumed:
– segmental revenues in line with the base case;
– gross margin reduction in 2023 of 1% caused by continued input cost pressures that are not fully mitigated by in-year price increases;
and
– gross margin improvement in 2024 to achieve a similar margin to 2021.
Combined downside case
In the combined downside case, the Directors have assumed:
– flat volume compared with 2022 but with the price increases negotiated in November 2022 applying throughout 2023 and into early
2024;
– gross margin reduction of 2% throughout 2023 and into early 2024.
In all these scenarios, the Group has a series of controllable mitigating actions that can be taken swiftly (a number of which have
already been enacted), including various temporary and permanent cost and cash saving measures.
The base case and downside cases have been further modelled to show headroom for any material one-off costs.
In the post mitigation downside scenarios, the Group continues to retain sufficient committed headroom on liquidity and is able to meet
its financial covenant obligations within the going concern assessment period. Consequently, the Directors are confident that the
Group will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial statements on a going concern basis.
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GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
2. Basis of preparation (continued)
(c) Use of estimates, judgements and assumptions
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and expenses. These estimates, judgements
and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates. The areas which require the most use of management estimation and judgement are
set out below.
Significant judgements
Termination of outsourced manufacturing agreement
Significant judgement is applied in determining whether to recognise a provision or a contingent liability in respect of the claims from
the Group’s former manufacturing partner Sanmina. In the view of management, it is not probable that the Group will have to make a
payment, therefore no provision is required and the matter is disclosed as a contingent liability in note 27, which contains further details
on the matter.
Development and patent costs
The Group capitalises development costs and patent costs provided they meet all criteria in the respective accounting policy. Costs are
only capitalised when management applies judgement that is satisfied as to the ultimate commercial viability of the projects based on
review of the relevant business case. The capitalised costs are amortised over the expected useful economic life, which is determined
based on the reasonable commercial prospects of the product and a comparison to similar products being sold by the Group.
The Group has £11.5m (2021: £12.0m) of development and patent costs that relate to the current product portfolio and new products
expected to launch over the next one to two years. Within the prior year cost, there was £1.3m relating to development projects which
were paused during COVID-19 while the engineering team was redeployed to focus on projects to source alternative components
and consume raw materials on hand, to help the business mitigate the global supply chain challenges. This project was expected to
recommence in 2022, but the Group is currently exploring other options that may not use these capitalised costs. Due to uncertainty
of next steps, capitalised costs of £1.3m have been written off and the impairment recorded in the income statement as a non-recurring
expense (note 6). All of the development projects are within the Lighting CGU and are tested for impairment at the CGU level as part
of the goodwill testing. However, management also performs a review of each individual project to see if there are any indications of
specific impairment by comparing the carrying amount of the asset with the net present value derived from the Board approved
strategic plan.
Estimates
Inventory reserve – Raw materials and sub-assemblies
In the previous year, the basis for reserving raw materials and sub-assemblies was to reserve the quantity on hand that was greater than
365 days old, exceeded three year’s historical usage and where, following a review by engineering and supply chain personnel, there
was no reasonable prospect of the components being used or their shelf life not being exceeded. This estimate was felt appropriate
given the significant impact that the prolonged pandemic/geopolitical situation had on our operations and the consequential logistics
and supply chain challenges, that resulted in inventory being held for longer than normal. The Group has now revised its basis of
estimate for calculating the inventory reserve to provide for raw and sub-assembly inventory that is over 24-months old at the balance
sheet date. This basis for estimate reduces estimation subjectivity, whilst allowing for the adverse impact from component shortages
that have led to high inventory levels and some components being held for longer than expected. Two years is felt to be appropriate as
the components have a long shelf life, continue to be used in production and the product demand mix between project and MRO
business has been skewed during COVID-19.
Management believes that any reasonably possible change in the assumption would not cause any significant change in the provision
estimate for raw materials and sub-assemblies in the next financial year.
Inventory reserve – finished goods
The review of finished goods inventory was based on all inventory over 365 days old. Inventory on hand was compared to historical
sales, current orders, sales pipeline and whether the product had been recently launched.
Management judgement was then applied to determine whether there was a reasonable probability that the inventory would be sold,
with a provision being required for any inventory that failed this assessment.
Management believes that any reasonably possible change in the assumption would not cause any significant change in the provision
estimate for finished goods.
The value of the provision for all categories of inventory over which judgement has been exercised was £4.1m (2021: £3.0m) and this
represents 7.7% (2021: 7.0%) of the gross inventory value.
Details of the inventory reserve are set out in note 17.
Inventory – absorbed overhead costs
The valuation of inventory, detailed in note 17, requires the use of estimates in the amount of costs to be absorbed into inventory
valuation. There are two elements of cost over which estimates are applied.
Firstly, in relation to the amount of production overheads that are included in the inventory valuation. The pools of cost related to
production comprise labour and direct overheads attributable to the production process. They are assessed to ensure that costs
not related to production are excluded. Consistent with last year, the Group uses the weighted average inventory turns calculated
by comparing the level of inventory on hand with the amount of production by month. This gives the number of days of overhead that
should be absorbed in inventory (2022: 68 days, 2021: 64 days). The value of directly attributable costs over which judgement was
exercised was £7.0m (2021: £5.0m) and this represents 13% (2021: 12%) of the inventory value. For every day that the estimate of the
days used for the overheads absorbed changes, it changes the calculation by £88k.
Secondly, in relation to the amount of freight costs that are included in the inventory valuation. The costs represent transportation
costs for raw materials and the labour cost of the buyers placing the orders. The cost is absorbed into inventory by comparing the
level of inventory on hand with the amount of material costs in the cost of sales. This gives the number of days of freight costs that
are capitalised (2022: 151 days, 2021: 162 days). Costs of transporting finished goods to distribution centres on a global basis are
included in the inventory valuation until the associated finished goods have been sold outside the Group.
The value of freight costs over which judgement was exercised was £4.1m (2021: £3.1m) and this represents 8% (2021: 7%) of the inventory
value. For every day that the estimate of the days used for the overhead absorbed changes, it changes the calculation by £24k.
Management believes that any reasonably possible change in the assumptions would not cause any significant change in the amount of
costs absorbed into inventory.
Goodwill and other intangible assets
The Group tests at least annually whether goodwill has suffered any impairment in accordance with the accounting policy set out in note
4(h). The recoverable amounts of the Group’s CGU’s have been determined based on value in use calculations, which involve a high level
of estimation due to the uncertainty caused by the geopolitical situation and potential material shortages due to delays in the supply chain.
In undertaking the assessment, the potential net impact of climate change on the forecasts has been considered. Considering the
Group’s business model, strategy and exposure, the opportunities overcome the risk and the majority of the risk relates to the ability
to cope with accelerated product demand and has been reflected in our forecast.
Management believes that any reasonably possible change in the assumptions would not cause the carrying amount to exceed the
recoverable amount in the next financial year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
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2. Basis of preparation (continued)
Pensions/Retirement benefits
Benefits in the form of retirement pensions are provided to current and former employees under defined benefit plans.
Obligations under defined benefit plans are calculated annually by independent actuaries using the Defined Accrued Benefit method.
Defined benefit plan surpluses are recognised as an asset to the extent they are considered recoverable. The amount recognised
in the statement of comprehensive income in respect of defined benefit plans mainly comprises service cost and net interest.
Remeasurement of the net defined benefit asset resulting from actuarial gains and losses, and return on plan assets, are recognised
in other comprehensive income. The Group has £4.5m (2021: £3.9m) of defined benefit asset.
The valuation of the defined benefit pension obligations, detailed in note 16, requires the use of estimates for three elements, discount
rate, inflation and life expectancy.
The discount rate is a key assumption in calculating the value of defined benefit obligations. The assumption is used to calculate the
net present value of the expected benefit payments. The rate is derived from high quality corporate bonds. The rate used for this year’s
valuation is 4.85% (2021: 1.85%). For every 0.1% change in the discount rate used in the estimate it changes the calculation by £160k.
The inflation rate is a key assumption in calculating the value of defined benefit obligations. The assumption is used to calculate the
expected amounts of future benefit payments. The rate is derived from the central bank inflation curve less an inflation premium.
The rate used for this year’s valuation is 3.3% (2021: 3.6%). For every 0.1% change in the inflation rate used in the estimate it changes
the calculation by £100k.
The mortality rate is a key assumption in calculating the value of defined benefit obligations. The mortality assumption estimate how
long members are expected to live and receive benefits for. The assumption is used to calculate the expected amounts of future benefit
payments; the assumption is derived from current life expectancy and the Continuous Mortality Investigation (CMI) projection tables.
For every 6 month change in the mortality rate used in the estimate it changes the calculation by £300k.
3. Changes in significant accounting policies
The following accounting standards, interpretations, improvements and amendments have become applicable for the current period
and although the Group has adopted them, they have had no material impact on the Group. These comprise:
– Onerous Contracts – Cost of Fulfilling a Contract (Amendment to IAS 37);
– Annual Improvements to IFRS Standards 2018-2020;
– Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16); and
– Reference to the Conceptual Framework (Amendments to IFRS 3).
The following amendments to standards and interpretations have also been issued, but are not yet effective and have not been early
adopted for the financial year ended 31 December 2022:
– IFRS 17 Insurance Contracts (Effective day 1 January 2023);
– Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendment to IAS 12) (Effective from 1 January 2023);
– Classification of Liabilities as Current and Non-current (Amendment to IAS 1) (Deferred until not earlier than 1 January 2024);
– Accounting Policies, Changes in Accounting Estimates and Errors: definition (Amendments to IAS 8) (Effective from 1 January 2023);
– Amendments to IAS1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements (Effective
from 1 January 2023);
– Sale or Contribution of Assets between an Investor and its Associate or Joint venture (Amendments to IFRS 10 and IAS 28).
The adoption of these amendments is not expected to have a material impact on the Group.
4. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements and have been applied consistently by Group entities.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the parent and its subsidiaries as at 31 December 2022.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group
has (a) power over the investee, (b) exposure, or rights, to variable returns from the investee, and (c) ability to use its power to affect
those returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired
or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date
the Group ceases to control the subsidiary. If the Group loses control of a subsidiary, it derecognises the related assets (including
goodwill), liabilities and other components of equity, while any resultant gain or loss is recognised in the income statement.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses
are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies as applied
to subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is
transferred to the Group. In assessing control, the Group takes into consideration potential voting rights that were then currently exercisable.
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
– the fair value of the consideration transferred; plus
– the recognised amount of any non-controlling interests in the acquiree; less
– the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Acquisitions between 1 January 2004 and 1 January 2010
For acquisitions between 1 January 2004 and 1 January 2010, goodwill represents the excess of the cost of the acquisition over the
Group’s interest in the recognised amount (generally fair value) of the identifiable assets, liabilities and contingent liabilities of the acquiree.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection with
business combinations were capitalised as part of the acquisition.
Acquisitions prior to 1 January 2004 (date of transition to IFRSs)
As part of its transition to IFRSs, the Group elected to restate only those business combinations that occurred on or after 1 January
2003. In respect of acquisitions prior to 1 January 2003, goodwill represents the amount recognised under the Group’s previous
accounting framework, UK GAAP.
Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases. Intra-group balances, and any unrealised income
and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
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4. Significant accounting policies (continued)
Changes in ownership interest
The group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of
the group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling
interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling
interests and any consideration paid or received is recognised in retained earnings within the statement of changes in equity.
(c) Non-underlying items
The Group incurs costs and earns income that is non-underlying in nature or that, in the Directors’ judgement, needs to be disclosed
separately by virtue of its size and incidence in order for users of the consolidated financial statements to obtain a proper
understanding of the financial information and the underlying performance of the business.
These items could include (but are not limited to):
– the costs related to transferring production back from an outsourced manufacturer;
– the impairment of tangible or intangible assets which relate to the closure of part of a business or removal of a product line;
– the impairment of inventory as a result of a significant change in product design;
– individual restructuring projects which are material or relate to the closure of a part of the business and are not expected to recur;
– gains or losses on disposal of businesses;
– gains or losses arising on significant changes to closed defined benefit pension plans; and
– costs arising from legal disputes including that with Sanmina Corporation (see note 6).
Determining whether an item is part of specific non-underlying items requires judgement to determine the nature and the intention
of the transaction.
(d) Foreign currency translation
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s overseas operations, including
goodwill and fair value adjustments arising on consolidation, are translated using exchange rates prevailing on the balance sheet date.
Income and expense items of overseas operations are translated at average exchange rates for the period. The resulting exchange
differences are recognised as a separate component of equity within the Group’s translation reserve. Such translation differences
are recognised in the income statement in the period in which the foreign operation is disposed of. Foreign currency transactions
are accounted for at the exchange rate prevailing at the date of the transaction.
Gains and losses resulting from the settlement of such transactions and from the translation of monetary and non-monetary assets and
liabilities denominated in foreign currencies are recognised in the income statement.
(e) Derivative financial instruments
Derivative financial instruments are recorded initially at cost and are remeasured to fair value at subsequent reporting dates. The gain or
loss on remeasurement to fair value is recognised immediately in the income statement.
(f) Property, plant and equipment
All items of property, plant and equipment are stated at cost less accumulated depreciation and provision for impairment. Subsequent
costs are included in the asset carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All other repair and maintenance
costs are charged to the income statement in the financial period they are incurred.
(g) Other intangible assets
Other intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation
and accumulated impairment losses.
(h) Depreciation and amortisation
Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of
property, plant and equipment, except for right-of-use assets which are depreciated over the shorter of the lease contract period
and their useful lives. Land is not depreciated.
The estimated useful lives are as follows:
Plant, equipment and vehicles 3–10 years
Right-of-use assets 2–9 years
Amortisation
Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible assets, other than
goodwill, from the date that they are available for use.
The estimated useful lives are as follows:
Patents and trademarks 3–5 years
Development costs
Product upgrades 3 y ears
New product 4 yea rs
Control and technology related products 5 years
Goodwill that arises upon acquisition of subsidiaries is included in intangible assets. For the measurement of goodwill at initial
recognition, see note 4(b).
Subsequent measurement
After initial recognition, goodwill is measured at cost less any accumulated impairment losses until disposal or termination of the CG U.
Goodwill is allocated to the CGUs and is tested at least annually for impairment. An impairment loss recognised for goodwill is not
reversed in a subsequent period.
(i) Research and development costs
Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding
is immediately recognised in the income statement as an expense.
Development expenditure is capitalised only if the expenditure can be measured reliably, the product and process is technically
and commercially viable, future economic benefits are probable and the Group intends and has sufficient resources to complete
the development and to use or sell the asset. Costs are only capitalised once the initial research phase has been completed and
the business case for development has been approved by management. The expenditure capitalised includes direct cost of material,
direct labour and directly attributable overheads. Other development expenditure is recognised in the income statement as an expen se
as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.
(j) Impairment
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable
amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable
amount is estimated at each reporting date.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its recoverable amount. A CGU is the smalle st
identifiable asset group that generates cash flows that are largely independent from other assets and groups. Impairment losses are
recognised in the income statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying
amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units)
on a pro rata basis.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
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4. Significant accounting policies (continued)
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Any impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are
assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
A financial asset, in particular the carrying value of trade receivables, is considered to be impaired if one or more events have had a
negative effect on the estimated future cash flows expected to arise from that asset. Any impairment losses are recognised through
the income statement.
(k) Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventory comprises all costs of purchase, costs of
conversion and other costs to bring the inventory to its existing location and condition, including an appropriate share of production
overheads based on normal operating capacity. Inventory is accounted for on a first-in, first-out basis. When calculating any reserve,
management considers the nature and condition of the inventory on an item by item and category basis, as well as basing on an
assessment of market developments; change in strategy or business model; regulatory and technology evolvement; and analysis
of historical and projected usage with regard to quantities on hand for all raw materials, sub-assemblies and finished goods.
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
(m) Share capital
(i) Dividends are recognised in the period in which they are approved by the Company’s shareholders, or, in the case of an interim
dividend, when the dividend is paid.
(ii) When share capital recognised as equity is repurchased by the ESOT, the amount of the consideration paid is recognised as a
deduction from equity.
(iii) Under the terms of the PSP, RSP and deferred bonus schemes, dividends accrue on shares not yet vested; however, in the event that
the shares lapse or are forfeited then the dividends will not be paid and the accrual is reversed.
(n) Employee benefits
(i) Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement when they
are due.
(ii) Defined benefit pension plans
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount
of future benefit that employees have earned for their service in prior periods, discounting that amount and deducting the fair value of
any plan assets.
The calculation is performed by an independent qualified actuary using the projected unit credit method. In accordance with IFRIC 14
– IAS 19 “The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”, the pension surplus can be
recognised as an asset on the balance sheet, limited to the present value of economic benefits available in the form of any future
refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits,
consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling (if any, excluding interest) are recognised immediately in other comprehensive income.
The Group determines the net interest expense/(income) on the net defined benefit liability/(asset) for the period by applying
the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined
benefit liability/(asset), taking into account any changes in the net defined benefit liability/(asset) during the period as a result of
contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in
the income statement.
When the benefits of a plan are changed, or when a plan is curtailed, the resulting change in benefit that relates to past service, or
the gain or loss on curtailment, is recognised immediately in the income statement. The Group recognises gains and losses on the
settlement of a defined benefit plan when the settlement occurs.
(iii) Share-based payments and deferred bonus transactions
The PSP and RSP allows Group employees to acquire shares of the Company. The fair value of the grants is measured using the
five-day weighted average prior to grant, taking into account the terms and conditions upon which the grants were made. The amount
recognised as an expense is only adjusted to reflect forfeitures resulting from failures to meet non-market conditions. The share-
based payments are equity-settled. Key Group employees can be awarded shares in the Company under the Annual Performance
Bonus Plan (APBP). The fair value of the award granted is recognised as an employee expense with a corresponding increase in equity.
The fair value is measured at the grant date and spread over the performance period during which the employees become
unconditionally entitled to the award.
All of the share awards are based on three-year continued service conditions, except under the APBP where 50% vest after two years.
(iv) Bonus plan
The Group recognises a liability in respect of the best estimate of bonus payable where contractually obliged to or where past practice
has created a constructive obligation.
(o) Other provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation. Warranty provision is made
for the expected costs of future warranty claims relating to past product sales. This provision is estimated based on historical
trends for returns, product-specific warranty terms, internal knowledge of product performance characteristics and the expected
costs of remedying warranty-returned products. All other provisions are based on management’s best estimate of a probable
expected outcome.
(p) Trade and other receivables
Trade and other receivables are recognised at fair value (which ordinarily reflects the invoice amount) and carried at amortised cost,
less an allowance for expected lifetime losses as permitted under the simplified approach in IFRS 9. Fully provided balances are not
written off from the balance sheet until the Group has decided to cease enforcement activity.
The Group has applied the simplified approach as permitted by IFRS 9. The expected credit loss (ECL) model considers the Group’s
historical credit loss, factors specific to each receivable, the current economic environment and expected changes in future forecasts
(see note 24).
(q) Trade and other payables
Trade and other payables are initially recorded at fair value and then subsequently stated at amortised cost.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
206 207
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
4. Significant accounting policies (continued)
(r) Revenue recognition
Revenue from the sale of goods is measured by completion of the performance obligations in the contract and at the fair value of the
consideration received or receivable, net of returns and allowances, trade discounts, volume rebates and product returns. An allowance
is made for expected returns, discounts and rebates based on distributor agreements and historical trends. Revenue represents the
invoiced value of goods supplied and is recognised in the income statement in line with performance of contractual obligations and
based on Incoterms in contract. The majority of our sales are on an ex works basis with revenue recognised on despatch of finished
goods. Warranty is not a separable performance obligation so has no impact on revenue recognition.
(s) Net financing costs
Net financing costs comprise interest receivable, interest payable on borrowings, arrangement fees on revised or new borrowing
facilities, interest payable on lease liabilities, interest on pension assets and liabilities, foreign exchange gains and losses.
(t) Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to
the extent that it relates to items recognised directly in equity. The tax currently payable is based on the taxable profit for the year.
Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable
or deductible in other years and it further excludes items that are not taxable or deductible. The tax rate and laws used to compute
the amount are those that are enacted or substantially enacted, by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred tax is calculated
using tax rates that are enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited to profit and
loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and
are expected to apply when the deferred tax assets is released or the deferred tax liability is settled.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis. Additional income taxes that arise from the distribution of dividends are recognised at the same
time as the liability to pay the related dividend is recognised.
(u) Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
(i) As a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has
elected not to separate non-lease components and accounts for the lease and non-lease components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset
or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease
term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-
use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful
life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use
asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate. The Group operates in multiple economic environments so the incremental borrowing rate (IBR) that applies will vary from
lease to lease.
Discount rates applied for different jurisdictions
IFRS 16 allows the use of two possible discount rates, namely the interest rate implicit in the lease from the perspective of the lessor
(implicit rate) or the Group’s IBR.
The IBR is the rate of interest that Dialight pays to borrow (a) over a similar term, (b) with a similar security, (c) the funds necessary to
obtain an asset of a similar value to the right-of-use asset (d) in a similar economic environment. The rate reflects the amount that the
Group could borrow over the term of the lease.
The Group operates in multiple jurisdictions and the economic environment in those jurisdictions would also influence the IBR. This is
expected to lead to a different IBR for every lease in a different territory. Key information that the Group considered while determining
the IBR relates to the region where the lease is domiciled, the functional currency and the currency of the lease, the asset being leased
and the remaining years left on the lease.
The Group has property leases in the USA, Mexico, UK, Australia and Malaysia. The Mexican and Malaysian leases are for industrial
premises with the remaining leases being for office buildings.
The IBR is determined based on the interest rates available to the Group entities in which the underlying leases are held, based on the
credit rating of each of these entities. Certain adjustments are made to these interest rates to reflect the terms of the individual leases
and the types of assets leased.
The IBRs calculated for use by the Group vary between 2% and 5% for the UK, USA and Australia jurisdictions and between 5% and 7%
for the Mexico and Malaysia jurisdictions.
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments; variable lease payments that depend on an index or a rate, initially measured
using the index or rate as at the commencement date; amounts expected to be payable under a residual value guarantee; and the
exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be
payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or
termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero.
The Group presents right of use assets that do not meet the definition of investment property in right-of-use assets and lease liabilities
separately in the statement of financial position.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
208 209
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
4. Significant accounting policies (continued)
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets and short-term leases,
including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis
over the lease term.
(ii) As a lessor
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the
lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the
underlying asset. The Group classifies the sub-lease as an operating lease as the lease does not transfer substantially all of the risks
and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease. The Group recognises
lease payments received under operating leases as income on a straight-line basis over the lease term as part of “other revenue”.
(v) Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial
assets and liabilities.
The Group has an established control framework, appropriate for the size and complexity of the Group, with respect to the measurement
of fair values. When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values
are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy,
then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is
significant to the entire measurement.
(w) Contingent liabilities
A contingent liability arises from past events and includes possible obligations (50% certain or less) whose existence will be confirmed
only by the occurrence of uncertain future events not wholly within the entity’s control and present obligations which are not recognised
because it is not probable that a transfer of economic benefits will be required to settle the obligation or the obligations cannot be
measured reliably. It includes guarantees to third parties and certain lawsuits.
5. Operating segments
The Group has two reportable operating segments. These segments have been identified based on the internal information that is
supplied regularly to the Group’s chief operating decision-maker for the purposes of assessing performance and allocating resources.
The chief operating decision-maker is considered to be the Group Chief Executive Officer.The two reportable operating segments are:
– Lighting, which develops, manufactures and supplies highly efficient LED lighting solutions for hazardous and industrial
applications in which lighting performance is critical and includes anti-collision obstruction lighting; and
– Signals & Components, which develops, manufactures and supplies status indication components for electronics OEMs,
together with niche industrial and automotive electronic components and highly efficient LED signalling solutions for the traffic
and signals markets.
There is no inter-segment revenue and there are no individual customers that represent more than 10% of revenue.
All revenue relates to the sale of goods. Segment gross profit is revenue less the costs of materials, labour, production and freight that
are directly attributable to a segment. Overheads comprise operations management, selling costs plus corporate costs, which include
share-based payments.
Segmental assets and liabilities are not reported internally and are therefore not presented below. Gross profit equals to underlying
gross profit.
Reportable segments
2022
Lighting
£m
Signals &
Components
£m
Unallocated
£m
Total
£m
Revenue 121.0 48.7 – 169.7
Gross profit 40.6 14.0 – 54.6
Overheads (33.7) (8.3) (7.6) (49.6)
Underlying profit/(loss) from operating activities 6.9 5.7 (7.6) 5.0
Non-underlying items (note 6) (2.7) – – (2.7)
Profit/(loss) from operating activities 4.2 5.7 (7.6) 2.3
Financial expense (1.8)
Profit before tax 0.5
Taxation (0.1)
Profit after tax 0.4
2021
Lighting
£m
Signals &
Components
£m
Unallocated
£m
Total
£m
Revenue 90.5 41.1 – 131.6
Gross profit 33.7 13.3 – 47.0
Overheads (28.4) (7.8) (6.3) (42.5)
Underlying profit/(loss) from operating activities 5.3 5.5 (6.3) 4.5
Non-underlying items (note 6) (2.4) – – (2.4)
Profit/(loss) from operating activities 2.9 5.5 (6.3) 2.1
Financial expense (1.4)
Profit before tax 0.7
Taxation (0.4)
Profit after tax 0.3
Other segmental data
2022 2021
Lighting
£m
Signals &
Components
£m
Total
£m
Lighting
£m
Signals &
Components
£m
Total
£m
Depreciation of property, plant and equipment 2.1 0.8 2.9 2.1 1.0 3.1
Depreciation of right-of-use assets 1.3 0.5 1.8 1.5 0.7 2.2
Amortisation* 4.4 – 4.4 3.5 – 3.5
Impairment of intangible assets 1.3 – 1.3 – – –
* representation of 2021 amortisation to Lighting, illustrative purpose only and no changes to the reporting segmental income statement
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
210 211
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
5. Operating segments (continued)
Geographical segments
The Lighting and Signals & Components segments are managed on a worldwide basis, but operate in three principal geographic areas:
North America, EMEA and Rest of World. The following table provides an analysis of the Group’s sales by geographical market,
irrespective of the origin of the goods. All revenue relates to the sale of goods.
Sales revenue by geographical market
2022
£m
2021
£m
North America 132.7 101.0
EMEA 14.5 10.2
Rest of World 22.5 20.4
Total sales revenue 169.7 131.6
6. Non-underlying items
Statutory operating profit includes the following non-underlying costs which are separately disclosed to allow the reader to obtain a full
understanding of the financial information and the best indication of the underlying performance of the Group. The table below presents
the components of non-underlying profit or loss recorded within cost of sales and administrative expenses.
2022
£m
2021
£m
Non-underlying items
Costs related to manufacturing partner 1.0 2.9
Impairment of capitalised development costs 1.3 –
Other litigation costs 0.4 –
Release of warranty provision – (0.3)
Release of litigation provision – (0.2)
Non-underlying items recorded in administrative expenses 2.7 2.4
As previously reported, Dialight sought to reach a negotiated conclusion of various outstanding matters and performance issues
following the termination, in 2018, of the manufacturing services agreement (MSA) with its former manufacturing partner, Sanmina
Corporation (“Sanmina”). 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 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. Dialight has sought external
legal advice and is paying for the legal costs as incurred. During the year, legal costs of £1m have been expensed, compared to
prior-year legal and inventory write off costs of £2.9m.
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 several
options to complete the development, including continuing internal development or utilising third party technology. The most likely
option is now to utilise third party components in the new product suite, as this will be quicker and allow Dialight to capitalise on market
opportunities and gain market share. Given this change in strategy would not involve use of the Dialight developed technology, the
paused development costs of £1.3m have been impaired and the non-cash cost classified as non-underlying in accordance with
Group accounting policy.
Other litigation costs of £0.4m relate to a contractual litigation case, initiated by Dialight during 2022, relating to the use of the
intellectual property. The costs incurred relate to the legal costs incurred in the year.
Prior year release of warranty provision of £0.3m related to unclaimed warranty related to the disposal of the Group’s Wind business in 2019.
The Group had received and paid all claims related to this disposal and the remaining balance of the provision was therefore released.
Prior year litigation credit related to employment litigation cases; a provision of £0.2m (see note 22) was released as it was not probable
that Group would have to pay for the claims which was netted off with £0.2m legal cost incurred in the year relating to the cases.
7. Personnel expenses
2022
£m
2021
£m
Wages and salaries 36.6 29.1
Social security contributions 4.4 3.4
Equity-settled share-based payment transactions 0.5 0.6
Contributions to defined contribution plans 0.9 0.8
Total charge for defined benefit plans 0.1 0.1
Total personnel expense 42.5 34.0
The increase in personnel costs is driven by increases in national minimum wage levels in Mexico, cost of annual pay reviews and
increases in headcount.
The average number of employees by geographical location was:
2022
Number
2021
Number
US and Mexico 1,708 1,445
Rest of World 262 234
Total average number of employees 1,970 1,679
In 2022, the Group employed an average of 1,358 direct staff (2021: 1,118) and 612 indirect staff (2021: 561).
The main Board Directors are considered to be the Group’s key management personnel.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
212 213
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
7. Personnel expenses (continued)
Key management personnel compensation comprised the following:
2022
£m
2021
£m
Short-term employee benefits 1.2 1.2
Share-based payments 0.5 0.6
Total compensation for key management personnel 1.7 1.8
The aggregate of remuneration and amounts receivable under long-term incentive schemes of the highest-paid Director was £0.5m
(2021: £0.5m), and pension contributions of £0.0m(2021: £nil) were made to a money purchase scheme on their behalf. During the year,
the highest-paid Director received 103,447 shares under a long-term incentive scheme.
2022 2021
Number of Directors accruing benefits under money purchase schemes 1 1
Number of Directors in respect of whose qualifying services shares were received or receivable under long-term
incentive schemes 2 1
8. Financial expenses
2022
£m
2021
£m
Net interest on defined benefit liability 0.1 0.1
Interest expense on financial liabilities, except lease liabilities 1.1 0.7
Arrangement fee amortisation 0.1 0.1
Interest expense on lease liabilities 0.5 0.5
Net financing expense recognised in the consolidated income statement 1.8 1.4
9. Taxation
Recognised in the income statement
2022
£m
2021
£m
Current tax expense
Current year 2.1 1.3
Adjustment for prior years (0.2) (0.6)
Total current tax expense 1.9 0.7
Deferred tax expense
Origination and reversal of temporary differences (1.9) 0.1
Adjustment for prior years 0.1 (0.4)
Total deferred tax (1.8) (0.3)
Total tax expense 0.1 0.4
Reconciliation of effective tax rate
2022
%
2022
£m
2021
%
2021
£m
Profit for the year 0.3 0.3
Total tax charge 0.1 0.4
Profit before tax 0.4 0.7
Income tax using the UK corporation tax rate 19.0 0.1 19.0 0.1
Effect of higher taxes on overseas earnings 20.0 0.1 43.0 0.3
Non-deductible expenses 20.0 0.1 28.6 0.2
Current year losses for which no deferred tax is recognised 40.0 0.2 57.1 0.4
US carry back claim – – (43.0) (0.3)
Adjustment for prior years (20.0) (0.1) (88.3) (0.6)
Research and development credits (19.0) (0.1) (28.6) (0.2)
Foreign taxes incurred (40.0) (0.1) 69.3 0.5
20.0 0.1 57.1 0.4
The effective tax rate for the year is 20% compared with 57.1% in the prior year and the standard rate of 19% (2021: 19.0%) in the UK.
During the year, the Group made a profit of £0.5m, which was lower than the prior year, which resulted in a tax charge in the year of
£0.1m.
The normalised tax rate for the Group in the year is 25% (tax rate before adjustments) and based on a pre-tax profit of £0.5m this would
generate a tax charge of £0.1m. The Group’s overall tax rate was 20%, which was broadly the same as the normalised rate due to
untypical adjustments equating each other out. The major adjustments were:
– The current losses in the European Lighting business are not recognised as a deferred tax asset, resulting in £0.2m of tax credit not
being recognised in the year. We do not anticipate this business making sufficient taxable profits in the foreseeable future to utilise
the losses.
– A current year adjustment of £0.1m relating to additional research and development credit in the US.
– A £0.1m prior year adjustment in Malaysia and US truing up prior-year provisions to actual submissions.
Tax charge/(credit) recognised directly in equity
2022
£m
2021
£m
Employee benefits 0.1 0.5
Other 0.6 (0.1)
Current tax
Current tax is calculated with reference to the profit or loss of the Company and its subsidiaries in their respective countries of
operation. Set out below are details in respect of the significant jurisdictions where the Group operates and the factors that influenced
the current and deferred taxation in those jurisdictions.
UK
The UK companies are subject to a corporate tax rate of 19% (2021: 19.0%). There are no UK timing differences recognised at
31 December 2022. In the March 2021 Budget, the UK Government announced that legislation will be introduced in the Finance Bill 2021
to increase the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
214 215
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
9. Taxation (continued)
US
The majority of the Group’s profits arise in the US where the corporation tax rate is 24%, including 21% federal tax and 3% state tax
(2021: 24%, including 21% federal tax and 3% state tax).
Group
The majority of the Group’s profits are driven by the US entity where the tax rate is 24% underpinning the Group’s tax rate.
10. Profit for the year
Profit for the year has been arrived at after charging:
2022
£m
2021
£m
Research and development costs:
Expensed as incurred 6.1 4.9
Amortisation charge 3.3 2.5
Total research and development costs 9.4 7.4
Depreciation of fixed assets, excluding right-of-use assets 2.9 3.1
Depreciation of right-of-use assets 1.8 2.2
Impairment of intangible assets 1.3 –
Lease expense – low value leases and leases with a remaining term of less than one year 0.1 0.1
There is a lower capitalisation of, and a higher profit and loss charge for, research and development costs in 2022 compared with
the prior year. During 2022 the engineering team continued to focus on projects to identify alternate components and consume
components on hand to help alleviate with the global supply shortages (mainly semi-conductors). These factors resulted in less time
being capitalised, and consequently a higher profit and loss charge. The amortisation charge increased as two new products became
available for sale in 2022, as well as a full amortisation charge for the projects launched in 2021.
Auditor’s remuneration
2022
£m
2021
£m
Audit of these financial statements 0.7 0.5
Amounts receivable by auditor in respect of:
Audit of financial statements of subsidiaries pursuant to legislation 0.2 0.2
0.9 0.7
11. Earnings per share
Basic earnings per share
The calculation of basic earnings per share (“EPS”) at 31 December 2022 was based on a profit for the year of £0.4m (2021: £0.3m
profit) and the weighted average number of ordinary shares outstanding during the year of 32,574,668 (2021: 32,393,109).
Weighted average number of ordinary shares
2022
k
2021
k
Weighted average number of ordinary shares 32,575 32,393
2022 2021
Basic earnings per share 1.2p 0.9p
Diluted earnings per share
The calculation of diluted EPS at 31 December 2022 was based on a profit for the year of £0.4m and the weighted average number of
diluted ordinary shares during the year of 33,231,301 (2021: 32,803,606), excluding the purchase of 225,451 own shares by the Group.
Weighted average number of ordinary shares
2022
k
2021
k
Weighted average number of ordinary shares 33,231 32,804
2022 2021
Diluted earnings per share 1.2p 0.9p
12. Property, plant and equipment
Land and
buildings
£m
Plant,
equipment
and vehicles
£m
Total
£m
Cost
At 1 January 2021 2.9 44.5 47.4
Exchange adjustments – 0.5 0.5
Additions – 2.1 2.1
At 31 December 2021 2.9 47.1 50.0
Exchange adjustments 0.4 5.6 6.0
Additions – 3.4 3.4
Other disposals – (0.1) (0.1)
Balance at 31 December 2022 3.3 56.0 59.3
Accumulated depreciation
At 1 January 2021 (2.9) (31.7) (34.6)
Exchange adjustments – (0.3) (0.3)
Charge for the year – (3.1) (3.1)
At 31 December 2021 (2.9) (35.1) (38.0)
Exchange adjustments (0.4) (4.2) (4.6)
Charge for the year – (2.9) (2.9)
Disposals – 0.1 0.1
Balance at 31 December 2022 (3.3) (42.1) (45.4)
Carrying amount at 31 December 2022 – 13.9 13.9
Carrying amount at 31 December 2021 – 12.0 12.0
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
216 217
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
13. Leases
Right-of-use assets
Buildings
£m
Non-property
leases
£m
Total
£m
Cost
Balance at 1 January 2021 13.5 – 13.5
Exchange adjustments 0.1 – 0.1
Modifications 0.1 – 0.1
Additions 3.0 0.5 3.5
Balance at 31 December 2021 16.7 0.5 17.2
Exchange adjustments 1.0 – 1.0
Balance at 31 December 2022 17.7 0.5 18.2
Accumulated depreciation
Balance at 1 January 2021 (3.7) – (3.7)
Charge for the year (1.9) (0.3) (2.2)
Balance at 31 December 2021 (5.6) (0.3) (5.9)
Charge for the year (1.6) (0.2) (1.8)
Balance at 31 December 2022 (7.2) (0.5) (7.7)
Carrying amount at 31 December 2022 10.5 – 10.5
Carrying amount at 31 December 2021 11.1 0.2 11.3
The Group leases various industrial premises and office buildings. Rental contracts are typically for fixed periods of 1 to 10 years, but
may have extension options as described in note 13(ii). Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for
borrowing purposes.
From 2021, we have included non-property leases related to vehicles and software. The impact on both right-of-use assets and liabilities
value in the previous year was immaterial.
See accounting policy in note 4(u).
Lease liabilities
Buildings
£m
Non-property
leases
£m
Total
£m
Lease liabilities recognised at 1 January 2021 (10.3) – (10.3)
Interest expense (0.5) – (0.5)
Lease liabilities variations (0.1) – (0.1)
Additions (3.0) (0.5) (3.5)
Repayment of liabilities 2.0 0.2 2.2
Exchange adjustments 0.1 0.1 0.2
Lease liabilities recognised at 31 December 2021 (11.8) (0.2) (12.0)
Interest expense (0.5) – (0.5)
Repayment of liabilities 2.0 0.2 2.2
Exchange adjustments (1.0) – (1.0)
Lease liabilities recognised at 31 December 2022 (11.3) – (11.3)
Leases as lessee
The Group leases industrial premises, office buildings, IT and other equipment. The leases typically run for a period of 1-10 years,
with various options to renew the leases after that date. Lease payments are renegotiated dependent on the lease terms to reflect
market rentals. Some leases provide for additional rent payments that are based on fixed percentage changes and/or changes in
local price indices. In Q1 2023, the Group notified the landlords at its two Mexico sites that it wanted to exercise the extension options
under the existing leases for up to another five years. This has been agreed in principal with the landlords and the legals are under way.
The Group leases IT and other equipment with contract terms of 1 to 4 years. These leases are short term and/or leases of low-value
items. The Group has elected not to recognise right-of-use assets and lease liabilities for these leases.
Information about leases for which the Group is a lessee is presented below.
2022
£m
2021
£m
Interest on lease liabilities (0.5) (0.5)
Expenses relating to short-term leases (0.1) (0.1)
Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets (0.1) (0.1)
Total recognised in profit and loss (0.7) (0.7)
(i) Amounts recognised in statement of cash flows
2022
£m
2021
£m
Total cash outflow for leases (2.2) (2.2)
Of the total £2.2m cash outflow in 2022 (2021: £2.2m), £1.7m was for the principal portion of lease liabilities and £0.5m was for interest
on lease liabilities (2021: £1.7m and £0.5m respectively).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
218 219
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
13. Leases (continued)
Leases as lessee (continued)
(ii) Extension options
Extension options are included in a number of property and equipment leases across the Group. These terms are used to maximise
operational flexibility in terms of managing contracts. The majority of extension options held are exercisable only by the Group and
not by the respective lessor.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise
an extension option. Extension options are only included in the lease term if the lease is reasonably certain to be extended (or not
terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this
assessment and is within the control of the Group as a lessee. The Group has estimated that the potential future lease payments,
should it exercise all the extension options, would result in an increase in lease liabilities of £12.3m (2021: £12.6m).
Leases as lessor
The Group has a lease on an office that was entered into during 2019 and which it is also sub-letting.
(i) Operating lease
The Group has classified this sub-lease as an operating lease, because it does not transfer substantially all of the risks and rewards
incidental to the ownership of the asset. Note 4(u)(ii) sets out information about the operating lease for the sub-leased property.
The head lease expires in 2029 and the sub-lease expires in 2026. The sub-lessor has the option to renew the lease at its sole discretion.
Rental income recognised by the Group during 2022 was £nil (2021: £nil). The following table sets out a maturity analysis of the lease
rentals receivable relating to the sub-lease, showing the undiscounted lease payments to be received after the reporting date:
Operating leases minimum rentals receivable under IFRS16
2022
£m
2021
£m
Less than one year 0.2 0.2
One to two years 0.2 0.2
Two to three years 0.3 0.2
Three to four years 0.3 0.3
Four to five years – 0.3
Total 1.0 1.2
14. Intangible assets
Concessions,
patents,
licences and
trademarks
£m
Goodwill
£m
Software
and
licences
£m
Development
costs
£m
Total
£m
Cost
Balance at 1 January 2021 9.3 12.7 5.7 29.9 57.6
Additions 0.8 – 0.3 2.4 3.5
Effects of foreign exchange movement 0.1 0.1 0.1 0.1 0.4
Balance at 31 December 2021 10.2 12.8 6.1 32.4 61.5
Additions 0.9 – 0.2 2.7 3.8
Effects of foreign exchange movement 1.3 0.6 0.3 3.7 5.9
Balance at 31 December 2022 12.4 13.4 6.6 38.8 71.2
Amortisation and impairment losses
Balance at 1 January 2021 (7.7) (4.2) (4.9) (19.6) (36.4)
Amortisation (0.6) – (0.4) (2.5) (3.5)
Effects of foreign exchange movement (0.2) – – – (0.2)
Balance at 31 December 2021 (8.5) (4.2) (5.3) (22.1) (40.1)
Amortisation (0.8) – (0.3) (3.3) (4.4)
Impairment (0.1) – – (1.2) (1.3)
Effects of foreign exchange movement (1.0) – (0.3) (2.7) (4.0)
Balance at 31 December 2022 (10.4) (4.2) (5.9) (29.3) (49.8)
Carrying amount at 31 December 2022 2.0 9.2 0.7 9.5 21.4
At 31 December 2021 1.7 8.6 0.8 10.3 21.4
The amortisation charge for the year is included within administrative expenses in the income statement.
Goodwill and other intangible assets (development costs, patents)
The Group has two CGUs, Lighting and Signals & Components, which are the smallest identifiable independent groups of assets that
generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Where assets and costs
are shared between the two CGUs a reasonable apportionment of these is made for the purpose of the impairment calculation.
Goodwill of £9.2m (2021: £8.6m) is recognised in the Group’s balance sheet and is attributable to Lighting. The goodwill balance arose
from a number of acquisitions in the Lighting segment in prior years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
220 221
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
14. Intangible assets (continued)
Impairment testing
The Group tests goodwill and capitalised development costs (at the CGU level) annually for impairment or more frequently if there are
indications of impairment. The recoverable amounts of the CGU are determined from value in use calculations. The key assumptions
for the value in use calculations are externally derived long-term growth rate; pre-tax discount rate and operating cash flow forecasts
derived from the Board-approved 2023 budget and the three-year strategic plan extended to cover the following two years (covering
the period 2024 to 2027). The plans take into account the continuing impact of uncertainty from the economic environment and current
world-wide commodity challenges and impact of climate risk.
2022
Discount rate 17.9%
Terminal growth rate 2.3%
Revenue five-year growth rate range for lighting segment 12-13%
Gross margin five-years average growth rate 1.3%
Stewardship cost allocation 80%
The risk-adjusted pre-tax discount rate used to discount the forecast cash flows for the Lighting CGU was 17.9% (2021: 14.1%).
The impairment testing showed that the recoverable amount of £72.0m against all off the assets associated with a goodwill exceeded
the carrying amount, and therefore no impairment charge has been recorded.
The pre-tax discount rate is based on the Group’s weighted average cost of capital which reflects current market assessments of
a number of factors that impact on the time value of money and any risk specific to the Group. The rate includes management’s
assessment of a normal level of debt-to-equity ratio within similar companies in the Group’s sector. The costs of the ultimate holding
company (stewardship costs) have been allocated to each CGU as they provide necessary support to the CGUs to generate cash
inflows. These costs have been allocated on the same allocation basis as the administration costs. The long-term growth rate into
perpetuity has been determined as the average of Consumer Price Index (CPI) rates for the countries in which the CGU operates,
predicted for the next five years.
Management has arrived at the five-year strategic plan based upon certain assumptions derived from a combination of an internal
assessment of the market size, customer product requirements, production capacity requirements, the operational costs of the
organisation and external economic factors, including the impact of supply chain issues and climate change. The key assumptions
within the plan are revenue growth and gross profit, which are based on management’s best estimate of material, labour and production
cost trends, material availability and manufacturing efficiencies.
In undertaking the assessment, the positive impact from climate change on demand for the Group’s products and its impact on financial
performance has been carefully considered. Considering the Group’s business model, strategy and limited exposure to adverse climate
change impacts, management believes that the opportunities outweigh any risk and that the major challenge will be our ability to cope
with accelerated product demand which has been reflected in the impairment testing models.
Sensitivity to changes in key assumptions:
Management believes that any reasonably possible change in the assumptions would not cause the carrying amount to exceed the
recoverable amount. The following table shows the amount which these five assumptions would need to change to individually for the
estimated recoverable amount to be equal to the carrying amount.
In percentage
Amount
required for
amount to equal
recoverable
amount
Discount rate 26.0%
Terminal growth rate n/a
Revenue five-year growth rate range 9.9%
Gross margin five-year reduction rate 3.3%
Stewardship cost allocation n/a
The impairment assessment is not highly sensitive to climate change scenarios.
The recoverable amount incorporates management’s view of the impact of supply chain issues on near-term trading. The Group
continues to operate within its available committed facilities with sufficient headroom and meet its financial covenant obligations and no
impairment is required.
15. Deferred tax
(i) Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Property, plant and equipment – – (0.9) (1.3) (0.9) (1.3)
Right-of-use assets 0.3 0.3 – – 0.3 0.3
Intangible assets – – (0.2) (1.1) (0.2) (1.1)
Employee benefits – – (0.9) (0.7) (0.9) (0.7)
Provisions 2.6 2.7 – – 2.6 2.7
Losses and other items 1.5 1.4 – – 1.5 1.4
Tax assets/(liabilities)* 4.4 4.4 (2.0) (3.1) 2.4 1.3
* 2021 assets and liabilities balances were re-presented to match 2022 balances
Deferred tax assets have been recognised in respect of all tax losses in entities expected to generate sufficient future taxable profits.
As mentioned in note 9, surplus losses relating to the European businesses have not been recognised in the year as they are not
expected to generate sufficient short-term taxable profits to justify recognising the associated deferred tax assets. The Group expects
to generate sufficient taxable profits to recover the remaining deferred tax assets within one to two years based on the latest strategic
plan which is also used for Going concern and Viability assessment and the goodwill impairment testing. The geographic split of the
deferred tax asset in relation to trading losses and other items is US £0.4m and Singapore £0.2m,with the remaining balance relating to
losses in Europe which offset the deferred tax liability from the employee benefit pension surplus. The aggregate amount of temporary
differences associated with investments in subsidiaries for which deferred taxation liabilities have not been recognised is £nil
(2021: £nil).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
222 223
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
15. Deferred tax (continued)
(ii) Movement in temporary differences during the year
Property,
plant and
equipment
£m
Intangible
assets
£m
Employee
benefits
£m
Provisions
£m
Other
short-term
timing
differences
£m
Right-of-use
asset
£m
Total
£m
Balance at 1 January 2021 (1.3) (1.8) (0.1) 2.7 1.7 0.2 1.4
Recognised in income (0.1) 0.7 (0.1) – (0.3) 0.1 0.3
Recognised in equity – – (0.5) – – – (0.5)
FX translation reserve 0.1 – – – – – 0.1
Balance at 31 December 2021 (1.3) (1.1) (0.7) 2.7 1.4 0.3 1.3
Recognised in income 0.4 0.9 (0.1) (0.1) 0.7 – 1.8
Recognised in equity – – (0.1) – (0.6) – (0.7)
Balance at 31 December 2022 (0.9) (0.2) (0.9) 2.6 1.5 0.3 2.4
(iii) Unrecognised deferred tax assets
Deferred tax assets have not been recognised in respect of the following items, because it is not probable that future taxable profit will
be available against which the Group can use the benefits.
2022
£m
2021
£m
Gross
amount
Tax
effect
Gross
amount
Tax
effect
Deductible temporary differences – – – –
Tax losses 40.5 10.5 37.8 9.8
40.5 10.5 37.8 9.8
(iv) Tax losses carried forward
Tax losses for which no deferred tax assets were recognised expire as follows:
2022
£m
Expiry
date
2021
£m
Expiry
date
Expire – – – –
Never expire 40.5 – 37.8 –
16. Employee benefits
Defined benefit pension obligations
The Group makes contributions to two closed defined benefit plans (referred to below as Plan A and Plan B) to provide benefits for
employees and former employees upon retirement. The plans expose the Group to actuarial risks, such as longevity risk, interest rate
risk and investment risk. Both plans are administered by discrete funds (the “Funds”) that are legally separate from the Group and
managed by Trustees that are independent individuals. The Trustees of the plans are required by law to act in the best interests of the
plan participants and are responsible for setting certain policies (e.g. investment) of the Funds.
The Company is required to agree a Schedule of Contributions with the Trustees of the Funds following a valuation which must be
carried out at least once every three years, with the latest valuation in 2022. The Company expects to pay contributions of £0.4m in
respect of the Funds in the year to 31 December 2023. The weighted average duration of the defined benefit obligation is 13 years.
There is no effect on recognition of the net defined benefit surplus as a result of the asset ceiling.
For the principal defined benefit plan, the Group considers that it has the right to the refund of a surplus, assuming the gradual
settlement of the plan liabilities over time until all members have left the plan. The plan Trustees can purchase annuities to ensure
member benefits and can, for the majority of benefits, transfer these annuities to members. The Trustees cannot unconditionally wind
up the plan or use the surplus to enhance member benefits without employer consent. Our judgement is that these Trustee rights do
not prevent us from recognising an unconditional right to a refund and therefore a surplus.
The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit asset and
its components:
Defined
benefit obligation
Fair value
of plan assets
Net defined benefit
liability/(asset)
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Balance at 1 January 23.4 26.2 (27.3) (27.3) (3.9) (1.1)
Included in profit or loss
Current service cost – – 0.1 0.1 0.1 0.1
Interest cost/(income) 0.4 0.3 (0.4) (0.3) – –
0.4 0.3 (0.3) (0.2) 0.1 0.1
Included in other comprehensive income
Remeasurements (gain)/loss (6.7) – – – (6.7) –
Actuarial (gain)/loss arising from:
– changes in demographic assumptions – (0.4) – – – (0.4)
– changes in financial assumptions – (1.1) – – – (1.1)
– past service cost 0.4 (0.4) – – 0.4 (0.4)
– return on plan assets excluding interest income – – 6.0 (0.6) 6.0 (0.6 )
(6.3) (1.9) 6.0 (0.6) (0.3) (2.5)
Other
Contributions paid by the employer – – (0.4) (0.4) (0.4) (0.4)
Benefits paid (1.2) (1.2) 1.2 1.2 – –
(1.2) (1.2) 0.8 0.8 (0.4) (0.4)
Balance at 31 December 16.3 23.4 (20.8) (27.3) (4.5) (3.9)
Represented by:
2022
£m
2021
£m
Net defined benefit asset (Plan A) (0.4) (0.2)
Net defined benefit asset (Plan B) (4.1) (3.7)
(4.5) (3.9)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
224 225
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
16. Employee benefits (continued)
Plan assets consist of the following:
2022
£m
2021
£m
Equities (class 2) 2.7 7.3
Bonds and gilts (class 2) 17.8 19.6
Annuities 0.3 –
Cash – 0.4
20.8 27.3
All equity securities and government bonds have quoted prices in active markets.
Actuarial assumptions
The principal assumptions at the balance sheet date (expressed as weighted averages) are:
% per annum
2022 2021
Discount rate at 31 December 4.9 1.8
Future salary increases n/a n/a
Future pension increases 3.1 3.5
Inflation – RPI 3.2 3.6
Inflation – CPI 2.4 2.9
Assumptions regarding future mortality have been based on published statistics and mortality tables. The current longevities underlying
the values of the defined benefit obligation at the reporting date were as follows:
2022 2021
Plan A Plan B Plan A Plan B
Longevity at age 65 for current pensioners
Males 23.5 20.6 23.5 20.5
Females 25.0 23.7 25.2 23.7
Longevity at age 65 for current members aged 45
Males 24.5 21.5 24.5 21.5
Females 26.1 24.8 26.3 24.8
Sensitivity analysis
Potential changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have
affected the defined benefit obligation by the amounts shown below:
Defined benefit obligation
Increase
£m
Decrease
£m
Discount rate (0.5% movement) 0.8 0.7
Inflation (0.5% movement) 0.5 0.5
Life expectancy (+/–1 year) 0.6 0.6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
Although the analysis does not take account of the full distribution of cash flows expected under the plans, it does provide an
approximation of the sensitivity of the assumptions shown.
Share-based payments
PSP and DRSP
During the year, an award under the DRSP was made to the Executive Directors and senior managers, details of which are set out
below. The award was based solely on service conditions.
Date of award
Number of
awards
at the
beginning of
the year
Number of
awards
granted
during the
year
Number of
awards
vested
during the
year
Number of
awards
forfeited
during the
year
Number of
awards at
the year
end
Fair value
pence per
share
Vesting
period
Maturity
date
March 2019 (EPS) 66,707 – – (66,707) – 453 3 years Mar 2022
March 2019 (TSR) 22,236 – – (22,236) – 314 3 years Mar 2022
March 2019 (service condition) 81,891 – (81,891) – – 453 3 years Mar 2022
March 2020 (EPS) 100,684 – – – 100,684 205 3 years Mar 2023
March 2020 (TSR) 100,684 – – – 100,684 130 3 years Mar 2023
March 2020 (service condition) 296,309 – (22,632) 273,677 205 3 years Mar 2023
April 2021 (service conditions) 316,060 – (42,359) 273,701 257 3 years Apr 2024
May 2021 (service conditions) 89,547 – – 89,547 307 3 years May 2024
April 2022 (service conditions) – 377,402 (20,682) 356,720 349 3 years Apr 2025
April 2022 (service conditions) – 12,164 – – 12,164 349 3 years Apr 2025
April 2022 (service conditions) – 12,164 – – 12,164 349 2 years Apr 2024
Total 1,074,118 401,730 (81,891) (174,616) 1,219,341
Further details of the DRSP are included in the Directors’ Remuneration Report on pages 136 to 170.
The 2022 awards linked to service conditions have been valued using the five-day weighted average share price prior to award date.
2022 service
condition
awards
Share price (April) 3.49
The employee expense in 2022 was £0.5m (2021: £0.6m) (see note 7).
17. Inventories
2022
£m
2021
£m
Raw materials and consumables 22.7 22.2
Work in progress 11.9 8.7
Finished goods 18.8 11.2
53.4 42.1
Spare parts 0.2 0.3
53.6 42.4
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
226 227
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
17. Inventories (continued)
Inventories to the value of £79.0m (2021: £55.8m) were recognised as expenses in the year. The inventory reserve at the balance sheet
date was £4.1m, which represents 7.7% of inventory (2021: £3.0m representing 7.0% of inventory). Additional reserves of £2.0m were
booked in year with an increase of £0.3m due to foreign exchange movements, being offset by utilisation of £1.2m, resulting in a net
movement in the reserve of £1.1m.
As at 31 December 2022, management’s best estimate of the amount of inventory that will not be used within the next 12 months is
c.£4.8m (2021: £3.4m).
In the previous year, the basis for reserving raw materials and sub-assemblies was to reserve the quantity on hand that was greater than
365 days old, exceeded three year’s historical usage and where, following a review by engineering and supply chain personnel, there
was no reasonable prospect of the components being used or their shelf life not being exceeded. This estimate was felt appropriate
given the significant impact that the prolonged pandemic/geopolitical situation had on our operations and the consequential logistics
and supply chain challenges, that resulted in inventory being held for longer than normal. The Group has now revised its basis for
estimate to calculating the inventory reserve to provide for raw and sub-assembly inventory that is over 24-months old at the balance
sheet date. This new basis for estimate reduces estimation subjectivity whilst allowing for the adverse impact from component
shortages that have led to high inventory levels and some components being held for longer than expected. Two years is felt to be
appropriate as the components have a long shelf life, continue to be used in production and the product demand mix between project
and MRO business has been skewed during COVID-19.
The review of finished goods inventory was based on all inventory over 365 days old. Inventory on hand was compared to historical
sales, current orders, sales pipeline and whether the product had been recently launched. Management judgement was then applied to
determine whether there was a reasonable probability that the inventory would be sold, with a provision being required for any inventory
that failed this assessment.
The level of inventory was increased by £11.2m in 2022 driven by £4.5m in foreign exchange and management decisions to increase
finished goods stock levels in December to fulfil seasonal demand, however this demand was lower than expected along with several
strategic customers deferring anticipated orders.
18. Trade and other receivables
Amounts falling due within one year
2022
£m
2021
£m
Trade receivables 26.7 23.7
Other non-trade receivables 1.4 1.1
Prepayments and accrued income 2.1 1.4
30.2 26.2
The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed in note 24.
The increase in trade receivables resulted from the growth in revenue, that is traditionally weighted towards the end of quarter four.
Amounts falling due in more than one year
2022
£m
2021
£m
Other receivables 5.6 4.7
These relate to deposits on leasehold properties, reclaim of import duties and amounts held in an escrow account by Sanmina
Corporation, former manufacturing partner, relating to potential excess inventory claims calculated using the terms of the
manufacturing services agreement, pre-contract termination. This calculation has been superseded due to the significant level of
inventory purchased post-contract which negates the requirement for this to be held by Sanmina Corporation and Dialight expects it
to be returned in full. The movement in the year is caused by foreign exchange as the assets are denominated in USD. See also note 27.
19. Cash and cash equivalents
2022
£m
2021
£m
Cash and cash equivalents 1.7 1.2
20. Capital and reserves
Share capital
2022
Number
2022
£m
2021
Number
2021
£m
Allotted and fully paid
Ordinary shares of 1.89 pence each 32,946,371 0.6 32,610,025 0.6
During the year, 336,346 shares were issued (2021: 47,559) in order to satisfy the requirement for shares that vested as part of the PSP/
DRSP scheme (note 16) and to acquire a further 12.5% share of Dialight Australia (see note 30 for further details). There were notional
considerations attributed to the issuance, but no cash proceeds in 2022 (2021: nil). The ordinary shares issued in the year have the
same rights as other shares in issue.
During the year, the Company purchased 20,425 shares on the open market for £0.1m (2021: 205,026 shares for £0.7m), which are being
held in an employee benefit trust to settle share options in the future. This transaction decreased the amount of shares in issue and has
an impact on diluted earnings per share (note 11).
Issued share capital
Ordinary shares
2022
Number
2021
Number
In issue at 1 January 32,610,025 32,562,466
Shares issued 336,346 47,559
Issued and fully paid at 31 December 32,946,371 32,610,025
Share premium
The share premium representes a fair value of 266,958 shares issued by the Group to aquire a further 12.5% share of its subsidiary
Dialight ILS Australia Pty Ltd (note30).
Merger reserve
On acquiring Lumidrives Limited in 2006, the Company issued ordinary shares as part of the consideration. Merger relief was taken in
accordance with Section 131 of the Companies Act 1985 and hence £546,000 was credited to the merger reserve.
Translation reserve
The translation reserve comprises all foreign exchange differences from 1 January 2004 arising from the translation of the financial
statements of the Company’s overseas subsidiaries.
Capital redemption reserve
The capital redemption reserve comprises the nominal value of “B” preference shares redeemed since the capital reorganisation in 2005.
Other distributable reserve
During the year, the Company purchased 0.0 million shares on the open market for £0.1m, which are being held in an employee benefit
trust to settle share options in the future (2021: 0.2 million shares for 0.7m).
Dividends
No dividends were declared in the current or the prior year. After the balance sheet date no dividends were proposed by the Directors
and there are no income tax consequences for the Company.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
228 229
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
21. Trade and other payables
2022
£m
2021
£m
Trade payables 24.2 21.7
Other taxes and social security 1.0 0.8
Non-trade payables and accrued expenses 12.1 10.4
37.3 32.9
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.
22. Provisions
Warranty
and claims
£m
Lease-
restoration
£m
Total
£m
Balance at 1 January 2022 1.7 0.2 1.9
Provisions made during the year 1.4 – 1.4
Provisions used during the year (1.3) – (1.3)
Effects of foreign exchange movement 0.2 – 0.2
Balance at 31 December 2022 2.0 0.2 2.2
The warranty provision relates to sales made over the past nine years. In the previous year, the provision also included other claims
across the Group, which were either utilised or released (see note 6). The warranty provision has been estimated based on historical
warranty data with similar products. The Group expects to settle the majority of the liability over the next two to three years.
The table below provides a breakdown of the provisions into their short-term and long-term portions:
Total
2022
£m
Total
2021
£m
Due within one year 0.6 0.6
Due between one and five years 1.2 1.1
Due after five years 0.4 0.2
2.2 1.9
23. Borrowings
The Group’s multicurrency revolving credit facility with HSBC of £25m was re-negotiated in July 2022 to a sustainability-linked loan and
runs until July 2025. In November 2022, the £25m facility was redenominated to a $34m facility as most drawings are in USD and
fluctuations in the GBP: USD exchange rate had adversely impacted headroom. The new facility contains normal covenants, covering
maximum net leverage and minimum interest cover levels and contains options for two one-year extensions.
The Group increased its banking facility with HSBC on 15 June 2020 by adding a further £10m facility on a three-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. During the year, the debt service cover ratio
(DSCR), linked to the CLBILS loan, was waived for Q2 and Q3 2022 as the test penalises investment in working capital and capex.
In December 2022, HSBC waived the remaining DSCR covenant tests for Q4 2022 and Q1 2023.
At 31 December the Group had £30m (2021: £31m) in facilities and £1.7m of cash on hand.
Loans
£m
At 1 January 2021 16.7
Facility drawdown (RCF) 4.2
Facility repayment (CLBILS) (4.0)
At 31 December 2021 16.9
Facility drawdown (RCF) 8.5
Facility repayment (CLBILS) (4.0)
Interest accrued 1.1
Interest payment (note 8) (1.1)
Foreign exchange 1.2
At 31 December 2022 22.6
Details of the facilities Tenure
Interest
rate
per annum*
Maturity
date
Amount
drawn down
as at
31 December
2022
£m
Amount
drawn down
as at
31 December
2021
£m
$34m revolving credit facility 3 years 6.97% July 2025 20.6 10.9
£8m CLBILS 3 years 5.59% June 2023
†
1.6 4.8
£2m commercial loan 3 years 5.79% June 2023
†
0.4 1.2
† This loan is being repaid in equal instalments over three years; repayment started on 15 January 2021.
* This is an indicative rate as at December 2022.
The banking covenants were based on a 12-month rolling EBITDA test until June 2021, when they reverted to:
Covenant test Every quarter
Ratio Calculation
Leverage ratio Net debt/Adjusted EBITDA <3.0x
Interest cover Adjusted EBITDA/Interest expense >4.0x
Debt service ratio* Net operating income/Total debt service >1.2
* The debt service cover ratio does not apply to the revolving credit facility and has been waived from June 2022 to the end of the loan .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
230 231
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
24. Financial risk management
The Group has exposure to credit risk, market risk and liquidity risk from its use of financial instruments.
This note presents information about the Group’s exposure to each of the above risks and the Group’s objectives, policies
and processes for measuring and managing risk. Further quantitative disclosures are included throughout these consolidated
financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits.
The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
Credit risk
Trade and other receivables
Credit risk is the risk of financial loss if a customer fails to meet its contractual obligations by not paying the receivables due.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group has no
significant credit risk as it does not have any major customer concentration.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Each new customer is
analysed individually for creditworthiness before the Group’s standard payment conditions and terms are offered.
The Group’s review includes external ratings when available and, in some cases, bank references. Purchase limits are set for customers.
Customers who do not meet the benchmark creditworthiness may transact with the Group only on a prepayment basis.
The Group establishes an allowance for impairment that represents its estimate of expected future losses in respect of trade and other
receivables. Impairment losses are determined having taken into account special customer circumstances and financial position,
together with Group information about general payment trends.
IFRS 9 introduced an expected credit loss model for calculating impairment of financial assets and the Group has applied the simplified
approach as permitted by IFRS 9. The ECL model considers the Group’s historical credit loss, factors specific to each receivable, the
current economic environment and expected changes in future forecasts. The trade receivables balance below is shown net of the
provision for bad debts. The Group provides against trade receivables based on an ECL model, calculated from the probability of
default for the remaining life of the asset.
Exposure to credit risk
The ageing of trade receivables at the reporting date was:
Gross
2022
£m
Specific
Impairment
2022
£m
Gross
2021
£m
Specific
Impairment
2021
£m
Not past due 21.9 – 20.2 –
Past due 0–30 days 3.2 – 3.0 –
Past due 31–120 days 1.6 – 0.5 –
Total 26.7 – 23.7 –
The allowance in respect of trade receivables is used to record forecast impairment losses unless the Group is satisfied that no
recovery of the amount owing is possible, at which point the amount considered irrecoverable is written off against the financial
asset directly. Other non-trade receivables of £7.0m (2021: £5.8m) are not past due and have no impairment. The ECL provision
for the current year is not material and was not material in the prior year.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst
optimising the return.
Interest rate risk
The Group’s policy is to manage exposure to interest rate risk by utilising borrowings at forward risk free rate plus spread adjustment
and the applicable margin based on EBITDA leverage levels. At 31 December 2022, the Group had total borrowing of £22.6m
(2021: £16.9m).
Foreign currency risk
Exposure to currency risk arises in the normal course of the Group’s business.
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than each subsidiary’s
functional currency. The currencies giving rise to risk are primarily the Euro, Canadian Dollar and the US Dollar.
Where possible the Group uses natural hedging within the Group to hedge the majority of its foreign currency risk. Natural hedging
is the mechanism whereby the cash inflows in a particular currency are matched to the cash outflows in that currency at the same
business or a different Group company. The Group has borrowing facilities in US Dollars in order to match the currency of the Group’s
major market. Foreign exchange contracts may be taken out to manage exposures that are not mitigated through natural hedging but
the Group had no foreign exchange contracts at the balance sheet date.
In respect of other monetary assets and liabilities held in currencies other than UK Sterling, the Group ensures that the net exposure is
kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.
The Group’s exposure to foreign currency risk was as follows:
2022
$m
2022
CAD’m
2022
€m
2021
$m
2021
CAD’m
2021
€m
Trade receivables 0.4 4.0 1.9 0.1 4.5 0.7
Currency cash (21.7) 0.1 0.5 (11.8) 0.1 –
Trade payables – – (0.6) – – (0.3)
Gross balance sheet exposure (21.3) 4.1 1.8 (11.7) 4.6 0.4
The following significant exchange rates applied during the year:
2022
Average
rate
2022
At balance
sheet date
2021
Average
rate
2021
At balance
sheet date
US Dollar 1.24 1.21 1.38 1.35
Euro 1.17 1.13 1.16 1.19
Canadian Dollar 1.61 1.64 1.72 1.72
Mexican Peso 24.87 23.53 27.88 27.64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
232 233
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
24. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that
it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
Exposure to liquidity risk
For non-derivative financial liabilities, the Group’s exposure relates principally to trade and other payables and borrowings. Trade and
other payables arise in the normal course of business and there are no unusual or onerous terms and conditions.
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of
netting agreements:
31 December 2022
Carrying
amount
£m
Contractual
cash flow
£m
2 months
or less
£m
2–12
months
£m
1–2 years
£m
2–5 years
£m
More than 5
years
£m
Non-derivative financial liabilities
Trade and other payables (24.2) (24.2) (19.4) (1.3) – (3.5) –
Borrowings (22.6) (22.6) (0.7) (1.3) – (20.6) –
Lease liabilities (11.3) (11.3) – (1.9) (1.7) (5.8) (1.9)
(58.1) (58.1) (20.1) (4.5) (1.7) (29.9) (1.9)
31 December 2021
Carrying
amount
£m
Contractual
cash flow
£m
2 months
or less
£m
2–12
months
£m
1–2 years
£m
2–5 years
£m
More than 5
years
£m
Non-derivative financial liabilities
Trade and other payables (21.7) (21.7) (17.7) (0.8) (0.3) (2.9) –
Borrowings (16.9) (16.9) (0.7) (3.3) (2.0) (10.9) –
Lease liabilities (12.0) (12.0) (0.1) (1.7) (1.8) (5.0) (3.4)
(50.6) (50.6) (18.5) (5.8) (4.1) (18.8) (3.4)
* Prepayments of £2.1m (2021: £1.5m) and other debtors of £1.5m (2021: 0.1m) do not meet the definition of a financial instrument.
** Other taxation and social security payables of £1.0m (2021: £0.8m), and other creditors of £12.0m (2021: £10.4m) do not meet the definition of a financial instrument.
The Group has a three-year unsecured $34m multi-currency revolving credit facility and £2.0m CLBILS, of which £22.6m is drawn at
31 December 2022 (2021: £16.9m); see note 23.
Capital management
The Board’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain future
development of the business. The Board considers consolidated total equity as capital. As at 31 December 2022, this totalled £68.7m
(2021: £60.2m).
The Board is not proposing a final dividend for 2022. The Group has a clear capital allocation discipline and is committed to returning
any excess funds to our shareholders via either a future dividend or a share re-purchase, subject to the restrictions imposed by the
CLBILS borrowing.
Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings.
Over the longer term, however, permanent changes, in particular in foreign exchange rates, would have an impact on equity value and
consolidation earnings.
At 31 December 2022, it is estimated that a general increase of 1% in the value of the Euro and the US Dollar against UK Sterling would
have £0.1m impact on the Group’s profit before tax for the year ended 31 December 2022 (2021: £0.1m), and would have increased the
Group’s equity for the year ended 31 December 2022 by £0.8m (2021: £0.7m).
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Carrying
amount
2022
£m
Fair value
2022
£m
Carrying
amount
2021
£m
Fair value
2021
£m
Financial assets
Cash and cash equivalents 1.7 1.7 1.2 1.2
Loans and receivables
Trade and other receivables 28.1 28.1 24.7 24.7
Total financial assets 29.8 29.8 25.9 25.9
Financial liabilities
Lease liabilities (11.3) (11.3) (12.0) (12.0)
Trade and other payables (36.3) (36.3) (32.1) (32.1)
Borrowings (22.6) (22.6) (16.9) (16.9)
Total financial liabilities (70.2) (70.2) (61.0) (61.0)
Net financial liabilities (40.4) (40.4) (35.1) (35.1)
Details of the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table are set out
in note 4(v).
25. Capital commitments
Capital commitments at 31 December for which no provision has been made in the accounts were:
2022
£m
2021
£m
Contracted 2.9 2.8
The increase in capital commitments reflects planned capacity improvements, factory improvements and end of life asset replacement,
mainly at our Mexico facilities.
26. Operating leases
Non-cancellable operating lease rentals are payable as follows:
2022
£m
2021
£m
Less than one year – 0.1
Between one and five years – 0.1
– 0.2
Of the balance less than £0.0m (2021: £0.2m), £nil (£2021: £nil) relates to property plant and equipment.
The Group has no off-balance sheet arrangements that need to be disclosed within the context of Section 410A of the Companies Act 2006.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
234 235
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
27. Contingencies
Sanmina litigation
As previously reported, Dialight sought to reach a negotiated conclusion of various outstanding matters and performance issues
following the termination, in 2018, of the manufacturing services agreement (MSA) with its former manufacturing partner, Sanmina
Corporation (“Sanmina”). The failure to reach a satisfactory resolution of these issues led to both parties issuing formal legal
proceedings against the other on 20th December 2019 in the US District Court for the Southern District of New York. The basis of the
claim filed by Sanmina relates to outstanding invoices and to residual inventory which they allege that they purchased for Dialight.
The claim filed by Dialight is more complex in nature and relates to significant counterclaims, and costs and losses suffered by Dialight.
Dialight has sought external legal advice and is paying for the legal costs as incurred. As at 31 December 2022, Dialight has not made
any provision for future legal costs.
The claim filed by Dialight alleged that Dialight suffered significant costs and losses (with total potential damages of approximately
$220m) as a result of: (a) Sanmina’s fraudulent inducement of Dialight to enter into the MSA; (b) Sanmina breaching the terms of the
MSA in a wilful and/or grossly negligent manner (for example in respect of their failure to appropriately manage supply chain and
inventory levels and to deliver product on time and free of workmanship defects); and, (c) Sanmina’s gross negligence and/or wilful
misconduct in the performance of its duties owed to Dialight. If Sanmina’s claim is successful, the range of outcomes could include the
payment by Dialight to Sanmina of between $0 and $8.3m (excluding legal costs and judicial interest, but inclusive of Dialight ‘escrow’
monies held by Sanmina). If Dialight’s claims are successful, the range of outcomes could include the payment by Sanmina to Dialight of
between $0 and c. $220m (excluding legal costs and judicial interest).
Sanmina subsequently lodged a motion for summary judgement to dismiss elements of Dialight’s claims/counter-claims (first filed on
2 May 2022). The detailed evidence and legal arguments from both parties (submitted in May-July 2022) 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 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.
Dialight currently expects that the case will go to trial in late 2023 (subject, potentially, to the timing impact of either party appealing any
adverse judgment). Open court documents, including the ruling and pleadings in respect of the motion for summary judgment, can be
accessed on the Public Access to Court Electronic Records (PACER) public access system for the U.S. District Court for the Southern
District of New York (https://ecf.nysd.uscourts.gov).
Defined benefit pension schemes
During 2011, the Roxboro UK Pension Fund (the “Scheme”) was closed to future accrual. This Scheme is included within pension
assets. As part of the negotiations regarding closure, the Company agreed to grant a parent company guarantee in respect of all
present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally and in any capacity
whatsoever) of Dialight Europe Limited, the principal employer, to make payments in the Scheme up to a maximum amount equal to the
entire aggregate liability, on the date on which any liability under the guarantee arises, of every employer (within the meaning set out in
Section 318 of the Pensions Act 2004 and regulations made thereunder) in relation to the Scheme, were a debt under Section 75(2) of
the Pensions Act 1995 to have become due on that date. No provision has been made in relation to this contingency.
Uncertainties under income tax treatment
The Group operates in certain jurisdictions that are unstable or have changing political conditions, giving rise to occasional uncertainty
over the tax treatment of items of income and expense. In addition, from time to time certain tax positions taken by the Group are
challenged by the relevant tax authorities, which carry a financial risk as to the final outcome. The Directors have considered the
potential impact arising from these uncertainties and risks on the Group’s tax assets and liabilities, both recognised and unrecognised,
and believe that they are not material to the Financial Statements.
28. Reconciliation to non-GAAP performance measures
As explained in note 6, the Group incurs costs and earns income that is not considered to be reflective of the underlying performance
of the business. In the assessment of performance of the business units of the Group, management examines underlying performance,
which removes the impact of non-underlying costs and income.
2022
£m
2021
£m
Profit from operating activities 2.3 2.1
Non-underlying items (see note 6) 2.7 2.4
Underlying profit from operating activities 5.0 4.5
Profit from operating activities 2.3 2.1
Non-underlying items (see note 6) 2.7 2.4
Depreciation of property, plant and equipment (see note 12) 2.9 3.1
Amortisation of intangible assets (see note 14) 4.4 3.5
Underlying EBITDA 12.3 11.1
Profit from operating activities 2.3 2.1
Non-underlying items (see note 6) 2.7 2.4
Depreciation of property, plant and equipment (see note 12) 2.9 3.1
Amortisation of intangible assets (see note 14) 4.4 3.5
Share-based payments 0.5 0.6
Net movement on working capital (Inventories, trade and other receivables, trade and other payables) as per
Consolidated statement of cash flows (6.5) (4.3)
Underlying operating cash flow 6.3 7.4
Underlying profit from operating activities and underlying EBIT referred to in the earlier sections of the Annual Report are the same
measures. Underlying operating cash flow and adjusted operating cash flow referred to in the earlier sections of the Annual Report are
the same measures.
Constant currency
The Group’s revenues are mainly earned in the US and it presents certain key metrics on a constant currency basis to remove any
impact of currency fluctuations. The Group uses GBP-based constant currency models to measure performance. These are calculated
by restating the results of the Group for the comparable year at the same average exchange rates as those used in reported results for
the current year.
This gives a GBP-denominated income statement, which excludes any variances attributable to foreign exchange rate movements.
The most important foreign currencies for the Group are: US Dollar, Euro, Canadian Dollar and Mexican Peso. The exchange rates used
are in note 24.
Net debt
Net debt is defined as total Group borrowings less cash. Net debt of £20.9m at the year end (2021: £15.7m) consisted of borrowings of
£22.6m (2021: £16.9m) less cash of £1.7m (2021: £1.2m).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
236 237
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
29. Related parties
The ultimate controlling party of the Group is Dialight plc. Transactions between the Company and its subsidiaries have been eliminated
on consolidation.
Transactions with key management personnel
Only Directors are considered to be key management personnel and transactions with them are disclosed in note 16. Directors of the
Company and their immediate relatives control less than 1% of the Company.
30. Subsidiaries
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries as at 31 December 2022 is disclosed below.
Those companies stated in table (a) below are those, in the opinion of Directors, which principally affect the revenue, profit or assets
of the Dialight Group.
The remaining companies that comprise the Dialight Group are set out in table (b) below. These did not change during 2022.
The investment is held directly by Dialight plc except for those companies indicated by*.
(a) Trading companies
Name Percentage owned Registered office Principal activity
Dialight Corporation* 100% 1501 Route, 34 South Farmingdale
NJ 07727
United States
Design, assembly and sale of Lighting
and Signals & Components products
Dialight Europe Limited** 100% Leaf C
Level 36, Tower 42
25 Old Broad Street
London EC2N 1HQ
United Kingdom
Sale of Lighting products
Dialight GmbH* 100% Maximilianstrasse 54
80538 Munchen
Germany
Sale of Lighting products
Dialight ILS Australia Pty Limited* 87.5% Level 2 Spectrum
100 Railway Road
Subiaco WA 6008
Australia
Sale of Lighting products
Dialight Asia Pte. Ltd* 75% 33 Ubi Avenue 3
07–72 Vertex (Tower A)
Singapore, 408868
Sale of Lighting products
Dialight Penang Sdn. Bhd.* 100% Room B, 3rd Floor
309-K Perak Road
10150, Penang
Malaysia
Assembly and sale of Lighting and
Signals & Components products
Dialight de Mexico, S. de R.L. de C.V.* 100% Calle Lirios S/N
Colona Pacheco
Ensenada
Baja California
Mexico
Assembly of Lighting, Signals
& Components products
Dialight Latin America, S. de R.L. de C.V.* 100% Calle Lirios S/N
Colona Pacheco
Ensenada
Baja California
Mexico
Sale of Lighting and Signals
& Components products
There is only one class of share, and all shares held are considered to be ordinary shares. There have been no changes in the class of
shares held during the year.
Dialight Asia Pte. Ltd is owned 75% by the Group and there are non-controlling interests of 25%. Dialight ILS Australia Pty Limited is
owned 87.5%% by the Group. During the year the Group acquired an additional 12.5% taking its ownership from 75% to 87.5% leaving
a non-controlling interest of 12.5% (see Transactions with non-controlling interest below). The total profit for the year attributable to
non-controlling interests is £0.0m (2021: profit £0.2m) and their share of equity is £0.4m (2021: £0.6m).
The Group also has branches in France and the United Arab Emirates.
Transactions with non-controlling interest
In May 2022, the Group acquired a further 12.5% share of its subsidiary Dialight ILS Australia Pty Ltd (‘Dialight Australia’) for
consideration of £1m satisfied by issuing 266,958 shares and £0.1m in cash plus £0.1m in costs. This increased ownership to 87.5%.
Immediately prior to the transaction, the carrying amount of the 25% non-controlling interest in Dialight Australia was £0.7m.
The Group has recognised a decrease in non-controlling interest of £0.4m and a decrease in equity attributable to the parent of £0.8m.
Incremental costs that were directly related to changes in ownership interest were deducted from equity. The effect on Group equity is
summarised in the table below:
31 December
2022
£m
31 Decembe r
2021
£m
Carrying amount of non-controlling interest acquired 0.4 –
Consideration paid to non-controlling interest (1.0) –
Incremental costs directly attributable to the transaction* (0.2) –
Excess of consideration paid less costs recognised in transactions with non-controlling interests within equity (0.8) –
* £0.1m consideration plus £0.1m of costs
There were no transactions with non-controlling interests in 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
30. Subsidiaries (continued)
(b) Other companies
Unless otherwise stated, the registered office for the subsidiaries listed below is the same as the Company’s registered offices set out
on page 252 under the “Directory and shareholder information” section.
Name Percentage owned Registered office Principal activity
Belling Lee Limited** 100% Intermediary holding company
Roxboro Overseas Limited** 100% Non-trading/intermediary holding
company
The Roxboro Trust Company Limited** 100% Dormant
The Roxboro UK Pension Trustee Limited* 50% Corporate pension fund trustee
Roxboro Analytical Inc.* 100% 1501 Route 34 South
Farmingdale
NJ 07727
United States
Non-trading
Roxboro Holdings Inc.* 100% The Corporation Trust Co.
Corporation Trust Centre
1209 Orange Street
City of Wilmington
County of New Castle DE
United States
Non-trading/intermediary holding
company
Roxboro Metrology Inc.* 100% 1501 Route 34 South
Farmingdale
NJ 07727
United States
Non-trading
** These companies are exempt from the requirement to prepare individual audited financial statements in respect of the year ended 31 December 2022, by virtue of Sections 479A and
479C of the Companies Act 2006.
In November 2022, the Group dissolved a fully owned dormant entity CRL Components, Inc.
31. Post balance sheet events
There are no material post balance sheet events requiring adjustment or disclosure. On 14th March 2023, the ruling on Sanmina’s
motion to dismiss elements of Dialight’s legal claim against them was released to the parties under seal. Please see note 27 for
full details.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
COMPANY BALANCE SHEET (PREPARED UNDER FRS 102)
at 31 December 2022
Note
2022
£m
2021
£m
Fixed assets
Intangible assets 4 0.2 0.2
Investments 5 10.9 10.4
Pension fund asset 14 0.4 0.2
11.5 10.8
Current assets
Debtors (of which £28.9m due after 1 year (2021: £25.9m) 8 61.2 46.5
Total assets 72.7 57.3
Creditors
Amounts falling due within one year:
Creditors 9 (2.5) (1.6)
Provisions 10 – –
Borrowings 11 (23.5) (17.0)
Total liabilities (26.0) (18.6)
Net current assets 35.2 27.9
Net assets 46.7 38.7
Capital and reserves
Called up share capital 12,13 0.6 0.6
Share premium 13 1.0 –
Capital redemption reserve 2.2 2.2
Other reserves 4.7 4.3
Profit and loss account 38.2 31.6
Equity shareholders’ funds 46.7 38.7
As permitted by Section 408 of the Companies Act 2006, a separate profit and loss account of theparent company has not been
presented. The parent company’s profit for the year was £7.6m (2021:loss of £4.3m).
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 2 April 2023 and weresigned on its behalf by:
Fariyal Khanbabi Clive Jennings
Group Chief Executive Chief Finance Officer
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
240 241
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Share
capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
£m
Share
premium
£m
Own
Shares
£m
Retained
earnings
£m
Total
equity
£m
Balance at 1 January 2022 0.6 5.0 2.2 – (0.7) 31.6 38.7
Profit – – – – – 7.6 7.6
Total other comprehensive income – – – – – 7.6 7.6
Total comprehensive expense for the year – – – – – – –
Transactions with owners, recorded directly in equity
Share-based payments, netoftax – 0.5 – – – – 0.5
Re-purchase of own shares – – – – (0.1) – (0.1)
Issue of shares (note 13) 1.0 (1.0)
Total contribution by and distribution toowners – 0.5 – 1.0 (0.1) (1.0) 0.4
Balance at 31 December 2022 0.6 5.5 2.2 1.0 (0.8) 38.2 46.7
At 31 December 2022 the number of shares held by the Group through the ESOT was 0.2 million ordinary shares (2021: 0.2 million).
The market value of these shares at 31 December 2022 was £0.8m (2021: £0.7m).
During the year, the Company purchased 0.0 million shares on the open market for £0.1m, which arebeing held in an employee benefit
trust to settle share options in the future.
The share premium representes a fair value of 266,958 shares issued by the Company to aquire a further 12.5% share of its subsidiary
Dialight ILS Australia Pty Ltd.
Share
capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
£m
Own Shares
£m
Retained
earnings
£m
Total
equity
£m
Balance at 1 January 2021 0.6 4.4 2.2 – 35.9 43.1
Loss – – – – (4.3) (4.3)
Total other comprehensive income – – – – – –
Total comprehensive expense for the year – – – – (4.3) (4.3)
Transactions with owners, recorded directly in equity
Share-based payments, netoftax – 0.6 – – – 0.6
Purchase of own shares – – – (0.7) – (0.7)
Total contribution by and distribution toowners – 0.6 – (0.7) – (0.1)
Balance at 31 December 2021 0.6 5.0 2.2 (0.7) 31.6 38.7
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. General information
Dialight plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office
isgiven on page 252 of this Annual Report and Accounts. The Company is a holding company that manages the other trading
subsidiaries of the Dialight Group.The functional currency of Dialight plc is considered to be UK Sterling because that is
thecurrencyofthe primary economic environment in which the Company operates.
2. Basis of preparation
These financial statements have been prepared in accordance with Financial Reporting Standard 102 The Financial Reporting Standard
applicable in the UK and Republic of Ireland (“FRS 102”).
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss account.
In these financial statements, the Company is considered to be a qualifying entity (for the purposesofthis FRS) and has applied the
exemptions available under FRS 102 in respect ofthefollowingdisclosures:
– cash flow statement and related notes; and
– key management personnel compensation.
As the consolidated financial statements of the Group include the equivalent disclosures, theCompany has also taken the exemptions
under FRS 102 available in respect of the followingdisclosures:
– certain disclosures required by FRS 102.26 Share Based Payments; and
– certain disclosures required by FRS 102.11 Basic Financial Instruments and FRS 102.12 Other Financial Instrument Issues in respect of
financial instruments not falling within the fair value accounting rules of Paragraph 36(4) of Schedule 1.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
financial statements:
(a) Going concern
The Directors have a reasonable expectation that the Company has adequate resources to continue inoperational existence for a
period of no less than 12 months from the date of this report. Thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements (see note 1(b) in the consolidated financial statements).
(b) Intangible fixed assets
Intangible assets that have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible assets from the date
that they are available for use.
(c) Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the
instrument.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in theassets of the Company after deducting all of its liabilities.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
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STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
2. Basis of preparation (continued)
(i) Financial assets and liabilities
All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial
assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price
excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing
transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate
of interest for a similar debt instrument.
The Company’s debt instruments are subsequently measured at amortised cost using the effective interest method.
Debt instruments that are classified as payable or receivable within one year on initial recognition, andwhich meet the above
conditions, are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net
ofimpairment.
(ii) Investments
Investments in subsidiaries and associates are measured at cost less impairment. For investments insubsidiaries acquired for
consideration, including the issue of shares qualifying for merger relief, cost is measured by reference to the nominal value of the
sharesissued plus the fair value of other consideration. Any premium is ignored.
(iii) Equity instruments
Equity instruments issued by the Company are recorded at the fair value of cash or other resources received or receivable, net of
directissue costs.
(d) Impairment of assets
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is
objective evidence of impairment, an impairment loss is recognised in profit or loss.
(e) Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax
ratesand laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred
atthebalance sheet date.
Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that
arisefrom the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the
financial statements.
Unrelieved tax losses and other deferred tax assets are recognised only to the extent that, on the basis of all available evidence, it can
be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing
differences can be deducted.
(f) Employee benefits
The Company operates both defined benefit and defined contribution plans. The assets of all arrangements are held separately from
the assets of the Company in independently administered funds. The amount charged against profits in respect of defined contribution
arrangements is the contributions payable to those arrangements in the accounting period.
For the defined benefit arrangements, the assets are measured at market values. The liabilities are measured using the projected
unitcredit method, discounted at the current rate of return of a high quality corporate bond appropriate to the term and currency
oftheliability.
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
The defined benefit scheme surplus or deficit is recognised in full and presented on the face of the balance sheet.
Other long-term employee benefits are measured at the present value of the benefit obligation at the reporting date.
The Group recognises a liability in respect of the best estimate of bonus payable where contractually obliged to or where past practice
has created a constructive obligation.
(g) Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date.
Exchange differences are recognised in profit or loss in the period in which they arise.
(h) Leases
Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a
basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight-line basis over the
lease term.
(i) Share-based payment
The Company grants to its employees rights to the equity instruments of Dialight plc. The fair value ofawards granted is recognised
asan employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period
during which the employees become unconditionally entitled to receive the awards. The fair value of the awards granted is measured
using a pricing model, taking into account the terms and conditions upon which the awards were granted. The amount recognised
asanexpense is adjusted to reflect the actual value of share awards that vest except where forfeiture is only due to share prices
notachieving the threshold for vesting. Where the Company grants awards over its own shares to employees of its subsidiaries, it
recognises an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge
recognised in its subsidiaries’ financial statements with the corresponding credit being recognised directly in equity.
(j) Dividends
Dividends are recognised in the period in which they are approved by the Company’s shareholders or, in the case of an interim dividend,
when the dividend is paid. Dividends receivable from subsidiaries are recognised when either received in cash or applied to reduce a
creditor balance with a subsidiary.
(k) Provisions
A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of economic benefits will be required to settle the obligation.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 2, the Directorsare required to make judgements,
estimates and assumptions about the carrying amounts ofassets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects bothcurrent and future periods.
The Directors consider that there are no critical accounting judgements or key sources of estimation uncertainty within the Company’s
individual financial statements apart from the termination of outsourced manufacturing agreement and determining whether to
recognise a provision or a contingent liability in respect of the claims from the Group’s former manufacturing partner Sanmina. This is
included as a significant judgement within note 2 of the consolidated financial statements. In the view of management, it is not probable
that the Group will have to make a payment, therefore no provision is required and the matter is disclosed as a contingent liability in
note 27 of the consolidated financial statements, which contains further details on the matter.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
244 245
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
4. Intangible assets
Software
£m
Cost
At 1 January 2022 0.2
Additions –
At 31 December 2022 0.2
Depreciation –
At 1 January 2022 –
Charge for the year –
At 31 December 2022 –
Net book value at 31 December 2022 0.2
Net book value at 31 December 2021 0.2
5. Investments in subsidiary undertakings
£m
Cost
At 1 January 2022 21.8
Share-based payments 0.5
At 31 December 2022 22.3
Provisions
At 1 January 2021 and 31 December 2022 (11.4)
Net book value at 31 December 2022 10.9
Net book value at 31 December 2021 10.4
In accordance with Section 26 of FRS 102, the cost of investment is increased to reflect the cost of share options awarded to
employees of the Company’s subsidiaries.
A full list of subsidiaries of the Company is provided in note 30 to the consolidated financial statements.
6. Financial risk management
The Company has exposure to market risk and liquidity risk from its use of financial instruments. The overall framework for managing
risk and the interest rate risk that affects the Company is discussed in note 24 to the consolidated financial statements.
All carrying values are considered to be fair values.
A sensitivity analysis has been carried out in note 24 to the consolidated financial statements, and is considered to not be materially
different for the results of the Company only.
Foreign currency risk
The Company holds monetary assets and liabilities in currencies other than UK Sterling. The majority ofthese relate to intercompany
balances which provide a natural hedge elsewhere in the Group.
The Company’s exposure to foreign currency risk to third parties was as follows:
2022
$m
2021
$m
Currency cash (23.5) (17.0)
Gross balance sheet exposure (23.5) (17.0)
The exchange rates applied during the year are disclosed in note 24 to the consolidated financial statements.
Liquidity risk
The Company’s exposure to liquidity risk relates to its borrowings. This is discussed in note 24 to the consolidated financial statements.
7. Share-based payments
Share-based payments are described in full in note 16 to the consolidated financial statements.
PSP and DRSP
The PSP and DRSP relating to employees and Directors of the Company is disclosed on page 148 in the Directors’ Remuneration
Report and in note 16 to the consolidated financial statements.
Details on assumptions and inputs used in the calculation of share-based payment amounts are disclosed in note 16 to the consolidated
financial statements.
8. Debtors
2022
£m
2021
£m
Amounts owed by subsidiary undertakings <1 year 31.4 20.3
Amounts owed by subsidiary undertakings >1 year 28.9 25.9
Other debtors 0.9 0.3
61.2 46.5
9. Creditors
2022
£m
2021
£m
Amounts falling due within one year:
Amounts owed to subsidiary undertakings 0.4 0.4
Accruals and deferred income 0.7 0.7
Other creditors 1.4 0.5
2.5 1.6
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
246 247
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
10. Provisions
2022
£m
2021
£m
At 1 January – 0.4
Usage – (0.2)
Release – (0.2)
At 31 December – –
Prior year movement relates to the disposal of the Dialight A/S business in September 2019. A provision was established for the
maximum amount payable by the Company in respect of future warranty claims relating to historical sales by the business sold, in
accordance with theSale and Purchase Agreement. A claim for £0.2m was received in accordance with the sale contract and paid in
2021. The date for further claims has expired and the remaining provision was released in 2021.
The contingent liability for the Company in relation to litigation by Sanmina Corporation is disclosed in note 27 to the consolidated
financial statements.
11. Borrowings
Borrowings are described in full in note 23 to the consolidated financial statements.
12. Called up share capital
2022
Number
2022
£m
2021
Number
2021
£m
Allotted and fully paid
Ordinary shares of 1.89 pence each 32,946,371 0.6 32,610,025 0.6
Shares classified in shareholder funds 0.6 0.6
During the year, 336,346 shares were issued (2021: 47,559) in order to satisfy the requirement for sharesthat vested as part of the PSP/
DRSP scheme (note 16 to the consolidated financial statements) and to acquire a further 12.5% share of Dialight Australia (see note 30
to the consolidated financial statements for further details). There were notional considerations attributed to the issuance, but no cash
proceeds in 2022 (2021: nil). The ordinary shares issued in the year have the same rights as other shares in issue.
13. Capital and reserves
Share premium
The share premium representes a fair value of 266,958 shares issued by the Company to aquire a further 12.5% share of its subsidiary
Dialight ILS Australia Pty Ltd (note 30 to the consolidated financial statements).
Dividends
No dividends were declared in the current or the prior year. After the balance sheet date no dividends were proposed by the Directors
and there are no income tax consequences for the Company.
Other distributable reserve
During the year, the Company purchased 0.0 million shares on the open market for £0.1m, which are being held in an employee benefit
trust to settle share options in the future (2021: 0.2 million shares for 0.7m).
14. Pensions
The Company operates a defined contribution plan and a defined benefit pension arrangement calledthe Roxboro UK Executive
Pension Fund (the “Executive Fund”). The Executive Fund provides benefits based on final salary and length of service on leaving.
The Executive Fund is closed to new members. The following disclosures exclude any allowance for defined contribution funds
operated bythe Company.
The Executive Fund is subject to the “Statutory Funding Objective” under the Pensions Act 2004. An actuarial valuation of the Executive
Fund is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process
the Company must agree with the Trustees of the Executive Fund the contributions to be paid to address any shortfall against the
Statutory Funding Objective.
The Company is required to agree a Schedule of Contributions with the Trustees of the Executive Fund following a valuation which
mustbe carried out at least once every three years, with the latest valuation in 2022. For full detail, refer to note 16 of the consolidated
financial statements.
Recognised assets for defined benefit arrangements
2022
£m
2021
£m
Present value of funded obligations (2.1) (2.9)
Fair value of plan assets 2.5 3.1
Recognised asset for defined benefit arrangements 0.4 0.2
Plan assets consist of the following:
2022
£m
2021
£m
Bonds 2.5 3.1
The assets do not include any investments in shares of the Company.
Movements in the present value of defined benefit obligations
2022
£m
2021
£m
Liabilities at 1 January 2.9 3.1
Interest cost 0.1 –
Benefits paid (0.1) (0.1)
Changes in financial assumptions (0.8) (0.1)
Liabilities at 31 December 2.1 2.9
Movements in fair value of plan assets
2022
£m
2021
£m
Assets at 1 January 3.1 3.3
Interest on assets 0.1 –
Employer contributions 0.1 0.1
Benefits paid (0.1) (0.1)
Return on plan assets less interest (0.7) (0.2)
Assets at 31 December 2.5 3.1
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
248 249
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
14. Pensions (continued)
Expense recognised in the profit and loss account
2022
£m
2021
£m
Interest on obligation 0.1 –
Interest on plan assets (0.1) –
– –
Liability for defined benefit obligations
The principal assumptions at the balance sheet date (expressed as weighted averages) are:
UK scheme
(% per annum)
2022 2021
Discount rate at 31 December 4.9 1.8
Future pension increases 3.1 3.5
Inflation – RPI 3.2 3.6
Inflation – CPI 2.4 2.9
For its UK pension arrangements, the Group has for the purpose of calculating its liabilities as at 31 December 2022, used SAPS S2NA
mortality tables based on year of birth (as published by theInstitute and Faculty of Actuaries). The UK mortality tables are based onthe
latest mortality investigations and reflect an industry-wide recognition that life expectations have improved. The average life expectancy
of an individual currently aged 45 years and retiring at age 65 years is24.5years for males and 26.1 years for females. For individuals
currently aged 65 years the averagelifeexpectancy is 23.5 years for males and 25.0 years for females.
15. Related party transactions
During the period, the Company received no management fees or interest on intercompany loans (2021: £nil) from subsidiaries that are
not wholly owned. At 31 December 2022 a total of £nil was owedto the Company by those subsidiaries (2021: nil).
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2022
Prepared under IFRS
2022
£m
2021
£m
2020
£m
2019
£m
2018
£m
Revenue 169.7 131.6 119.0 151.0 169.6
Research and development cashexpenditure 6.1 4.9 4.6 8.1 7.3
Underlying profit/(loss) from operatingactivities 5.0 4.5 (6.4) 5.2* 8.0
Non-underlying items (2.7) (2.4) (2.4) (6.3) (0.4)
Profit/(loss) from operating activities 2.3 2.1 (8.8) (11.3) 7.6
Finance charges (1.8) (1.4) (1.3) (1.2) (0.2)
Profit/(loss) before taxation 0.5 0.7 (10.1) (12.5) 7.4
Cash generated by/(used in) operations 6.6 6.0 10.5 3.5 (7.4)
Net debt (20.9) (15.7) (11.4) (16.5) (2.9)
Shareholders’ funds 68.7 60.2 57.3 67.8 85.1
* after adding back £10.2m of unaudited costs related to insourcing
Statistical information
Basic earnings/(loss) per ordinary share –pence 1.2 0.9 (24.0) (49.8) 16.4
Dividends per share – pence n/a n/a n/a n/a n/a
Underlying operating margin 2.9% 3.4% (5.4)% 3.3% 4.7%
FIVE-YEAR SUMMARY (UNAUDITED)
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
250 251
STRATEGIC REPORT
GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Registered office, contact details and communications
Company Secretary and Registered Office.
Registered in England and Wales
Company number: 2486024
Company Secretary: Richard Allan
Registered office
Leaf C, Level 36, Tower 42,
25 Old Broad Street
London EC2N 1HQ
Contact details:
Email (Company Secretary): dsecretary@dialight.com
Email (investor relations): ir@dialight.com
Web: www.dialight.com
Website
Shareholders are encouraged to visit our website,
www.dialight.com, which contains information about Dialight.
Any information on or linked from the website is not incorporated
by reference into the Annual Report and Accounts unless
expressly stated in this Annual Report. There is a section designed
specifically for investors at www.dialight.com/ir, which includes
detailed coverage of Dialight’s share price and our financial
results, historical reporting, announcements and other
governance information. Investors can register for news alerts at
https://www.dialight.com/ir/reports-news/email-alerts. Our share
price is also available on the London Stock Exchange’s website,
www.londonstockexchange.com.
Electronic communications
The carbon footprint and cost saving from electronic
communications rather than hard copy printing can be very
considerable. We strongly encourage all Dialight shareholders
tomove to electronic communications. The process to elect for
electronic communications is very simple. To receive notification
to your email address or in hard copy, whenever shareholder
documents are available on the Company’s website, please
register online by visiting our Registrar’s website,
www.shareview.co.uk and complete your details.
DIRECTORY AND SHAREHOLDER INFORMATION
Registrars and shares
Address
Equiniti, Aspect House
Spencer Road Lancing
West Sussex BN99 6DA
Telephone
Equiniti’s Shareholder Contact Centre can be contacted by
telephone on +44 (0) 371 384 2495 between 8.30am and 5.30pm
Monday to Friday, excluding public holidays in England and Wales.
Web
You can also access details of your shareholding and a range of
other shareholder services by registering at www.shareview.co.uk.
Dealing service
Equiniti offers “Shareview Dealing”– a service which allows you
tosell your Dialight plc shares or add to your holding if you are a
UK resident. You can deal in your shares on the internet or by
telephone. For more information about this service and for details
of their rates, log on to www.shareview.co.uk/dealing or telephone
0345 603 7037 between 8.30am and 4.30pm, Monday to Friday.
If you wish to deal, you will need your account/shareholder
reference number which appears on your share certificate.
Alternatively, if you hold a share certificate, you can also use any
bank, building society or stockbroker offering share dealing
facilities to buy or sell shares. If you are in any doubt about buying
or selling shares, you should seek professional financial advice.
Advisers
Financial advisers
Peel Hunt LLP
100 Liverpool Street
London EC2M 2AT
Auditors
Through to 2023 AGM:
KPMG LLP
15 Canada Square
London E14 5GL
To be recommended for appointment at 2023 AGM:
Grant Thornton
30 Finsbury Square
London EC2A 1AG
Legal advisers
Ashurst
London Fruit & Wool Exchange
London E1 6PW
Osborne Clarke
One London Wall
Barbican
London EC2Y 5EB
Principal bankers
HSBC Bank PLC
West London Corporate Centre
1 Beadon Road
London W6 0EA
2023 Financial calendar
Annual General Meeting: Tuesday 16 May 2023
Half Yearly Financial Report: Monday 31 July 2023
Any amendments to these dates will be notified on the Company’s
website (www.dialight.com).
Trademarks
The following registered trademarks of the Dialight Group
appearin this document: “DIALIGHT”, “VIGILANT”, “PROSITE”
and “DUROSITE”.
Forward-looking statements
Certain sections of this Annual Report contain forward-looking
statements that are subject to risk factors associated with,
amongst other things, the economic and business circumstances
occurring from time to time in the countries and sectors in which
the Company and its subsidiaries and associates operate. It is
believed that the expectations reflected in the Annual Report are
reasonable, but they may be affected by a wide range of variables
which could cause actual results to differ materially from those
currently anticipated.
DIALIGHT PLC ANNUAL REPORT AND ACCOUNTS 2022
252 253
STRATEGIC REPORT
GOVERNANCE OTHER INFORMATIONFINANCIAL STATEMENTS
Consultancy, design and production
www.luminous.co.uk
Leaf C, Level 36
Tower 42
25 Old Broad Street
London EC2N 1HQ
+44 (0)20 3058 3541
info@dialight.com
www.dialight.com
Registered in England and Wales
Company number: 2486024