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DIALIGHT PLC
ANNUAL REPORT
AND ACCOUNTS
2024
STRATEGIC REPORT
Perfornance at a glance 01
Our business at a glance 02
Chair’s statement 04
Chief Executive Officer’s review 05
Our business model 07
Our transformation plan at a glance 08
Key performance indicators 09
Sustainability at Dialight 11
TCFD Report 17
Risk management 19
Principal and emerging risks and uncertainties 21
Chief Financial Officer’s review 25
Going concern statement 29
Viability statement 31
GOVERNANCE
Chair’s introduction to governance 33
Compliance statements 34
Section 172 statement 35
Governance overview 38
Board: Leadership 40
Governance structure and division of responsibilities 42
Leadership and engagement 46
Board composition, succession and evaluation 48
Nominations Committee report 49
Audit Committee report 51
Remuneration Committee report 57
2023/24 Annual Report on remuneration 72
Implementation of the remuneration policy for 2024/25 76
Directors’ report 78
Directors’ responsibility statement 81
FINANCIAL STATEMENTS
Independent auditor’s report to the members of Dialight plc 83
Consolidated income statement 97
Consolidated statement of comprehensive income 98
Consolidated statement of changes in equity 99
Consolidated statement of total financial position 100
Consolidated statement of cash flows 101
Notes to the consolidated financial statements 102
Appendix – Comparison of GBP and USD
31 December 2022 primary statements 140
Company balance sheet (prepared under FRS 102) 142
Company statement of changes in equity 143
Notes to the Company financial statements 144
OTHER INFORMATION
Directory and shareholder information 152
Contents
GROUP REVENUE
$226.0M
2022: US $209.8m
UNDERLYING EBIT*
$(4.6)M
2022: US $6.1m
NET DEBT*
$16.4M
2022: US $25.4m
INVENTORY
$49.1M
2022: US $64.8m
UNDERLYING GROSS MARGIN*
31.0%
2022: 32.1%
PROFIT/(LOSS)
$(32.5)M
2022: US $0.5m
FINANCIAL PERFORMANCE* NON-FINANCIAL PERFORMANCE
REDUCTION IN SCOPE 1 & 2
EMISSIONS PER US $M OF REVENUE
13%
REDUCTION IN WATER INTENSITY
PER US $M OF REVENUE
7%
* 2023 figures refer to the 15-month period ended 31 March 2024. 2022 refers to the 12-month period ended 31 December
2022. Certain financial information set out in the financial statements and Annual Report is not defined under International
Financial Reporting Standards. These key Alternative Performance Measures represent additional measures in assessing
performance. These are reconciled in Note 27 to the financial statements.
Performance at a glance
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
01
At Dialight we are 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.
Dialight has been an LED company
for over 50 years, with all our
products developed in‑house.
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.
WHO WE ARE
WHAT WE DO
Our business at a glance
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
02
OUR CORE VALUES OUR TWO DIVISIONS
Our business at a glance continued
WE ARE CUSTOMER‑CENTRIC
It’s easy to work with Dialight. We build trust through
integrity and transparency, engaging witheachcustomer
tounderstand and help themachievetheir goals.
LED INDUSTRIAL LIGHTING
Our range of LED Industrial Lighting is aimed
atamarket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.
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.
DELIVERING VALUE IN EVERYTHING WE DO
We are accountable for delivering value by mitigating
risk and identifying opportunities for improvement.
We simplify and connect processes to improve efficiency
and productivity, and are building a sustainable supply
chaintomeet stakeholder expectations – improving
service and quality, and reducing waste.
CREATING STAKEHOLDER VALUE
We optimise access to capital, capital efficiency, and
working capital. We analyse our finances thoroughly,
toimprove margins and drive smart business decisions
–delivering sustainable profitability. We provide
reportingbased on integrity and transparency.
EMPOWERMENT AND ACCOUNTABILITY
We expect accountability for delivery from our people
and those we work with. We treat each other with respect,
care and empathy – supporting a culture of innovation,
collaboration, continuous learning and professional
development. We listen, learn from mistakes, and
contribute – acting as a team with a single goal.
DRIVING TRANSFORMATIONAL CHANGE
We are adaptable in the face of change, with a long-term
view. We are open to new ideas, have the courage to
express them, and question conventional ways of doing
things – always looking for better, more sustainable
approaches that increase value for our business.
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03
“ WE NOW HAVE A REAL
OPPORTUNITY FOR GROWTH IN
THE MEDIUM TERM. WE HAVE
A COMPETENT MANAGEMENT
TEAM RUNNING THE BUSINESS,
A STRONG PRODUCT PORTFOLIO,
AND EXCELLENT RELATIONSHIPS
WITH OUR CUSTOMERS.”
Neil Johnson
Chair
My first year as Chair of the Board has not been without
its challenges, with an enormous amount of rapid change
throughout the business. Dialight is in a stronger position
as we enter 2024 – having made significant changes
to restructure the Board and launched a significant
transformation plan, we are seeing the first signs of
improvement coming through.
We have also made two important changes to our reporting.
Firstly, our year end has moved from December to March,
giving us better visibility of our performance throughout the
year and helping us navigate our industry’s seasonal ups and
downs. In addition, we are now reporting in USD rather than
GBP, because it is the dominant currency of our organisation.
You can read more about both of these changes in more
detail in the CFO review, starting on page 25.
With global supply chain issues hopefully behind us, we
now have a real opportunity for growth in the medium
term. We have a competent management team running
the business, a strong product portfolio, and excellent
relationships with our customers.
In September, we introduced our transformation plan. In its
simplest terms, our plan is to refine and automate processes
at our existing facilities, work in a more collaborative fashion,
and bring new products to market that are aligned with our
customers’ needs. You can read more on page 08.
As a Board, we are committed to strengthening partnership
and collaboration across the business: with our people,
bybreaking down silos; with our customers, by getting even
closer to them; and with our shareholders, by seeking their
feedback and recommendations.
This approach has already received hugely positive feedback
from our employees, who are excited about the change
intempo throughout the organisation. From shop floors
inMexico, Malaysia and North Carolina right through to our
head office, our people are on board with the journey we are
on together.
Our transformation plan is backed by our major shareholders,
who injected US $12.9m in 2023 to enable us to execute
our plans. I would like to thank them for their continued
patience, understanding and support throughout the year,
and look forward to maintaining those relationships long into
the future.
In January, we began restructuring the Board. First, webrought
in Carolyn Zhang – an excellent strategist based in the
United States with a global manufacturing background
– as Chief Financial Officer. Former CFO Clive Jennings
left his role in September, and Carolyn has fitted into the
organisation perfectly.
Then, in February, we also announced the appointment of
Steve Blair as Chief Executive Officer, replacing the departing
Fariyal Khanbabi. Steve first joined the Board as Senior
Independent Director in June 2023 and is a highly competent
engineer who has led both large and small high-tech
businesses. He has a track record of turnaround and delivery
and will bring control, accountability and discipline to the
Dialight business.
I was delighted to welcome both Steve and Carolyn, who
bring fresh eyes and new talent to the Board at a very exciting
time for the business. Nigel Lingwood and Lynn Brubaker
remain important and valued members of the Board.
I would like to take this opportunity to thank my predecessor
David Thomas and the previous Board, for their commitment
to Dialight over the years.
As part of this restructuring, we also recognised that our de
facto headquarters should be in Farmingdale, New Jersey,
rather than the UK – 80% of our business is in North America,
alongside a large proportion of our workforce. In the UK, we
have moved to a smaller listed-entity office in London.
On behalf of the Board, I would like to thank our customers,
suppliers and shareholders for their confidence and trust in
us despite challenges throughout the year – and look forward
to delivering for all our stakeholders as we continue to build
amore resilient, more successful business.
Neil Johnson
Chair
29 July 2024
Chair’s statement
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
04
“ THROUGH ACCOUNTABILITY,
DISCIPLINE, COMMITMENT AND
INTEGRITY WE ARE HELPING
EVERY PERSON UNDERSTAND
THEIR CONTRIBUTION TO THE
BUSINESS, REMOVING SILOS
AND SETTING THE BUSINESS
ON A PATH FOR GROWTH.”
Steve Blair
Chief Executive Officer
The financial period under review was one of significant change
for Dialight, with a major restructuring not only of the Board and
senior leadership team but the entire organisation’s approach
to doing business. Whilst I have only been part of the executive
team for a relatively short time – having stepped into the CEO
role in February of this year – a lot has already occurred and we
are already starting to see the green shoots of progress.
Total Group revenue for the 15-month period to 31 March
2024 was US $226.0m versus US $209.8m for the 12-month
period to 31 December 2022. This slight increase is negated
by the longer reporting timeframe, and indicates a slowdown
in revenue growth over the past year. However, the last three
months showed improving performance month by month
andwe met forecast revenues in February and March.
Dialight made an underlying operating loss of US $4.6m in
the same 15-month period, and our underlying gross margin
dropped slightly to 31.0% (versus 32.1% in the previous period).
We have refocused the business in alignment with the
core values that the leadership team have collaboratively
developed in recent months – and that are outlined on
page03. We are confident this will help bring success to
Dialight going forward. The opportunities are significant,
itisfor ustomaximise what we achieve and when.
TRANSFORMING THE ORGANISATION
In September 2023 we announced a transformation plan –
seepage 08 for further detail – that will see us streamline the
Group, reset cost and productivity, and accelerate growth
inlighting. We are executing on that plan with a new self-help
strategy further developed in early 2024, comprising four
key pillars:
1. Winning hearts and minds
We will engage and excite our people, our shareholders and
our customers.
2. Sales transformation
We will make improvements to better support the Sales team
in feeding our factories with orders. We will also be providing
additional tools and support to help with accountability,
discipline and excellence from our Sales teams.
3. Operational transformation
We will streamline processes and optimise our
production capabilities.
4. Margin improvement and cash generation
We will run the business in a sustainable way to secure
Dialight’s long-term future.
WINNING HEARTS AND MINDS
If our strategy is to be a successful one, we need all our
people to be pulling in the same direction. The senior
leadership team is making every effort to engage and excite
our employees, toimprove discretionary effort and delivery
atevery level.
We are reinforcing the message that change is coming,
that change is expected, and that change will be delivered.
Through accountability, discipline, commitment and integrity
– and a core set of goals and objectives – we are helping
every person understand their contribution to the business,
removing the silos that had been allowed to form in recent
years and setting the business on a path for growth.
In early 2024, we held town hall meetings in Farmingdale
(NewJersey, US), Tijuana (Mexico), Ensenada (Mexico) and
Perth (Australia), as well as roundtable discussions with
employees in Farmingdale. Based on the input received
during these sessions, we followed up with feedback emails to
employees – and I have used a monthly written blog to update
the global teams on our progress across the organisation.
We have also started holding regular meetings between all
sales regions and our engineering and development teams,
to better inform decisions about future product requirements
and opportunities for cost improvement. We have two teams
looking at the engineering change order (ECO) and order
input and quotation processes, based on the feedback we
have received.
The response from across the organisation has been positive,
with employees appreciating the more open and transparent
communication they are seeing and hearing. We are
committed to treating our people as intelligent, individual
human beings, because their support is vital.
I will continue this combination of in-person and written
dialogue as our transformation progresses, keeping
employees informed and recognising the important role
theyare playing.
Chief Executive Officer’s review
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
05
Chief Executive Officer’s review continued
SALES TRANSFORMATION
Top-line growth is the key to our future success –
andespecially to the short-term recovery of the business.
We are transforming globally to ensure all teams are using
the same tools and approach, breaking down silos and
improving collaboration.
By being better organised internally, and by working
more effectively with our customers, we can deliver more
value to the business – generating more orders with
greater predictability.
We are investing in our Sales team to accelerate this
change, including better training and more regular reviews,
andwearedemanding disciplined sales performance.
We are also reviewing the global makeup of our team,
toensure we have the right people in the right places –
bothto capitalise on the opportunities we have identified,
andto improve the efficiency of our sales operation.
This efficiency will allow us to reinvest in salespeople
andsales support.
OPERATIONAL TRANSFORMATION
Our operations teams are strong and committed to better
visibility and control of their business, but we have to provide
them with better tools, visibility and support to achieve
this goal.
In support of this, I have created the role of Chief Operating
Officer – and was delighted that Rizwan Ahmad has agreed
to accept the role. Rizwan has already been with Dialight for
more than 20 years, running engineering and development.
He knows and understands the business well and is a real
team player.
Rizwan will be carrying out an in-depth review of the
approach, assumptions, and next steps for our operational
transformation – including our order-to-cash process –
withthe goal of making the organisation’s operations more
efficient, effective and sustainable.
One strong example of where we can make significant
improvements is in product simplification – and we are
already making real progress here. For example, in one
product wehave reduced the number of individual SKUs
from 70tojust three – a fundamental difference to the
manufacturing process that saves time and money while
stillproducing thesame result for our customers.
MARGIN IMPROVEMENT AND CASH GENERATION
Cost reduction and control is essential if we are to
generate the headroom we require in order to accelerate
our transformation.
We know that every penny we spend is one we cannot
invest somewhere else, so we are being more careful
about controlling how and where we spend – giving us
thefreedom to invest in new salespeople, training, systems
and tools. We are also making further process and policy
implementations and improvements across the business
tohave better control of every aspect of our operations.
With quick action, discipline and accountability, I am
confident that we can improve Dialight’s financial outlook
and make areal difference to the business in the medium
term, aswe seek to maximise our self-help approach and
deliver predictable forecasts and performance for the benefit
of our customers, suppliers, employees, shareholders and
other stakeholders.
Steve Blair
Chief Executive Officer
29 July 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
06
• Our aim is to 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.
• We provide a creative working environment for
ouremployees with scope for individual responsibility
andpersonal achievement. We help them develop
their skills andprovide competitive rewards linked
to performance.
• We work closely with our customers to understand and
meettheir objectives, including reducing their carbon
footprint by lowering their energy and maintenance costs.
• We create jobs for local communities around the world,
supporting local supplier development and delivering
economic benefits – as well as supporting disadvantaged
local people through the Dialight Foundation.
• We support local economies by creating employment,
payinglocal taxes and stimulating local economic prosperity.
Our business model
WHAT WE DO
THE VALUE WE CREATE
Dialight develops market-leading, sustainable LED products for the
industrialmarkets – helping our customers reducetheircarbon emissions
andprovide a safer working environment for their people.
Our revenue mainly derives from the sale of lighting fixtures,
bothviadistributionchannels and direct totheendcustomer,
usingourhighlytechnicalsales force.
Our factories operate lean processes supported by our robust
supplychainandrelationships with key suppliers, andwebuildstrong
relationshipswithourglobal distributor network and end customers.
We certify our products using EN 15804 with independently
verifiedEnvironmentalProduct Declarations.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
07
In September, with the support
ofthe Board, Dialight announced its
transformation plan – reconfirming the
significant opportunities in the growing
industrial LED lighting market, and the
potential for the Group to realise increased
growth and improved profitability.
The plan is designed to address legacy issues associated with
excess cost and complexity within the organisation, while at
the same time focusing more resources on the most attractive
growth opportunities within the core LED lighting market.
The transformation plan has the potential to increase growth
and profitability materially in the medium term, delivered
through numerous initiatives, structured around three key
objectives: streamlining the Group; resetting cost and
productivity; and accelerating growth in lighting.
STREAMLINING THE GROUP
While our proprietary technology and commercial strategy
have enabled us to establish leading positions in a number
of attractive LED lighting markets, supporting high levels
ofgrowth over recent years, profitability and cash generation
have been poor.
The new Board’s review of the Group’s strategy and
operations this year has identified several underlying factors
itbelieves have contributed to disappointing performance:
• A fragmented organisation comprising five distinct
service offerings
• A manufacturing footprint with lower-than-ideal levels
of automation
• A product range that is too broad and complex
• An ageing product portfolio in certain areas
To address each of these challenges, the Group needs
tobe both simplified and more focused. We are reviewing
the Group’s businesses, with any deemed non-core to be
exited, reviewing manufacturing operations and investing
in increased automation at key sites. We are also realigning
our cost base to befit a more streamlined business, reducing
and standardising our product range, and narrowing and
consolidating our supply chains.
RESETTING COST AND PRODUCTIVITY
Dialight’s footprint across Mexico, the US and Malaysia
helps support the international nature of our customer
base, butalso gives rise to inefficiency at both a site and
network level. Reducing complexity in our product range
andrealigning the flows through our site network will be
partof streamlining the business.
We also see the potential for significant productivity and cost
benefits to be realised through increasing the automation
of our manufacturing processes. Today, many of our
manufacturing processes are excessively labour-intensive,
which has resulted in rapid cost escalation in the past two
years as wage inflation has accelerated. Against this backdrop,
automation represents a significant improvement opportunity.
ACCELERATING GROWTH IN LIGHTING
The industrial LED lighting market continues to be very
attractive, with the conversion from historic technologies and
increasing focus on safety and sustainability supporting long-
term structural growth. Our historic focus on the harsh
and hazardous segment has helped achieve a market-leading
positionintheUS,with excellent customer and
distributor relationships.
We are seeing a rapid evolution in technology as customers
seek ever-increasing levels of productivity and efficiency from
their sites. We believe our key areas of product differentiation,
technology expertise, open architecture and excellent
customer relationships make us well-placed to be a leader
in this technological evolution – and we are expanding our
commercial strategy to capitalise on this opportunity.
Further, we see scope to monetise our specific technology
expertise by selling component elements of this – power
supply topology, for example – as separate products into
markets where we do not currently operate. And we are
focusing additional resources into developing fixture products
with integrated monitoring or control components for
specified higher-value customer applications.
Our transformation plan at a glance
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
08
GROUP REVENUE
(US $M)
$226.0M
2023
2022
226.0
209.8
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.
Target
Year on year revenue growth.
Link to Strategy
Profitable revenue growth is essential
to long-term success.
UNDERLYING EBIT
(US $M)
$(4.6)M
2023
2022
(4.6)
6.1
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- and long-term
incentive targets.
Target
For 2024 the target was consensus
underlying EBIT at the start of the year,
which was US $6.3m.
Link to Strategy
The key measure of the success of
ournear-term strategic goals is growth
in underlying EBIT.
* 2023 figures refer to the 15-month period ended 31 March 2024. 2022 refers to the 12-month period ended 31 December 2022 Certain financial information set out in the financial
statements and Annual Report is not defined under International Financial Reporting Standards. These key Alternative Performance Measures represent additional measures in assessing
performance. These are reconciled in Note 27 to the financial statements.
Key performance indicators
*
CASH GENERATED BY OPERATIONS
(US $M)
$13.3M
2023
2022
13.3
7.9
Description
The ability to turn profits into cash.
Definition
Cash generated by operations is
defined as the operating cash flow
afterworking capital movements.
Remuneration linkage
Cash generation does not directly link
to remuneration but impacts net debt
which is directly linked.
Target
Year-on-year growth.
Link to Strategy
Cash generation is critical to support
our growth ambitions.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
09
LIGHTING UNDERLYING GROSS
PROFIT (US $M)
$57.6M
2023
2022
57.6
50.2
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- and long-term incentive targets.
Target
We target year-on-year expansion
ofLighting gross profit.
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.
LIGHTING ORDERS
(US $M)
$171.1M
2023
2022
171.1
149.6
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
Year-on-year order growth.
Link to Strategy
Order growth is a lead indicator of the
financial strength of our end markets.
NET DEBT
(US $M)
$16.4M
2023
2022
16.4
25.4
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 2024 the target was consensus
netdebt at the start of the year,
whichwas US $22.1m.
Link to Strategy
Net debt is a critical measure to ensure
the business has sufficient liquidity
tosupport growth ambitions.
Key performance indicators
*
continued
* 2023 figures refer to the 15-month period ended 31 March 2024. 2022 refers to the 12-month period ended 31 December 2022 Certain financial information set out in the financial
statements and Annual Report is not defined under International Financial Reporting Standards. These key Alternative Performance Measures represent additional measures in assessing
performance. These are reconciled in Note 27 to the financial statements.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
10
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. 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 page 12.
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.
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.
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.
Sustainability at Dialight
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Sustainability at Dialight continued
ENVIRONMENTAL REPORTING
Over the past few years we have invested 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). Our figures
for the 15 month period ending 31 March 2024 have been
externally verified to a limited level of assurance in accordance
with ISO 14064.
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 and 4 emissions have not been calculated for the
15 month period ending 31 March 2024, due to the loss
ofresources which the Company has had in prior years.
USAGE DISCLOSURES
CO
2
e
15 month period
ending 31 March
2024
12 month period
ending 31 Dec
2022**
15 month period
ending 31 Dec
2021
15 month period
ending 31 March
2024 vs 2022
Scope 1 Emissions from combustion of fuel Tonnes 1,388 1,663 1,188 17%
Scope 2 Emissions from location based
purchasedelectricity
Tonnes 4,728 4,876 4,377 3%
Scope 3* Emissions from all other activities except
customer usage
Tonnes 120,147 100,820
Total excluding customer-
relatedemissions
Tonnes 126,686 106,385
Scope 3* Emissions from customer usage*** Tonnes 1,099,000 882,000
Total emissions using GHG Protocol Tonnes 1,225,686 988,385
Emissions if customers did not convert
toLED**
Tonnes 3,189,000 2,496,000
Scope 4* Emissions avoided by customers*** Tonnes (2,090,000) (1,614,000)
Net emissions impact*** Tonnes (1,963,314) (1,507,615)
Consumption 15 month period ending 31 March 2024
15 month period
ending 31 March
2024
m’s
12 month period
ending 31 Dec
2022
m’s
12 month period
ending 31 Dec
2021
m’s
Variance
m’s
Electricity kWh 12.2 12.1 11.0 (0.1)
Water litre 14.2 14.2 14.6 0.0
* Scope 3 and 4 not calculated for 15 month period ending 31 March 2024, due to loss of resources.
** There were some minor changes to 2022 reported numbers during the verification process after the Annual Report.
*** Internal calculations, net emissions impact is 2,090k (1,099k less 3,189k) of net customer benefit less 127k (all other processes).
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
12
Sustainability at Dialight continued
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.
TARGETS
Our targets for the 15 month period ending 31 March
2024 were to reduce Scope 1 & 2 (combined) by 3% pa
(perUS$m of revenue). Our other target was to reduce water
consumption by 5% per US $m of revenue. Both targets were
exceeded in the 15 month period ending 31 March 2024.
INTENSITY RATIOS
Our actual intensity ratios for the 15 month period
ending 31 March 2024 showed improvements over 2022.
Gas consumption (Scope 1) decreased and for electricity
(Scope 2), we got the benefit of production not being resource
intensive so the 8% 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.
REPORTING THROUGH OTHER ROUTES
We complete the Carbon Disclosure Project (“CDP”)
questionnaire annually in which we give details of Scope 1
and2 and water management. Our submission is public and
can be viewed via the CDP website. Our climate change rating
in 2023 was B and water security was C.
In addition, we publish three-year environmental data and
SASB Electronic Manufacturing Services compliance data
inour Sustainability Report available on our website.
Consumption per US $ of turnover
15 month period
ending 31 March
2024
12 month period
ending 31 Dec
2022* Variance
Revenue 226.0 209.8 8%
Scope 1 Tonnes/US $m revenue 6.1 7.9 23%
Scope 2 Tonnes/US $m revenue 20.9 23.2 10%
Scope 1 and 2 combined Tonnes/US $m revenue 27.1 31.2 13%
Electricity MWh/US $m revenue 54.2 57.7 6%
Water Kilo litre/US $m revenue 62.8 67.7 7%
* There were some minor changes to 2022 reported numbers during the verification process after the Annual Report.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
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Sustainability at Dialight continued
SOCIAL
There are three main groups of people we consider
inour operations:
1. SAFETY AND WELLBEING OF OUR PEOPLE
We have a moral obligation to ensure
thesafetyandwellbeing of all our staff.
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.
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.
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.
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.
Accident rates
In the 15 month period ending the 31st March 2024 there were
unfortunately five recordable incidents and 300 near misses.
We take these incidents very seriously and have the following
in place.
• 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
2. OUR PEOPLE AND THE COMMUNITIES
INWHICHWEOPERATE
In order to have a sustainable business,
wemustprotectlocal communities.
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 a monthly all-employees updates from the
CEO, 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.
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
14
Sustainability at Dialight continued
3. PEOPLE IN THE SUPPLY CHAIN
Our moral obligations to people extend back through
thesupply chain to ensure sustainable production.
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 have an up to date Modern Slavery statement on the
Company website and are fully compliant with the legislation
in this area.
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 third-party charitable
workor donations to the local communities
GOVERNANCE
Introduction
This section deals with Governance in relation to ESG and
the main Corporate Governance section is located on pages
33 to 81. 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 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
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 strive to operate
ata higher level.
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15
Sustainability at Dialight continued
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 anti-bribery 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.
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. We received nothing on the official whistleblowing
hotline during the year.
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.
NON-FINANCIAL AND SUSTAINABILITY INFORMATIONSTATEMENT
Produced in compliance with Sections 414CB (2A) of the Companies Act. Information incorporated by cross reference.
Requirement Relevant policies and standards Additional information Page
Environmental matters Sustainability Data and
Reporting Policy
Quality and EHS Policy
Supplier Code of Conduct
Sustainability 11 and 12
Climate-related risks
andopportunities
Task Force on Climate-related
Financial Disclosures (TCFD)
Climate change and Task Force on
Climate-related Financial Disclosures
(TCFD)
17 and 18
Employees Code of Business Conduct
Health & Safety Policy
Whistleblower Policy
Health, safety and wellbeing
Our people
Ethics and compliance
Stakeholder value: employees
14, 15 and 37
Social and
communitymatters
Sustainability Data and
Reporting Policy
Community Engagement Policy
Code of Business Conduct
Social value reporting
Ethics and compliance
Stakeholder value: communities
14 and 15
Human rights Code of Business Conduct
Modern Slavery Policy
Ethics and compliance 15
Anti-corruption and
briberymatters
Code of Business Conduct
Anti-Corruption & Bribery Policy
Sanctions & Export Policy
Supplier Code of Conduct
Ethics and compliance 16
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
16
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.
We have not yet complied with FCA listing rule 9.8.6R(8)
but we have considered relevant and material elements
of the recommended TCFD disclosures, and are aligned
with TheCompanies Act Regulations 2022, 414CB (2A).
This report uses the four thematic areas and eleven
recommended disclosures, as 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 2025 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 as yet we have not
fully complied with the requirements of Listing Rule 9.8.6R(8),
but we are working towards this moving forward. The Board
monitors and oversees the Group’s GHG emissions (actual
and avoided) and any targets related to them, see page 12
for further details. The Board is responsible for approving
thecontent of the Group’s TCFD disclosures.
The executive management level oversight of climate- related
issues at Dialight is performed by the CEO, with the support
of the Executive Committee, which consists of VPs from the
major departments. The CEO and Executive 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 CEO.
STRATEGY
The Group has not fully complied with the recommended
disclosures relating to Strategy. We continue to work to
establish relevant strategic quantifiable scenario analysis to
measure the impact of climate related risks and opportunities.
The CEO has visibility of all of the issues impacting strategy
in this area and will be supported by the global teams in
commencing new initiatives in the forthcoming year.
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 years), medium (3 to 10 years) or long-term
(10+years) time horizons.
Risks and opportunities relevant to Dialight are 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 (Low to High).
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 21 to 24) relating to:
• Environmental and Geological
• Geo-political/Macro-Economic
• Production Capacity and Supply Chain
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
17
Regulatory pressure to reduce emissions
andbanolderlighting technologies Greener aluminium & transport
Link to Strategy 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.
Description 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.
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).
Financial impact Financial impact
We have not quantified the financial impact at this stage. We have not quantified the financial impact at this stage.
Medium-long termMedium-long term
CLIMATE-RELATED OPPORTUNITIES
TCFD Report continued
METRICS AND TARGETS
The Group has not fully complied with the recommended
disclosures relating to metrics and targets. We continue to
work to establish relevant metrics and targets to measure
climate-related risks and opportunities.
These disclosures also address the requirements set out
under the Companies (Strategic Report) (Climate-related
Financial Disclosure) Regulations 2022.
Our specific emissions reporting is on page 12.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
18
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 42 to 45. 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
1 FUNCTIONAL AND FRONT LINE CONTROLS
2 ASSURANCE ACTIVITIES
3 MONITORING AND OVERSIGHT CONTROLS
4 ETHICAL AND CULTURAL ENVIRONMENT
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 BOARD
OPERATIONAL/ESG
COMPLIANCE
CHIEF EXECUTIVE AUDIT COMMITTEE
RISK COMMITTEE
EXECUTIVE COMMITTEE COMPANY SECRETARY
SENIOR MANAGERS REGIONAL FINANCE STAFF
GROUP FINANCE STAFF
Bottom-up
• Business risk appetite policy
• Assessment and mitigation of specific risks
• Upward reporting of key residual risks
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
19
Risk management continued
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 (e.g. 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.
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.
READ MORE ON PAGE 21 to 24
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
20
Principal and emerging risks and uncertainties
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
INTELLECTUAL PROPERTY
Low
• Revenue
• Underlying
operating profit
Intellectual property infringement
risk – by Dialight or against
Dialight. Security of protectable
intellectual property.
• 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. In house product
development and purchase-in
of components will also mitigate
riskfurther.
2
GROWTH (CURRENT OFFERING, CUSTOMER REQUIREMENTS AND MARKETS)
High
• Revenue
• Underlying
operating profit
Risk of stagnation of addressable
market of current product
portfolio, product portfolio
management efficiency, and
execution risk on current sales/
route to market.
Understanding customer
requirements regarding product
function and price.
Risk from failure to recognise
emerging markets and focus
concentrated on North America.
• Loss of reputation
• Loss of market value
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. We will also
improve focus on other regions
and geographies having regard to
Product diversity appropriate for
each region, and consider greater
diversity in product portfolio mix
(S&C, obstruction). We will make
improvements to better support
the Sales team in feeding our
factories with orders.
3
ENVIRONMENTAL AND GEOLOGICAL
Medium
• 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 and/or workforce
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. Improvements have
also been made to our key site
inEnsenada to mitigate fire risk.
Change in year Magnitude of impact
Increased Decreased No change
Low
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
21
Principal and emerging risks and uncertainties continued
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
FUNDING
High
• 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.
Capital and debt funding servicing
and adequacy, also having
regard to compliance with our
bankingcovenants.
A retrospective review of covenant
calculations for the 15-month
period to 31 March 2024 was
performed by management
as part of the year-end audit
after certain matters came to
the attention of the Board. This
retrospective review identified
that breaches of the covenants
had and/or may have had occurred
when also retrospectively applying
finalised year-end accounting
adjustments.
• Covenant
compliance
• Volatile financial
performance arising
from translation
of profit from
overseas operations
The Group’s bank facility was
extended on 14 June 2024 to
21July 2026 on the same terms
asthe original agreement.
Following the retrospective
review of covenant calculations
by management, waiver requests
were communicated to HSBC who
have agreed to issue retrospective
covenant waivers for the relevant
quarters. The waivers are subject
to legal finalisation at the date of
this report.
Capital allocation policy is used
to determine re-investment or
distribution of cash.
The Group has reduced profit
and balance sheet volatility by
changing its reporting currency
(in this reporting period) to US
dollars which aligns with the
majority of its revenues, cost base
andborrowings.
5
CYBER & DATA INTEGRITY
High
• Revenue
• Underlying
operating profit
• On-time delivery
• Order growth
Disruption to business systems
would have an adverse impact
on the Group if our systems
suffered Cyber attacks (including
ransomware, phishing, DDOS
attack). The Group also needs
to ensure the protection and
integrity of its data. There can
be additional risk if internal data
management processes are not
mapped and improved. With the
Group’s dispersed international
footprint, increasing automation
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.
This year we have also engaged
external consultants to verify
and improve the integrity of our
emailsystems.
We are also considering engaging
external consultants to assist in
mapping order to cash process
and improve systems and
operational performance.
Change in year Magnitude of impact
Increased Decreased No change
Low
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
22
Principal and emerging risks and uncertainties continued
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
6
TALENT & DIVERSITY
High
• Revenue
• Retention
Group performance is dependent
on attracting and retaining
high-quality staff across all
functions. Risk in the labour market
hardening in all markets (especially
Mexican wage inflation risk) and
age profile of key staff increasing.
• Without good-
calibre staff, the
Group will find it
difficult to expand
and achieve its
strategic goals
Historically low labour mobility
in our know-how roles. We have
a focus on career structure
and development plans in
place, alongside competitive
remuneration structures.
New VP, HR recruited into
the Group this year leading
to improved HR systems
andretention tools.
7
GEO-POLITICAL AND MACRO-ECONOMIC IMPACTS
High
• Revenue
• Underlying
operating
profit
There is risk attaching to macro-
economic performance in North
America. Risk of macro-economic
shocks (including inflation) has
increased globally, and geo-
political risk has increased across
Europe and Asia.
• Reduced
financial
performance
• Lack of growth
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.
8
PRODUCT RISK
Low
• Revenue
• Underlying
operating
profit
Risk relating to commercial
obligations (including warranty),
legal, product recall and
reputational risks arising from
under-performance or non-
performance of product against
contracted specification and/or
product malfunction.
• Unforeseen
liabilities
• Covenant
compliance
Catastrophic failure protections
designed-in to our Products
mitigate risk.
We deploy clearly defined
specifications – against third-party
certified product.
We have standardised contractual
limitations on liability and
protections alongside product
liability insurance.
Change in year Magnitude of impact
Increased Decreased No change
Low
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
23
Principal and emerging risks and uncertainties continued
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
9
PRODUCT DEVELOPMENT STRATEGY
High
• 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.
Emerging pressure to innovate
ESG-friendly and less carbon-
dense products.
• Loss of revenue
• Loss of market share
• Lack of order growth
Our new-product development
cycle extended (5–10 years) and
current product portfolio are well
established, and includes input
from customers and distributors
as well as our highly- experienced
multi-disciplinary in-house
engineering team.
We are also recruiting new product
marketing capability to address
market needs and requirements,
especially in newmarkets.
10
PRODUCTION CAPACITY AND SUPPLY CHAIN
High
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 proximity of our manufacturing
capacity to primary markets
reduces risk.
In addition, modularisation
of new products simplifies
supply chain, inventory and
manufacturingprocesses.
The Group also has multi-site
manufacturing capacity flexibility.
Modularisation of new products
simplifies supply chain.
Change in year Magnitude of impact
Increased Decreased No change
Low
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
24
Chief Financial Officer’s review
“ WE ARE NOT TALKING ABOUT
PRODUCING MIRACLES,
BUT WE ARE TIGHTENING
UP ALL AREAS OF THE BUSINESS –
BEING MORE CAUTIOUS, GIVING
MORE REALISTIC FORECASTS,
AND LIVING UP TO THEM.”
Carolyn Zhang
Chief Financial Officer
Dialight has been through a true reset over the past period,
with an almost completely new Board and new management
in place. We are also resetting and rebuilding our relationships
with all our external stakeholders, including our shareholders.
We want better visibility of the company’s performance
throughout the year, which is one of the key reasons we have
changed our year end from December to March – weare
putting ourselves in a better position to respond to the
seasonality of our industry. This change also means that this
report covers a 15-month period.
The fourth quarter of the calendar year (October to
December) is always an unpredictable one for our business.
However, while previously this marked the end of our
reporting period, we are now able to better manage our
expectations and provide better forecasting for what will now
be our final quarter (January to March) – giving us a clearer
view of how we can adjust, reorganise, and bring greater
predictability to our operations.
As a Board and a management team, we are committed to
providing realistic forecasts for the business – and we will
deliver against these forecasts quarter after quarter. You can
already see the impact of our hard work in our improved Q5
performance, as Dialight met its revenue forecasts for the first
time in 18 months – with group revenues of US $41.0m in the
quarter ending 31 March 2024.
We will also keep our promises to the bank by living within
our means, with a manageable facility, and delivering within
that. We are not talking about producing miracles, but we are
tightening up all areas of the business – being more cautious,
giving more realistic forecasts, and living up to them.
Another major difference in our reporting this year is the
currency change from GBP to USD. While Dialight will
continue as a PLC registered and listed in the UK, the majority
of our production and sales arise in North America – making
itmore natural for us to report in the currency that 80% of our
revenue is paid in. USD has always been Dialight’s dominant
currency, and our reporting now reflects that.
We are rebuilding shareholder and market confidence, and
gradually getting the business back to a healthy position.
FINANCIAL REVIEW
CURRENCY CHANGE
The Group has historically presented its financial results
in GBP sterling despite most of the underlying revenues,
costs and financing being denominated in US dollars. As a
result, large movements in foreign exchange rates resulted
in significant translational differences in the reported results.
To mitigate this the Group has changed its presentational
currency from GBP sterling to US dollars, with prior-year
comparatives restated in line. Please refer to note 3 for
furtherdetails of the change in accounting policy.
FINANCIAL PERFORMANCE
Group revenues of US $226.0m for the 15 months ended
31 March 2024 (2022: US $209.8m) generated an underlying
gross profit of US $70.1m (2022: US $67.4m), giving an
underlying gross margin of 31.0% (2022: 32.1%) – a small
reduction of 0.9% compared to 2022. Distribution costs of
US$36.8m and underlying administrative costs of US $37.9m
resulted in an underlying operating loss of US $4.6m. The total
operating loss for the period was US $30.2m (2022: profit of
US $2.8m) after US $25.6m (2022: US $3.3m) of non-underlying
costs were recognised.
12 months comparison
Group revenues for the 12 months ended 31 December
2023 were $185.0m, a 11.8% decrease against the prior year.
The reduction was seen across both segments, with Signals
and components revenues heavily impacted by the cyclical
downturn in Opto-Electronics and the Lighting business
continuing to be impacted by capital projects being deferred
to later periods.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
25
Chief Financial Officer’s review continued
Gross margin for the 12 month period reduced slightly
to31.6% (2022: 32.1%), with improvements in material
coststhrough cost reduction projects and negotiation
withsuppliers in part offsetting increased labour rates
andlower fixed overhead absorption.
We maintained our strong focus on cost control in the year,
lowering Selling, General and Administrative (SG&A) costs
by$3.0m.
This combination of lower volumes and gross margins
contributed to a significant reduction in Group underlying
operating profit from operating activities to US $0.1m
(2022:US $6.1m).
Lighting before unallocated costs
The Lighting (Lighting & Obstruction) segment represents
approximately 76% of the Group’s revenue and consists
of two main revenue streams: large capex projects; and
on-going Maintenance, Repair and Operations (MRO)
spend. The 15-month period to March 2024 was weaker
than expected for this segment, with customers continuing
to exercise tight controls over spending – particularly
within capex projects. This has predominantly been
due toinflationary pressures, shortages of key skills and
economicuncertainty, resulting in projects being delayed.
15-month
period ending
31 March 2024
US $m
12-month
period ending
31 December 2022
US $m
Revenue 171.1 149.6
Underlying gross profit 57.6 50.2
Underlying gross profit margin 33.7% 33.6%
Underlying overheads (50.8) (41.7)
Underlying operating profit
before unallocated costs
6.8 8.5
Underlying gross margins slightly improved during the
period, following the launch of cost-reduction projects and
improvements in shipping costs. However, we continued to see
pressure from significant component price increases on raw
materials purchased or committed to in the previous financial
year but that were consumed during the current financial period.
Overhead costs were proportionally lower to the previous
year reflecting restructuring of savings, proportionally lower
sales commissions and the settlement reached relating
tointellectual property (IP) charges.
Signals and Components before unallocated costs
Signals and Components is a high-volume business operating
within highly competitive markets. There are three main
elements: traffic lights; Opto-Electronic (OE) components;
and vehicle lights.
15-month
period ending
31 March 2024
US $m
12-month
period ending
31 December 2022
US $m
Revenue 54.9 60.2
Underlying gross profit 12.5 17.2
Underlying gross profit margin 22.8% 28.6%
Underlying overheads (12.3) (10.3)
Underlying operating profit
before unallocated costs
0.2 6.9
The previously highlighted cyclical downturn in the key OE
market resulted in revenue decreasing proportionally with
an underlying gross margin of 22.8% – significantly below
the 28.6% seen last year – due to lower absorption of fixed
production costs and increased labour rates. Overhead costs
of US $12.3m reduced proportionally due to restructuring
savings, resulting in an underlying profit of US $0.2m for
the period.
Unallocated costs
Central overheads comprise costs not directly attributable
toa segment and are shown separately. In the 15-month
period these totalled US $13.0m, being US $11.6m of
underlying costs with a further US $1.4m of non-underlying
costs. Underlying costs primarily relate to head office costs
and professional fees with non-underlying costs relating
tothefinance transformation project.
NON-UNDERLYING COSTS
15-month
period ending
31 March 2024
US $m
12-month
period ending
31 December 2022
US $m
Transformation plan 4.5 –
Goodwill impairment 11.2 –
Development cost impairment 4.1 1.6
Litigation costs 2.3 1.7
Business disposal costs 3.5 –
Total 25.6 3.3
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.
The Group has incurred US $4.5m of non-underlying costs
relating to the transformation plan. This is a significant
multi-year change programme for the Group which is
designed to address legacy issues associated with excess
cost and complexity within the organisation, whilst at the
same time focusing more resources on the most attractive
growth opportunities within its core industrial LED lighting
market. Implementation of the transformation plan is
expected to be complete by 31 March 2026. The multi-year
transformation plan is a material, infrequent programme and
is not considered to be part of the underlying performance
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
26
Chief Financial Officer’s review continued
of the business. The costs incurred in the 15-month period
to 31 March 2024 relate to resetting and realigning the
Group’s cost base including severance costs, and legal and
professional fees. An impairment charge of US $1.1m for
property, plant, and equipment and dilapidation costs of
US $0.4m have been recognised in relation to the planned
vacation of the Malaysian facility later in 2024.
A review of goodwill was performed at 31 December 2023
which has resulted in an impairment of goodwill of US $11.2m
being recognised. The basis of the recoverable amount is
the value in use using managements latest five-year forecast.
The impairment charge is material and non-cash, and has
therefore been excluded from underlying results.
In addition a further US $3.5m of development costs and US
$0.6m of concessions, patents, licences and trademarks costs
have been impaired during the period. An impairment review
of other intangible assets was performed as at 31 March 2024
following the preparation of revised 5 year cashflow forecasts
which showed reduced growth. The basis of the recoverable
amount is the value in use using the revised 5-year forecast.
During the 15-month period to March 2024 costs of US $1.9m
have been expensed (2022: US $1.2m) relating to a legal claim
with Sanmina, a manufacturing partner. Please refer to note
26 for further details of this claim. Other litigation costs of US
$0.4m for the 15-month period to 31 March 2024 (2022: US
$0.5m) relate to a contractual litigation case relating to the
useof intellectual property which was concluded in 2023.
Business disposal costs relate to the post year end disposal
of theTraffic business. These costs relate to a US $0.5m
impairment of development costs for projects that will no
longer be pursued and US $3.0m of specific inventory that
will no longer be sold which has been recognised within costs
ofgoods sold.
INVENTORY
Inventory levels of US $49.1m decreased by US $15.7m from
December 2022, driven by large reductions in holdings of
rawmaterials and finished goods – and a smaller decrease
inthe levels of sub-assemblies.
15-month
period ending
31 March 2024
US $m
12-month
period ending
31 December 2022
US $m
Raw materials 18.8 27.5
Sub-assemblies 13.4 14.4
Finished goods 16.7 22.7
Spare parts 0.2 0.2
Total 49.1 64.8
Following the global commodity shortage and increased
shipping times, Dialight – in common with many companies
– took the decision to hold higher levels of raw material
tosafeguard production and fulfil customer orders.
As macro-economic conditions have eased over the past
15 months, Dialight has been able to reduce this holding
–using the raw materials on hand and maximising usage
ofpreviously manufactured finished goods.
Improved inventory management has resulted in an
improvedageing profile of goods held, with the aged
inventory provision reducing from US $5.0m at December
2022 to US$3.6m at March 2024.
At March 2024 an additional provision of US $3.0m was
recognised in relation to specific inventory relating to the
traffic business that is not expected to be sold, resulting
in a total inventory provision of US $6.6m.
CASH AND BORROWINGS
The Group ended March 2024 with net debt of
US $16.4m, a decrease of US $9.0m from December 2022’s
US$25.4m. The overall level of borrowing remained consistent
at US $27.9m at 31 March 2024, compared with US $27.4m at
31 December 2022. Net debt excludes liabilities related to the
adoption of IFRS 16 leases, which are excluded for covenant
testing purposes. The roll-forward ofnet debt was as follows:
Net debt US $m US $m
Opening balance at 1January2023 (25.4)
Inflows
Operating cash flows before movements
inworking capital
3.0
Equity raise 12.0
Movements in inventory 15.7 30.7
Outflows
Movements in working capital
excludinginventory
(5.4)
Capital expenditure including
development assets
(6.8)
Interest and tax paid (6.7)
Lease payments in period (2.9)
Repurchase of own shares (0.1) (21.9)
Foreign exchange movements 0.2
Closing balance at 31March2024 (16.4)
The main factors behind the movement in net debt were:
• The equity raise, which generated net proceeds
ofUS$12.0m after transaction costs of US $0.9m;
• Reduction of US $15.7m in inventory, with significantly lower
levels of raw materials and finished goods held;
• A US $10.9m reduction in trade payables following payment
for materials purchased towards the end of 2022, supporting
purchase-price negotiations with key suppliers; and
• Continued investment into new product development, plus
maintenance capex on factory equipment and IT – albeit
ata reduced level in light of the transformation plan.
Gross bank debt of US $27.9m was offset by cash in hand
of US$11.5m – see note 23 for further details on bank
borrowings. The interest expense of US $4.1m is analysed
innote 8.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
27
Chief Financial Officer’s review continued
BANKING AND COVENANTS
The Group’s funding includes a revolving credit facility
(RCF) of US $34.0 million from HSBC which was extended on
14 June 2024 to 21 July 2026 on the same terms as the original
agreement. Aligned with the Group’s robust commitment
toenvironmental, social, and governance (ESG) principles,
theRCF facility operates as a sustainability-linked loan.
The RCF facility is subject to quarterly covenants
encompassing maximum leverage and minimum interest
cover. The covenants for the quarter ending 30 September
2023 were temporarily reset from a leverage ratio maximum
target of less than 3x to 4.5x, and an interest cover minimum
target of a maximum 4x to 2.5x. The covenants reverted
to the original hurdles from quarter ending 31 December
2023 onwards.
A retrospective review of covenant calculations for the
15-month period to 31 March 2024 was performed by
management as part of the year-end audit after certain
matters came to the attention of the Board. This retrospective
review identified that breaches of the covenants had and/or
may have had occurred when also retrospectively applying
finalised year-end accounting adjustments. These waiver
requests were communicated to HSBC who have agreed to
issue retrospective covenant waivers for the relevant quarters.
The waivers are subject to legal finalisation at the date of
this report. Given the covenants were and/or may potentially
have been breached before and at 31 March 2024, when
also retrospectively applying finalised year-end accounting
adjustments, and no waiver was in place at that date, the
outstanding borrowings under the RCF of US $27.9m have
been classified as a current liability.
Please refer to note 2(b) of the consolidated financial
statements for details of how this has been considered
aspartof the going concern assessment.
As agreed, the Group has repaid the £10 million Covid-19
Large Business Interruption Loan (CLBIL), with the final
£2 million repaid in the first half of 2023.
TAX
Based on a loss before tax of US $34.3m for the
15-month period, the Group had an effective tax rate
of5.2% (2022:16.7%) resulting in a tax credit of US $1.8m
(2022:chargeofUS $0.1m).
In the period the Group made a net cash tax payment
ofUS$2.6m.
PENSION COSTS
The Group has two defined benefit schemes that are closed
to new entrants. The aggregate surplus on both schemes
isUS$5.4m, a small decrease of US $0.1m from 31 December
2022. The income statement expense of US $0.1m is made
up of US $0.4m of current service costs expense offset by
US $0.3m of interest income. Actuarial losses of US $0.5m
recognised in other comprehensive income, were offset by
cash contributions ofUS $0.3m and an FX gain of US $0.2m.
The cash cost ofthe scheme in the period to 31 March 2024
of US $0.3m (2022: US $0.5m) was agreed with the trustees
following the 2019 valuation. The latest valuations were
completed as at April 2022, with future cash contributions
agreed at the current levels.
CAPITAL MANAGEMENT AND DIVIDEND
The Board’s policy is to have a strong capital base to maintain
customer, investor, and creditor confidence and to sustain
future development of the business. The Board considers
consolidated total equity as capital, which as at 31 March
2024 equated to US$63.9m (December 2022: US $83.0m).
The Board is not declaring a dividend payment for the period
ending March 2024 (2022: nil).
The Group has a clear capital allocation discipline and
iscommitted to returning excess funds to shareholders
viafuture dividend or share repurchase.
POST BALANCE SHEET EVENTS
The Group’s multicurrency revolving credit facility of
$34.0m with HSBC was extended on 14 June 2024 to 21 July
2026 on the same terms as the original revolving credit
facility agreement.
On 29 July 2024 the Group announced that it has entered into
an agreement for the sale of its business manufacturing signal
lights used in traffic, pedestrian and railroad management
in North America (the Traffic Business) to Leotek Electronics
USA LLC and realising gross cash proceeds of US $5.8m.
After transaction and other costs, net cash proceeds are
US$5.5m which will be used to reduce group indebtedness.
The Business had previously been identified as non-core.
Carolyn Zhang
Chief Financial Officer
29 July 2024
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28
Going concern statement
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 01 to 31.
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 25 to 28.
The Directors’ assessment of the viability of the Group is set
out in the Viability Statement on page 31. In addition, note 24
to the financial statements includes the Group’s objectives,
policies and processes for managing its capital; its financial
risk management objectives; details of its financial instruments
and hedging activities; and its exposures to credit risk and
liquidity risk.
Net debt has decreased from US $25.4m to US $16.4m
following the equity raise in the second half of 2023 which
generated net proceeds of US $12.0m after transaction costs
of US $0.9m. At 31 March 2024 the Group had US $34.0m
infacilities of which US $27.9m was drawn with US $11.5m
ofcashon hand.
The Group’s multicurrency revolving credit facility of US
$34.0m with HSBC was extended on 14 June 2024 to 21 July
2026 on the same terms as the original revolving credit facility
agreement. The covenants are tested quarterly and are
as follows:
Ratio Calculation Threshold
Leverage ratio Net debt:
proforma unaudited EBITDA
<3.0x
Interest cover Proforma unaudited EBITDA:
interest expense
>4.0x
The covenants for the quarter ending 30 September 2023
were temporarily reset from a leverage ratio maximum target
of less than 3x to 4.5x, and an interest cover minimum target of
a maximum 4x to 2.5x. The covenants reverted to the original
hurdles from quarter ending 31 December 2023 onwards.
A retrospective review of covenant calculations for the
15-month period to 31 March 2024 was performed by
management as part of the year-end audit after certain
matters came to the attention of the Board. This retrospective
review identified that breaches of the covenants had and/or
may have had occurred when also retrospectively applying
finalised year-end accounting adjustments. These waiver
requests were communicated to HSBC who have agreed to
issue retrospective covenant waivers for the relevant quarters.
The waivers are subject to legal finalisation at the date of
this report. Given the covenants were and/or may potentially
have been breached before and at 31 March 2024, when
also retrospectively applying finalised year-end accounting
adjustments, and no waiver was in place at that date, the
outstanding borrowings under the RCF of US $27.9m have
been classified as a current liability.
Further details, including the relevant covenant tests,
areincluded in note 23.
In assessing the going concern assumptions, the Directors
have prepared four main scenarios being the base case,
adownside case in relation to revenue and margin,
adownside case in relation to revenue and margin including
an adverse Sanmina outcome and a reverse stress test
(break-even assessment) over the going concern period which
the Directors have assessed as being a two-year period to
31 March 2026. Various upside scenarios also exist but those
result in very positive outcomes and have not been included
here given the focus of the Directors, and its auditors, is on
the risk to the going concern basis of preparation to the
financial statements. Nonetheless, the Directors consider
these upside scenarios as realistic outcomes and continue
todrive the group’s performance and other activities to seek
to achieve those positive results.
The downside scenarios reflect the risk of lower-than
expected organic revenue growth in core Lighting markets,
lower gross margins than forecast due to lower revenue
forecasts and cost savings not being realised to the full extent
forecasted. In the downside scenario including an adverse
Sanmina outcome, an estimated worst-case outflow of US
$7.9m has been modelled, consistent with the disclosures
provided in note 26.
BASE CASE
The base case is derived from the most recent Board
approved 2024 budget, which assumes that revenues and
margin will improve over the going concern period due to the
Group’s transformational project undertaken by management.
The base case is based on organic sales growth and the
annualization of the efficiency and material cost reduction
projects launched in the financial year. In this scenario, the
Directors consider that the Group will continue to operate
within its available committed facilities of US $34.0m with
sufficient headroom with covenant compliance throughout
the forecast period.
The market conditions faced by the Group in the 15 months
to31 March 2024 are considered to be short-term in nature,
with signs that trading conditions will improve into 2024
and will see the benefits from price increases and lower
raw material costs coming through. These improvements,
together with the actions that management is taking in
relation to right-sizing its cost base and reducing product
costs, are expected to deliver improving profitability over
2024 and beyond.
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29
The key assumptions in the base case include:
• continued net revenue growth in both years driven by
acombination of factors including increasing benefits from
strategic relationships, price increases and increased source
& sell product range sales resulting in net revenue growth
of6.7% in FY25 and 1.9% in FY26;
• continued net revenue growth in Lighting due to our focus
on markets with growing demand and where growth is
driven by structural, safety and sustainability factors at a
higher level than seen in 2024;
• a small recovery from the cyclical downturn in the
opto-electronic segment;
• gross margins normalise 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 resulting in a gross
profit margin improvement of 4% in FY25 and a further 2%
inFY26 respectively; and
• operating costs are flexed in line with the incremental
revenue and increasing operational leverage.
Downside case – lower revenue and margin
The Directors have assumed:
• reduction of expected net revenue growth to 4.9%
and-2.8% in FY25 and FY26 respectively across Lighting,
Opto-electronics and Vehicle; and
• lower gross profit margin than base case through risk factor
applied to estimated operational efficiencies with a 4%
improvement in FY25 and no improvement in FY26.
Downside case – lower revenue, margin and
an adverse Sanmina outcome
The Directors have assumed:
• reduction of expected net revenue growth to 4.9% and
-2.8% in FY25 and FY26 respectively across Lighting,
Opto-electronics and Vehicle;
• lower gross profit margin than base case through risk factor
applied to estimated operational efficiencies with a 4%
improvement in FY25 and no improvement in FY26; and
• estimated Sanmina outflow of $7.9m in Q2 FY25.
Reverse stress test (break-even assessment)
The Directors have assumed:
• reduction of expected net revenue growth to 1.1%
and-8.1%in FY25 and FY26 respectively across Lighting,
Opto-electronics and Vehicle; and
• lower gross profit margin than base case through risk
factor applied to estimated operational efficiencies with
animprovement of 3% in FY25 and no improvement in FY26.
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.
In the base case scenario and in the downside scenario
(lowerrevenue and margin), the Group have sufficient
liquidity and are not forecast to breach any covenants in the
going concern period. In the downside case (lower revenue,
margin and an adverse Sanmina outcome), the current Group
liquidity becomes insufficient in Q2 FY25 following a forecast
payment to settle the adverse outcome. In the reverse stress
test, the interest cover ratio is forecast to breach in Q3 FY25
with further breaches of both the leverage ratio and interest
cover in Q1 FY26 onwards. In this case, the Group are forecast
tohave insufficient liquidity in Q4 FY26.
Whilst the Directors believe the Group will be able to deliver
on its transformation plan, generate forecast organic sales
growth and realise cost reductions within the next 12 months,
the Directors recognise that the transformation plan is in its
early stages and as such, a reliable history of its effectiveness
is not yet available. In the reverse stress test, whilst revenues
are forecast to decrease from FY24 to FY26, total gross
profit is forecast to increase by 3% between FY24 to FY26.
As a result, the Group are required to increase total gross
profit in excess of this in order to avoid breaching covenants.
The directors have therefore concluded that there is a
plausible risk of covenant breach and insufficient liquidity
within the reverse stress test scenario.
Further, the legal claim against the Company by Sanmina,
which is outlined in note 26 represents a possible adverse
outcome outside of the Group’s control which could result
in a material cash outflow. In this scenario, the Group would
have insufficient liquidity in the going concern period in
management’s downside case, without taking mitigating
actions or securing additional funding.
In addition, whilst HSBC have agreed to issue a retrospective
covenant waiver for the relevant quarters as set out above,
the waivers are subject to legal finalisation at the date of
this report.
These circumstances give rise to a material uncertainty,
whichmay cast significant doubt on the entity’s ability
tocontinue as a going concern, meaning it may be unable
torealise it assets and discharge its liabilities in the normal
course of business. Notwithstanding this material uncertainty,
the Directors consider it remains appropriate to continue
to adopt the going concern basis in the preparation of the
financial statements.
Going concern statement continued
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
30
The Directors have assessed the Group’s longer-term
prospects, primarily with reference to the Board approved
FY2025 budget and strategic plan.
This is driven by the Group’s business model and strategy
as detailed on pages 07 to 08, which are fundamental to
understanding the future direction of the business, while
factoring in the Group’s principal risks detailed on pages
21to 24.
The Board has assessed the viability of the Group over
a three-year period, considering 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, efficiency
improvements not fully realised 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.
Viability statement
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;
• structural changes in key areas such as sales and operations
which will drive improved planning;
• 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
15 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 through divestment of non-core
businesses; and
• the Group’s long-term, strong relationship with HSBC
andits three-year (plus another one-year extension clause
now activated) US $34.0m 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 March 2027.
As set out on pages 29 to 30, the Board have identified
amaterial uncertainty in relation to going concern during
the going concern period to 31 March 2026. As the going
concern period falls in the three-year viability period, the
board has also identified the same material uncertainty
intheviability period.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
31
GOVERNANCE
Chair’s introduction to governance 33
Compliance statements 34
Section 172 statement 35
Governance overview 38
Board: Leadership 40
Governance structure and division of responsibilities 42
Leadership and engagement 46
Board composition, succession and evaluation 48
Nominations Committee report 49
Audit Committee report 51
Remuneration Committee report 57
2023/24 Annual Report on remuneration 72
Implementation of the remuneration policy for 2024/25 76
Directors’ report 78
Directors’ responsibility statement 81
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3232
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”) are required to work as a team
to ensure the success of the Group. Steve Blair and I speak
frequently with each other, and I am very grateful to each of
my Board colleagues who have given so much of their time
generally over the last year and in particular across thelast
few months in supporting the necessary changes to the
Group’s management.
LEADERSHIP AND BOARD CHANGES
In summer 2023 the non-executive team was strengthened
with the arrival of Steve Blair and Lynn Brubaker – both highly
experienced and knowledgeable former senior executives
with strong UK-listed board experience. There have been two
significant executive changes this calendar year with the arrival
of Carolyn Zhang as our CFO and with Steve Blair stepping
into an executive role as CEO. The Board is now confident
that the executive team are well positioned to deliver on our
ambitious growth strategy.
I would like to thank all the former directors who have
departed in the reporting year for their commitment to
the Group and wish them well in their future endeavours.
Further details on Board composition and leadership can
befound on pages 40 to 41.
BOARD FOCUS AREAS IN 2023
The Board’s focus across the reporting year has been
three-fold: re-booting shareholder engagement; renewing,
strengthening, and reinvigorating the Group’s senior
leadership; and, crucially, ensuring delivery of an ambitious
strategic plan and the appropriate level of capitalisation
todeliver on that plan.
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, and whilst Steve Blair
and I lead on shareholder engagement generally, all of our
Board engage actively on remuneration and other matters
and we welcome the active participation of our shareholders
ininforming the strategic direction of the Group.
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 40 to 41.
BOARD PRIORITIES
Our priorities for 2024/25 are very much focused on
supporting the now stable leadership at a Board level
and providing support and challenge to the Executive
Team, toenable significant improvements in operational
performance and to ensure that the executive management
deliver on our strategic objectives.
Neil Johnson
Non-executive Chair
29 July 2024
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33
Compliance statements
UK CORPORATE GOVERNANCE CODE 2018
Throughout the reporting period ended 31 March 2024,
the Company has applied the principles and complied
with the provisions as set out in the 2018 Code, with the
exception ofprovision 32 requirement that the Remuneration
Committee chair should have served on the committee
for 12 months prior to appointment. An explanation of the
Board’s view on this matter is set out on pages 44 to 45
and 48. 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 19 to 20.
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 35 to 37.
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.
UK CORPORATE GOVERNANCE CODE 2018:
COMPLIANCE STATEMENT:
This governance report details, in its various sections how
the Company has applied the code principles and code
provisions, see below for details of this.
Section 1: Board leadership and Company purpose
Compliant See page(s)
1. Opportunities and risks/sustainability
of business model/governance
delivering strategy
Yes –
2. Board activities/investment
in workforce
Yes 47
3. Communication with shareholders Yes 46
5. s172 statement Yes 35
6. Mechanism for workforce concerns Yes 16
7. Management of conflicts of interest Yes 45/46
Section 2: Board division of responsibilities
Compliant See page(s)
9. Chair independence on appointment
(current Chair)
Yes 48
10. Statement on Non-Executive
independence
Yes –
11. 50% of Board to be independent Yes 38
12. Identification of Senior
Independent NED
Yes 58
13. Board review process
and independence
Yes 48
14. Division of responsibilities Yes –
Section 3: Board composition, succession and evaluation
Compliant See page(s)
18. Annual re-election of Directors Yes 48
20. Use of external search agency (during
2023/24)
Yes –
21. Formal and rigorous annual evaluation Yes –
23. Report on work of the
Nomination Committee
Yes 49
Section 4: Audit, risk and internal controls
Compliant See page(s)
26. Report on work of Audit Committee Yes 51
28. Emerging and principal risks Yes 21-24
30. Going concern statement Yes 29
31. Viability statement Yes 31
Section 5: Remuneration
Compliant See page(s)
32. Chair 12-month service requirement No 60
36. Post-employment
shareholding requirements
Yes –
37. Use of discretion to override
formulaic outcomes
Yes –
38. Executive Director pension alignment
with workforce
Yes –
41. Description of work of the
Remuneration Committee:
Yes 57
Engagement with shareholders Yes 46
Alignment of Executive Director
remuneration with wider pay policy
Yes –
Application of discretion on outcomes Yes –
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
34
Section 172 statement
OUR APPROACH
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, over time, 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 page 04;
• the Group Chief Executive’s review on pages 05 to 06;
• the ESG reports on pages 38 to 39;
• Risk management on pages 19 to 20;
• the Group Chief Finance Officer’s review on pages 25 to28;
and
• the Governance and related reports on pages 33 to 96.
By order of the Board.
Richard Allan
Company Secretary
29 July 2024
COMMUNITIES
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 in 2023/24
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.
Support for 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.
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35
Section 172 statement continued
CUSTOMERS
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 in 2023/24
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.
Embedding of process engineers
inmanufacturing operations to ensure
realisation of programmed NPD
production efficiencies.
Extension of post-launch product
andcommercial review cycle.
ENVIRONMENT
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 in 2023/24
Dialight and can contribute 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.
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
(eg,conflict minerals).
Embedding 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.
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36
Section 172 statement continued
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 in 2023/24
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.
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.
EMPLOYEES
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 in 2023/24
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.
Ongoing focus on communications with,
and policies for, employees relating
toemployee health, safety, and welfare.
Training and development.
Site visits by members of the Board
(conducted physically and online).
Update newsletters from the Group
Chief Executive.
Whistleblowing hotline.
Monthly all-employee updates
fromthe CEO.
Specific welfare precautions for
employees at our manufacturing plants
including additional food supplies,
paidleave(for high-risk individuals),
andin-house medical care.
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 in 2023/24
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.
More frequent discussions with existing
shareholders and lenders.
High level of shareholder satisfaction with
governance standards evidenced by 2023
AGM voting levels.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
37
Governance overview
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
AS AT 31 DECEMBER 2022
AS AT 31 DECEMBER 2023
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.
Key
Executive 29%
Non-Executive 71%
EXECUTIVE/NON-EXECUTIVE
INDEPENDENT NEDs
K
ey
Executive 14%
Non-executive
Committee
14%
Independent 57%
ey
0-3 years 42%
4-6 years 29%
7+ years 29%
DIRECTORS (NATIONALITY)
Key
British 57%
French 14%
German 14%
USA 14%
SENIOR ROLES* (GENDER)
Key
Female 60%
Male 40%
DIRECTORS (GENDER)
K
ey
Female 29%
Male 71%
EXECUTIVE COMMITTEE (GENDER)
K
ey
Female 14%
Male 86%
ALL EMPLOYEES (GENDER)
Key
Female 52%
Male 48%
Key
Executive 40%
Non-Executive 60%
EXECUTIVE/NON-EXECUTIVE
INDEPENDENT NEDs
K
ey
Executive 40%
Non-executive
Committee
20%
Independent 40%
ey
0-3 years 100%
4-6 years 0%
7+ years 0%
DIRECTORS (NATIONALITY)
Key
UK 60%
US 40%
SENIOR ROLES* (GENDER)
Key
Female 40%
Male 60%
DIRECTORS (GENDER)
K
ey
Female 40%
Male 60%
EXECUTIVE COMMITTEE (GENDER)
K
ey
Female 33%
Male 67%
ALL EMPLOYEES (GENDER)
Key
Female 53%
Male 47%
* Note: Senior roles = Chair, CEO, CFO, SID and committee chairs.
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38
Governance overview continued
HOW THE BOARD AND GOVERNANCE SUPPORTED STRATEGY
WINNING HEARTS AND MINDS
READ MORE ON PAGE 5 AND 6
Engagement of our employees, shareholders and
customers is integral to ensure delivery at every level
of the organisation.
Board oversight of the newly created core values
deployed by the senior leadership team is crucial
to ensure each and every individual provides a
meaningful contribution. The core values are
accountability, discipline, commitment and integrity.
• The Board has been substantially reconstituted with the addition
Steve Blair, Neil Johnson, Lynn Brubaker and Carolyn Zhang
duringthe reporting period.
• Oversight of renewal process in the senior management team.
• Significant improvement in Board visibility at our key locations.
• Focus in Board reporting and discussions on achieving rapid
improvements in employee engagement and integration with
afocus on improved performance.
• Greater intensity in shareholder consultation and dialogue.
SALES TRANSFORMATION
READ MORE ON PAGE 5 AND 6
The Board reviewed and approved the transformation
plan in September 2023. A key aim of the
transformation plan is to accelerate growth in lighting
and significantly improve top line growth.
The Board approves Sales strategy, it also periodically
reviews the structure of the Sales function and results.
It then monitors the tactical implementation of these
strategies throughout the financial year through routine
monthly reporting and function-specific briefings.
• Sales: oversight of recruitment of senior sales-focussed roles.
• Sales: oversight of improvement in sales force
incentivisation structures.
• Sales: focus in reporting to the Board’s transformation committee
to operational improvements in the sales organisation including:
streamlining external reps to ensure performance directed focus
on high volume regions and more focussed management of
Sales personnel.
OPERATIONAL TRANSFORMATION
READ MORE ON PAGE 5 AND 6
The Board’s transformation committee regularly
monitors progress in delivery of strategic and
tacticalplanning, approving incremental capex
andholding management to account for delivery
onthe transformation strategy.
• Operational strategy: oversight of implementation of the
transformation strategy.
• Operational structure: oversight on recruitment and incentivisation
of newly created role of Chief Operating Officer, with Rizwan
Ahmad appointed to the role.
• Operational delivery: oversight of strategy for product
simplification, including dramatically reducing the number
ofSKUs,saving time and money.
• Operational delivery: oversight of wholesale review of order-to-
cash process, with the goal of making Dialight’s operations more
efficient, effective and sustainable.
MARGIN IMPROVEMENT AND CASH GENERATION
READ MORE ON PAGE 5 AND 6
The Board receives periodic operational and finance
reporting with a focus on review and approval
ofinternal planning and execution. This will ensure
the business is run in a financially sustainable manner
inorder to secure Dialight’s long term future.
• Cost reduction and control.
• Targeted rationalisation of workforce and operations globally.
• Focus on our core solid state lighting business.
• Divestment of non-core business.
NED SKILLS & EXPERIENCE MATRIX
Ned skills & experience matrix:
Skills/experience Direct experience Skills/experience Direct experience Indirect experience
Industry/sector:
Industry/sector:
– Manufacturing (general)
  
Accountancy
 
– Manufacturing (high-mix, low volume)
  
Sustainability
  
– Lighting
  
Finance/private equity
  
– Heavy industrial
  
People/social
  
CEO role
Territories:
Strategy
  
– Non-US markets
  
UK PLC
 
– US markets
  
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
39
NEIL JOHNSON
Independent on appointment as Chair –
Chair of NomCo, member of RemCo
N
R
Appointed
17 May 2023.
Background and career
Neil has considerable experience
ininternational business development
and a varied range of strategic
corporate activity in multiple sectors
and geographies. He has held a
number of senior Board roles, including
Chairman of Tenon Group, Hornby,
Cybit, Umeco, Synthomer plc, Motability
Operations Group plc, e2v technologies
plc, Electra Private Equity Plc and
Centaur Media Plc. He was formerly
Chief Executive Officer of the RAC
and chaired telematics company Cybit
Holdings Plc through IPO and ultimate
sale to a US private equity firm in 2010.
He has been advisor to the Prime
Minister on the Citizen’s Charter,
amember of a Ministry of Defence
Advisory Board, and was formerly
an Independent member of the
Metropolitan Police Authority.
He is currently Chairman of QinetiQ Plc.
Current external appointments
Chair and Chair of Nominations
Committee of QinetiQ plc.
STEVE BLAIR
Group Chief Executive
Appointed
15 February 2024.
Background and career
Steve is a qualified electronic engineer
with considerable experience in
international business development –
with particular focus on North American
markets. He held senior roles at Invensys
Process Systems as President of IPS’s
North American operations and as
chief operating officer of Spectris plc’s
instrumentation and industrial controls
divisions. Steve was CEO of e2v Plc,
steering the group through a complex
organisational transformation through
to its acquisition by Teledyne Inc in 2017.
Steve was then CEO of The Ordnance
Survey until retirement in 2021.
Steve has also held a non-executive
director role at Oxford Instruments plc
where he was the senior independent
director and a member of the audit,
nominations and remuneration
committees prior to stepping down
inSeptember 2021.
Current external appointments
None.
KEY
Appointments & committee
membership
N
Nomination Committee
A
Audit Committee
R
Remuneration Committee
WE
Workforce Engagement NED
S
Senior Independent Director
Committee Chair
BOARD DEPARTURES IN THE YEAR
David Blood
David Thomas
Gaelle Hotellier
Gotthard Haug
Clive Jennings
Fariyal Khanbabi
Board: Leadership
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40
NIGEL LINGWOOD
Independent NED – SeniorIndependent
Director, Chair of AuditCo, member of
NomCo and RemCo
S
A
N
R
Appointed
1 November 2022.
AuditCo Chair effective 12 January
2023. Senior Independent Director
effective 17 February 2024.
Background and career
Between 2001 and 2020, Nigel was
Group Finance Director at Diploma PLC
until his retirement in September 2020,
the international value-add distribution
group. Nigel brings extensive, relevant
and recent financial and accounting
expertise together with international
listed public company experience.
Current external appointments
Chair of Volution Group Plc.
Chair of Innasol Limited.
LYNN BRUBAKER
Independent NED, Chair of RemCo,
member of AuditCo and NomCo,
Workforce Engagement Director
R
A
N
WE
Appointed
1 July 2023. WENED effective
1 July 2023. RemCo Chair effective
1 November 2023.
Background and career
Lynn is based in North America and
has spent her executive career in the
aerospace industry, most latterly as
Vice President and General Manager
ofCommercial Aerospace at Honeywell
International. Prior to that she held
senior roles at Honeywell International
(Allied Signal) and at McDonnell
Douglas (Boeing). Lynn has also held
non-executive roles at: QinetiQ Group
plc, the UK-listed integrated global
defence company focused on mission-
led innovation; Hexcel Corporation,
the US-listed high-end advanced
composites manufacturer suppling into
the industrial, defence and aerospace
sectors; and, Nordham Group, one
of the world’s largest independently
owned aerospace companies.
Current external appointments
Lynn is a non-executive director
ofFARO Technologies Inc, the US-
listed 3-D measurement, imaging
and realisation solutions provider for
engineering, design and manufacturing
processes, where she is also a member
of the Audit Committee and chairs
the Nominating, Governance &
Sustainability Committee.
CAROLYN ZHANG
Chief Financial Officer
Appointed
1 February 2024.
Background and career
Carolyn has extensive experience
across a range of group and divisional
finance roles in US-based and global
manufacturing businesses, including
CFO and EVP for Metal Powder Group
(part of the Holta Invest AS group),
divisional CFO at Tekni-Plex Inc, and
head of global operations finance at
FMC (NYSE: FMC). Carolyn, a US citizen,
isbased close to our main finance hub
in Farmingdale, New Jersey.
Current external appointments
None.
Board: Leadership continued
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41
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. 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 NEDS:
• 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
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
42
Governance structure and division of responsibilities continued
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
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
Audit Committee Nominations Committee Remuneration Committee Disclosure Committee* Transformation 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
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
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
Manages compliance
with public reporting
and announcement
requirements
Formalised as required
from time to time by
the Board
Oversight of the
implementation
of the Group’s
transformation strategy
Oversight of the
detailed planning,
project management
and, implementation
ofthe strategy
Periodic review of the
strategy and proposal
to the Board, from
time to time, of any
material amendments
tothe strategy
* Non-regulatory committees.
MANAGEMENT COMMITTEES
Risk Committee Executive Committee Dialight Foundation ESG Committee
Management Committee
chaired by the Group
General Counsel
Manages the periodic
reviewof Group risks
Maintains the Group
risk register
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
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
Chaired by CEO
Acts as a cross-functional
forum for ESG matters
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43
Governance structure and division of responsibilities continued
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, 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.
The Board currently comprises five Directors, who bring
a wide variety of skills and experience to the Boardroom.
With two Executive Directors and three Non-Executive
Directors (including the Chair) of whom two (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 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 49 to 50.
2023/24 BOARD MEETING ATTENDANCE:
Board member Scheduled meeting Ad hoc meeting Total
Neil Johnson 9/9 11/12 20/21
Steve Blair 9/9 11/12 20/21
Carolyn Zhang 1/1 1/3 2/4
Lynn Brubaker 8/8 12/12 20/20
Nigel Lingwood 12/12 15/15 27/27
David Blood
1
2/2 2/2 4/4
David Thomas
2
3/3 3/3 6/6
Gaelle Hotellier
3
3/3 3/3 6/6
Gothard Haug
4
3/3 3/3 6/6
Clive Jennings
5
5/5 4/5 9/10
Fariyal Khanbabi
6
11/11 13/13 24/24
1 As announced on 30 March 2023, David Blood stepped down as a director with effect on 30 March 2023.
2 As announced on 5 April 2023, David Thomas stepped down as a director with effect on 16 May 2023.
3 As announced on 7 June 2023, Gaelle Hotellier stepped down as a director with effect on 30 June 2023.
4 As announced on 7 June 2023, Gothard Haug stepped down as a director with effect on 30 June 2023.
5 As announced on 18 September 2023, Clive Jennings stepped down as a director with effect on 17 September 2023.
6 As announced on 16 February 2024, Fariyal Khanbabi stepped down as a director with effect on 15 February 2024.
7 As announced on 30 January 2024, Carolyn Zhang was appointed as a director with effect from 1 February 2024.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
44
Governance structure and division of responsibilities continued
BOARD RESPONSIBILITIES
Standing Board agenda items Matters reserved for the Board Independence
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
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)
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), was considered to be
independent in character and judgement
inperforming his duties as a Director
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
45
Leadership and engagement
HOW THE BOARD ENGAGES
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. Additionally, 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 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 2023/24:
SHAREHOLDER ENGAGEMENT
General engagement with investors
Engagement with investors is led by the CEO but is
a collective responsibility of the Board. The 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.
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 2023 AGM was a hybrid general meeting with
shareholders having the option to attend in person or online.
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 August 2024).
The 2023 AGM will take place on 23 September 2024.
COMMERCIAL ENGAGEMENT
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.
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.
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.
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46
Leadership and engagement continued
ENGAGEMENT WITH EMPLOYEES AND OUR
LOCALCOMMUNITIES
Workforce Engagement NED
Direct engagement with workforce through site visits,
one-on-one discussions with managers and other employees
selected by the WENED. There will typically also be 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 periodic all-employee
calls and blogs, frequent visits to manufacturing and other
Group sites by the Executive Directors 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.
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47
Board composition, succession and evaluation
2023/24 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 2023/24 review will inform Board
administration, agenda planning, strategy and succession
planning. The review process is typically phased and consists
of a board questionnaire and/or one-on-one director reviews,
reviews at committee level, and, finally, an end-of-year
Board review.
Directors: independence
Neil Johnson was deemed independent upon appointment
as Chair. Each of Steve Blair and Lynn Brubaker were deemed
independent upon appointment during the reporting year.
Directors: time allocation
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 pa is the anticipated requirement for each Non-Executive
Director and this was considerably exceeded in 2023/34
(taking into account Transformation Committee activities,
thechanges to the Board and other responsibilities).
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: re-election
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.
Directors: succession planning
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. 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.
Directors: induction
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.
Directors: liability insurance
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.
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48
Nominations Committee report
2023 HIGHLIGHTS
• Recruitment of new CEO and CFO
• Recruitment of new NED
• Completion of AuditCo succession planning
2024 PRIORITIES
• Strengthen senior executive team below Board level
• 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.
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.
COMPOSITION AND ATTENDANCE
Committee member Member from/until Attendance
Neil Johnson Chair from 17 May 2023 3/3
Nigel Lingwood Member from 1 November 2022 7/7
Steve Blair Member from 7 June 2023 –
until15 February 2024
2/2
Lynn Brubaker Member from 1 July 2023 2/2
David Blood Member from 23 July 2015 –
until30 March 2023
4/4
David Thomas From 26 April 2016 – until 16 May
2023 and Chair from 12 January
2023 to 16 May 2023
4/4
Gaëlle Hotellier From 3 October 2016 –
until30 June 2023
4/5
Gotthard Haug From 30 July 2020 –
until30 June 2023
4/5
Dear shareholders
Both the Nominations Committee and the Board recognise
their crucial roles in ensuring that the Group has the right
talent at management and executive levels at Dialight.
There were significant changes at Board level during the
reporting year and we now believe that we have a very firm
base upon which to build the turn-around of the Group.
The Nominations Committee exercised oversight across all
Board changes during the reporting period. It would meet
to discuss proposed changes, manage recruitment, appoint
advisers and set up objectives, manage the recruitment
process and make final recommendations to the Board to
make and/or approve changes. Where key decisions on Board
membership were made by the full Board that decision-
making followed ad hoc meetings of the Nominations
Committee. Where key decisions on Board membership were
made by the full Board that decision-making followed ad hoc
meetings of the Nominations Committee.
BOARD CHANGES
Steve Blair was already on the Board in a non-executive
capacity (having joined the Board on 7 June 2023) when
he agreed to step into the CEO role in February 2024.
Details onSteve’s biography can be found on page 40.
Carolyn Zhang joined the Board on 1 February 2024.
Details on Carolyn’s biography can be found on page 41.
Lynn Brubaker further strengthened the non-executive
presence on the Board when she joined on 1 July 2023.
Details on Lynn’s biography can be found on page 41.
Neil Johnson
Chair of the Nomination Committee
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49
Nominations Committee report continued
David Blood stepped down as a non-independent Non-
Executive Director on 30 March 2023. During his eight years
on the Board, David had 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.
David Thomas stood down as the board Chair on 16 May 2023,
after serving 7 years on the Board, including service as the
senior independent director and chair of the audit committee.
The Board would like to thank him for his lengthy service to
the Company and wishes him all the very best for the future.
On 7 June 2023 we also announced that Gaelle Hotellier and
Gotthard Haug would step down as non-executive directors.
We would like to thank them both for their considerable
service and contribution to the Group.
On 18 September 2023 we announced that Clive Jennings
would step down as CFO and on 16 February 2024 we
announced that Fariyal Khanbabi would be stepping down
as CEO.
In 2023, the Nominations Committee received advice from
the following independent external search firms in respect
of various Board roles. 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 33
and 50 on Board and workforce diversity) soIam pleased
tosee the level of diversity broadly maintained on the Board
(and indeed across the Group) in terms of experience,
COMMITTEE ACTIVITIES IN 2023/24
Meeting Actions
12 January 2023 Board appointments
8 February 2023 Chair recruitment and Neil Johnson engagement terms.
2 March 2023 Neil Johnson appointment recommended to the Board.
22 March 2023 Annual review of directors and NED recruitment planning.
23 June 2023 Ratification of Steve Blair as Board director, SID and RemCo chair.
17 September 2023 Clive Jennings departure as Chief Financial Officer and consideration of role
recruitment for new CFO.
18 February 2024 Departure of Fariyal Khanbabi as CEO and recommendation for appointment
ofSteveBlair as CEO.
gender, qualifications and background. The Board is
currently comprised of five Directors, two of whom are
women (40%). The spread of nationalities is: three British
and two American. The Board remains strongly committed
to enhancing cognitive and other forms of diversity in its
future appointments.
BOARD EVALUATION
The Nominations Committee and the Board conducted an
internal evaluation of each director, the committees and the
Board. In light of the substantial changes to the Board during
the reporting period it was considered that this internal
process was appropriate, albeit the Board will consider
externally facilitated reviews in the next reporting period.
ACTIVITIES DURING 2023/24
The activities of the Committee are summarised on these
pages and were dominated by the series of changes
inBoard roles.
PRIORITIES FOR THE COMING YEAR
Alongside ongoing review of the Board with a view to
considering a further appointment of an independent NED,
the key priorities for the Committee across 2024/25 will
be the stabilisation of the senior executive team and the
strengthening of senior management across the Group.
On behalf of the Nominations Committee.
Neil Johnson
Chair of the Nominations Committee
29 July 2024
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Audit Committee report
Nigel Lingwood
Chair of the Audit Committee
2023/24 HIGHLIGHTS
• Successful September 2023 fund-raising
• Reviewed the reporting year cycle and reporting currency
and introduction of a 31 March year-end and US$
reporting currency
• Reviewed the operational and financial models
underpinning the Transformation Plan
• Reviewed and challenged the divestment opportunities,
including the successful disposal of the Traffic and
Rail division
• Supported the Nomination Committee to recruit and
appoint new Chief Financial Officer and assisted with her
induction into the Group
• Reviewed the scope and finding of the internal audit activity
carried out during the year and in particular additional work
and reports subsequently prepared in connection with the
departure of the Chief Executive Officer
• Reviewed and challenged management judgement in key
areas including going concern and annual impairment
reviews, inventory provisions, development capitalisation
and litigation cases, particularly in light of the proposed
Transformation Plan
• Reviewed and oversaw the Group’s internal control and risk
management process
• Challenged throughout the year the business forecasts
versus available banking facilities as part of going concern
and viability reviews
• Reviewed and assessed the Group’s risks and concluded
onthe principal risks to be disclosed in the financial
statements and how these should be mitigated
• Reviewed the extension of the Group’s banking facility
• Worked closely with Chief Financial Officer to assist with
onboarding the new Group external auditor
2024/25 PRIORITIES
• Supporting Chief Financial Officer to refresh and
strengthen finance department resource at both Group
andoperating levels
• Review and oversee new reporting processes and controls
operating across the business
• Continue to oversee and support the focus on working
capital management, particularly inventory levels
and ageing
• Support the implementation of the Groups’ transformation
and Strategic plan and challenge business forecasts versus
available banking facilities
• Re-establish and broaden the scope of internal audit activity
to cover principal Group locations and functions
• Support Chief Financial Officer with project to assess and
implement appropriate reporting controls and processes
in connection with new attestation requirements set out
in2024 Code
• Continue to review and challenge the processes 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
6/6
David Thomas Member from 26 April 2016
until 11 January 2023
– Chair to 11 January 2023
0/0
Gaëlle Hotellier Member from 3 October 2016
until 30 June 2023
1/2
Gotthard Haug Member from 10 September 2021
until 30 June 2023
1/2
Steve Blair Member from 7 June 2023
until 16 February 2024
5/5
Lynn Brubaker Member from 1 July 2023 4/4
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.
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51
Audit Committee report continued
DEAR SHAREHOLDERS
Set out below is the Report of the Audit Committee Report
for the 15 months period ended 31 March 2024. This Report
provides an insight into the activities undertaken or overseen
by the Audit Committee (“Committee”) during what has been
a very challenging period for the Group.
Following the resignation of the previous Chief Financial
Officer on 18 September 2023, the Committee assisted the
Nominations Committee in a broad search for a successor
with strong and experienced financial background, gained in
a more operational environment and based in the USA, where
the Group’s principal businesses are based. On 30 January
2024, the Committee was delighted to appoint Carolyn Zhang
as Chief Financial Officer who, although based at the Group’s
principal operational head office in Farmingdale, New Jersey,
also leads the smaller head office of Dialight plc in London.
During the period, the Committee supported Executive
management with a review of the Group’s annual reporting
cycle and reporting currency and, after review and challenge,
concluded that a 31 March financial year-end would be
better aligned with the Group’s trading cycles and resulting
cash flows. That change in the reporting period has led
to the Group’s results for 2023/24 comprising a 15 month
reporting period ended 31 March 2024. The reporting cycle
will now revert to a 12-month reporting period ending on
31 March of each year. Alongside this review, management
also determined that, as the majority of the Group’s revenues
were earned in US$ and as the majority of the manufacturing
costs were paid in US$ a change in reporting currency from
GBP to US$ would provide shareholders with better visibility
ofunderlying financial performance and cash flows.
The Committee reviewed the implications of changing both
the annual reporting cycle and reporting currency with
management and the Company’s auditors and oversaw the
necessary processes that had to be undertaken in the year
tocomplete these changes.
Throughout the year the Committee 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. The Committee
also reviewed and challenged management in connection
with the assumptions underlying the Transformation Plan,
including the appropriateness of proposed divestments and
the implications of this Plan and divestments on the Group’s
cash flow and facilities and carrying value of certain tangible
and intangible assets.
The departure of the Chief Executive Officer on 16 February
2024 led to an intense period of review and challenge over
existing internal controls and processes operating across the
Group’s operations. Improvements in the control environment
were quickly identified and implemented and further
improvements in these control and processes will continue
to be implemented over the coming months. As part of this
exercise a small number of senior employees in the Group’s
finance department left the Company, which has placed
considerable pressure on the remaining members of the
Group to meet the challenges of preparing and reporting
thefinancial results at 31 March 2024.
Despite these significant challenges outlined above, the
Committee has continued to undertake an annual work plan
closely linked to the Group’s financial reporting cycle, which
ensured that it has considered all matters delegated to it by
the Board and very importantly has ensured that the interests
of shareholders are properly protected. This annual work
plan was also extended and enhanced to take account of the
extended 15-month reporting year, the change in reporting
currency, to review management’s Transformation Plan and to
review the matters identified in connection with the departure
of the Chief Executive Officer.
In addition to the tasks above, the Committee continued to
closely monitor developments in connection with the Sanmina
litigation, liaising closely with the Company’s General Counsel
and ensuring that the different potential outcomes of this
legislation were appropriately accounted for and disclosed
inthe Annual Report and Accounts.
Committee meetings
The Committee met six times during 2023/24 and had
a programme of business that reflects the Committee’s
terms of reference and issues, including those outlined
above, that could impact the effectiveness of the Group’s
risk management systems, internal control processes and
financial reporting.
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; and the External Auditor.
The Committee met separately with the former auditor,
KPMGduring the year to discuss matters without
management present. In addition, Grant Thornton was
provided with the opportunity at each meeting to discuss
any issues with the Committee without the presence
of management.
The Chair meets regularly with members of the Executive
and management teams as well as Grant Thornton, outside
of formal Committee meetings to discuss matters which
fallwithin the Committee’s terms of reference.
Governance
The membership of the Committee has been subject
ofconsiderable change this year following the retirement
ofGaelle Hotellier and Gotthard Haug from the Committee
and Board on 30 June 2023 and the retirement of David
Thomas on 11 June 2023, following his appointment as Chair
of the Company. On 7 June 2023 we welcomed Steve Blair
as a member of the Committee, but he then had to step
down on his appointment as Chief Executive Officer on
16 February 2024. On 1 July 2023, Lynn Brubaker joined the
Committee and I am very grateful for her support and advice
on undertaking the Committee’s broad work programme
this year.
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52
Audit Committee report continued
Both members of the Committee are independent
Non-Executive Directors whose qualifications are outlined in
the Directors’ biographies on pages 40 and 41. Both members
of the Committee have 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 Chairman
meets the requirement to bring recent and relevant financial
experience to the Committee and further information about
his experience can be found on page 40. 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.
Internal control and risk management processes
The Board has overall responsibility for the risk management
framework, as explained on page 19. 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 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 risks 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 and financial reporting
• The control structure for delegated authorities
• 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 include monthly management accounts,
balance sheet reviews, regular forecasting and investigation
ofvariances against budget/forecast.
As explained above, during the reporting period the
Company the role of Chief Financial Officer was unfilled
from 18 September 2023 until 30 January 2024. During this
period the Group Financial Controller was required to carry
out many of the tasks ordinarily undertaken by the Chief
Financial Officer. In addition, following the departure of
the Chief Executive Officer on 16 February 2024, certain
matters came to the attention of the Board that merited
further consideration. Accordingly the Board instructed the
Company’s lawyers to carry out a substantive and detailed
review of these matters and this work was completed in
June 2024. At the same time the newly appointed Executive
management team carried out a thorough review of the
Group’s operating controls and processes, including those
relating to expense approval and matters to be reported
tothe Board. Based on the results of the work undertaken
inthese two extensive reviews, the Board is satisfied that the
Company has not incurred any material financial loss from the
weaknesses identified in the Group’s internal controls under
previous Executive management.
Executive management has now introduced and implemented
new and additional processes and authority levels and is
satisfied that the Group has a substantially more robust
internal control environment as it enters the new financial year.
The Committee also regularly reviews the Group
whistleblowing register to ensure investigations are brought
to the Board’s attention and 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
at 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.
However, as a result of these additional responsibilities placed
on Group Finance from the absence of a Chief Financial
Officer, together with the additional work necessary to
complete a change in the financial reporting year and change
in reporting currency, the work of Internal Audit, described
below, was significantly curtailed as there was insufficient
available resource in Group Finance. Work will start very
soon in the new financial year with the Chief Financial Officer
toestablish a robust and more extensive work programme.
The work undertaken by outsourced providers largely covered
payroll and inventory procedures in the Group’s business
inPenang, Malaysia. The results of this work identified some
improvements to existing procedures, but controls were
generally found to be satisfactory.
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Audit Committee report continued
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 and the Chief Financial Officer 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
• Formal approval of the Annual Report and Accounts
isgivenby a committee of the Board
This approach enabled the Committee, and then the
Board, to confirm that the Company’s 2023/24 Annual
Report and Accounts 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 period 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
period under review are set out in the table below. These were
also the key judgements challenged by Grant Thornton
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 83 to 96.
Key judgements and financial reporting matters 2023/24 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 concluded that there was a “material
uncertainty” with regard to certain assumptions used in the
financial projections to determine whether the Group can
prepare the financial statements on a going concern basis, as
set out in more detail in note 2(b) of the consolidated financial
statements. 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 Grant Thornton. Further detail
can befound on page 83.
Inventory valuation and absorbed overhead costs
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)).
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Audit Committee report continued
Key judgements and financial reporting matters 2023/24 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 Grant Thornton challenged the assumptions
used to determine development department capitalisation and
concluded they were appropriate after an impairment charge
ofUS $4.1m was recognised as at 31 March 2024.
The Committee reviewed and approved the write-off of
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 Grant Thornton 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 reviewed and approved the write-off of
US$11.2m of goodwill as 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.
Ongoing 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.
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Audit Committee report continued
EXTERNAL AUDIT EFFECTIVENESS
ANDINDEPENDENCE
Grant Thornton UK LLP was appointed as external auditor
in2022 by the Committee and this appointment was
confirmed by shareholders at the AGM on 16 May 2023.
The date of engagement was 19 June 2023. The appointment
followed a competitive tender process, described more
fully inthe previous year’s Annual Report and Accounts.
That process was initiated to seek a replacement for KPMG
as required under the Statutory Auditors and Third Country
Auditors Regulations 2016. 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.
The Company confirms that, during the period under
review, it has complied with the provisions of The Statutory
Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
Grant Thornton 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 Grant
Thornton and each Director has taken steps to be aware
of all such information and to ensure it is available to Grant
Thornton. Grant Thornton’s audit report is published on
pages 83 to 96.
In order to assess the effectiveness and independence of
the external auditor and the audit process, the Committee
carried out a review of the external audit process carried
outby the former auditor, KPMG at its meeting in June 2023.
As part of this review 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, the Committee concluded
that the audit effectiveness and independence ofthe
external auditor and the audit process applied to the audit
of the financial statements for the year ended 31 March 2024
was satisfactory. A further review of the effectiveness and
independence of the current external auditor and the audit
process will be carried out later in 2024.
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 2023/24,
KPMG provided internal audit services at the Group’s
Malaysian operations during the year and EY 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.
Non-audit fees of US $0.1m relating to assurance related
services were paid to Grant Thornton during the period
under review.
AUDIT COMMITTEE EVALUATION
The Board is required to carry out a formal review of the
effectiveness of the Committee each reporting period.
In light of the considerable changes in the membership
ofthe Committee during this reporting period this review
was accomplished through a shorter self-assessment process
at the June 2024 meeting, which included a review of the
Committee terms of reference and was reported to the
Boardin July 2024.
In concluding this report, and particularly bearing in mind
the many difficulties faced by both the business the current
executive management team, on behalf of the Committee,
I wish to thank the Dialight management and finance team,
and Grant Thornton for their commitment and valuable
contributions during what has been a very challenging period
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
29 July 2024
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56
Remuneration Committee report
Lynn Brubaker
Chair of 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 (2023 AGM)
There was very strong support for the Remuneration-related
resolutions at the 2023 AGM as shown in the table below.
The Committee is grateful to shareholders for their support.
% votes for % votes against Votes withheld
Directors’
Remuneration
Report FY2023
99.99 0.01 1,568
(outof27,515,823
votes cast)
Dialight 2023
Restricted
SharePlan
99.82 0.18 2,066
(outof27,515,823
votes cast)
COMPOSITION AND ATTENDANCE
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 From 8 January 2018) until
30 June 2023 (Chair from
1 June 2018 to 7 June 2023
6/6
David Thomas From 26 April 2018 until
16 May 2023
6/6
Gotthard Haug From 12 January 2023 until
30 June 2023
6/6
Nigel Lingwood From 1 November 2022 12/12
Steve Blair From 7 June 2023 until
16 February 2024 (Chair from
7 June 2023 to 31 October 2023)
5/5
Lynn Brubaker
(Committee Chair)
From 1 July 2023 (Chair from
1 November 2023)
6/6
Neil Johnson From 1 July 2023 6/6
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.
There were two Remuneration Committee chair appointments
in the reporting year: Steve Blair, 1 July 2023 – 31 October
2023; and Lynn Brubaker, succeeding Steve on 1 November
2023. Neither of these chairs had served on the Remuneration
Committee for at least 12 months before assuming the role.
Both Steve and Lynn have extensive experience of listed
environments and remuneration matters in a UK PLC context.
Steve’s appointment was necessitated by the significant
changes in the Board and the previous Remuneration
Committee chair’s decision to step down from the Board
atthe end of June 2023. Lynn’s accession to the role (she had
been a member of the committee from 1 July 2023) resulted
from the need to reduce the workload on Steve once he
assumed the chair role of the Transformation Committee.
Throughout this period there was continuity provided
byNigel Lingwood being on the committee, the retention
of the Remuneration advisers, and the advice received from
thecompany secretary.
During the year, the Remuneration Committee met 12 times.
Of these, 8 meetings were formal scheduled meetings and
the other 4 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.
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Remuneration Committee report continued
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. In addition,
Neil Johnson wasnot present when the proposed VCP
was discussed.
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.
DEAR SHAREHOLDERS
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the 15-month year ended 31 March
2024. As in previous years, this report is split into three
sections: this Annual Statement (pages 58 and 59); the
proposed new Remuneration Policy for the next three years
ending 31 March 2027, subject to approval by Shareholders at
the AGM; and the annual report on the implementation of the
Remuneration Policy during 2023/24 (pages 72 to 77). We have
also included “at a glance” summaries on pages 02to08 to
aid the reader.
Please note that, as a result of the change to the Group’s
financial year, the annual report on remuneration covers a
15-month period.
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 96.3% of voting shareholders.
The Remuneration Committee’s activities during 2023/24 were
primarily focussed upon the implementation of that Policy
with regards to the Board changes, the annual cycle of review
of reward structures across the Group, bonus setting and a full
review of long-term incentive provision. The Committee also
consulted with Shareholders again during 2023/24 on the new
Remuneration Policy to be applied for the next three years
ending 31 March 2027, subject to Shareholder approval at the
forthcoming AGM.
BOARD CHANGES IN 2023/24
Clive Jennings stepped down as CFO and as an Executive
Director on 18 September 2023. Details of Clive’s
remuneration during the reporting period are set out on
pages 72 and 75. It includes the payment of salary and
contracted benefits through to 5 October 2023 and thereafter
a payment in lieu of notice payable in six calendar-monthly
instalments, together with pay in respect of untaken holiday.
Fariyal Khanbabi stepped down as CEO and as an Executive
Director on 16 February 2024 and left the Group on 18 May
2024. Details of Fariyal’s remuneration during the reporting
period are set out on pages 72 and 75. It includes the payment
of salary, contracted benefits, and expenses relating to her
secondment to the US. Following their departure, neither
Clive nor Fariyal retained any rights in relation to share
incentives granted to them.
Carolyn Zhang was appointed as CFO and as an Executive
Director on 1 February 2024. Steve Blair was appointed as
CEO on 16 February 2024. At the time of his appointment as
CEO Steve was already a member of the Board, having served
as a NED from 7 June 2023. Details of Carolyn’s and Steve’s
remuneration are set out on page 67.
During the reporting period, David Thomas, Gaelle Hotellier
and Gotthard Haug stepped down from the Board. They each
received their NED fees in the ordinary course through to the
final date of service. Details of their director fees are set out
on page 72.
Neil Johnson was appointed as the non-executive Chair
on 17 May 2023. As part of that recruitment process, the
Committee 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 (including the anticipated time commitment associated
with the implementation of the Group’s transformation and
strategic plan). The fee level for the Chair role was set at
£250,000 (following receipt of advice from the independent
remuneration consultants) in recognition of the anticipated
considerable demands of the role. As will be apparent from
the level of reported board and committee activities, the
role has indeed been demanding in terms of time and effort.
The Remuneration Committee will keep this fee level under
periodic review and, if and when appropriate, re-base to
a lower fee if there is a material reduction in the demands
of the role. NED fees were increased in line with standard
average annual increments for Group employees in respect
of the 2024/25 reporting year at 3%, but no increase has been
applied in respect of Neil Johnson’s fees.
Additionally, Lynn Brubaker was appointed as an NED on
1 July 2023 and became chair of the Remuneration Committee
on 1 November 2023. Current chair of the Audit Committee,
Nigel Lingwood, was appointed Senior Independent Director,
with effect from 19th February 2024
During the 15-month period ended 31st March 2024 there
were a number of changes in committee Chair appointments,
committee membership and SID, and details of these changes
are set out in the relevant committee reports. Details of NED
remuneration are given on page 72.
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Remuneration Committee report continued
EXERCISE OF DISCRETION
The Remuneration Committee has not exercised any
discretion during the reporting year in terms of incentive
plan outcomes.
PROPOSAL FOR A VALUE CREATION PLAN (VCP)
During the consultation process relating to the appointment
of Neil Johnson as Chair, the Board received various
representations from a significant 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 included a suggestion that the
Remuneration Committee considers a value creation plan
(VCP) for the Chair role and for executive management.
The plan is intended to deliver significant rewards to
participants in the event that there is a substantial increase
inshareholder value with no payout below a stretching hurdle.
Over 2023 and early 2024, the Committee has, in consultation
with Mercer Limited, worked on proposals for the VCP and
there has been an iterative consultation process in respect
of the VCP design with major shareholders. The proposed
plan, which would be operated on a time limited basis during
which it would replace regular grants (for VCP participants)
under the 2023 Dialight Restricted Share Plan (DRSP), has
been developed to address shareholder representations who
wish the Company to pursue an ambitious growth strategy
- accelerating that growth plan and delivering significant
additional benefit for shareholders.
The principal terms of the VCP are as follows with further
details included in the proposed Remuneration Policy as
shown on page 63.
• Participants eligible for a share in a pool of excess
shareholder value created over 3- and 4- year periods
ending 31 March 2027 and 31 March 2028
• Pool calculated as 7.5% of value created through share price
growth plus dividends in excess of 350p per share
• Award will have two independent 3- and 4- year
performance measurement periods (each being for 50%
ofthe award, i.e. 3.75% of value above the hurdle)
• Awards granted as a number of units in the pool with units
converted to shares / nil-cost options on vesting
• Participants required to retain vested shares (after sales
required to satisfy tax) for a period of 5 years from the date
of grant, i.e. to 31 March 2029
• Total payouts capped at 3% of shares in issue
• No awards under the DRSP to VCP participants until 2026
(vesting in 2029
• VCP participation restricted to Chair, CEO, CFO and a small
number of other key executives
• No good leaver provisions will apply in the first 24 months
ofthe plan (i.e. until 31 March 2026
• Chair and CEO required to acquire £150,000 worthofDialight
shares by 31 March 2025 to be eligible for VCP payouts
The Committee and the Board recognises that the
participation of the Chair in the long-term incentivewould
beunusual if he remained a non-executive Chair.
Therefore,itis anticipated that if the scheme is approved,
hisrole would become an executive role.
A resolution for the adoption of the VCP will be put forward
atthe 2024 AGM.
2024 REMUNERATION POLICY
The Company’s triennial remuneration policy is due to be
renewed at the 2024 AGM. The proposed 2024 remuneration
policy is the same in all material respects as the 2021
Remuneration Policy except for an amendment to take
account of the proposed 2024 VCP. The 2021 remuneration
policy was extensively consulted upon with shareholders prior
to adoption and received strong support.
As well as the new Policy, a resolution for the adoption of the
VCP Rules will be put forward at the 2024 AGM along with
linked amendments to other share plans.
POST YEAR-END ACTIVITIES
Except for the implementation of the matters setoutabove,
there are no material post year-end activities to be
reported, with the exception of the remuneration
arrangements concerning the departure of Fariyal Khanbabi.
The Remuneration Committee considered a range of
options (including its powers under malus and claw-back)
but concluded that in the circumstances the loss of unvested
share options, as necessitated under the relevant scheme
rules, was sufficient as at that point in time.
MATTERS TO BE CONSIDERED AT THE 2024 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 implementation of the VCP and
a proposal for the adoption of the 2024 Remuneration Plan.
Lynn Brubaker
Chair of the Remuneration Committee
29 July 2024
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Remuneration Committee report continued
COMMITTEE ACTIVITIES IN 2023/24
30 January 2023
• DRSP administration – 2022 bonus plan.
8 and 10 February 2023
• Chair terms, VCP outline and consultation with shareholders
to align remuneration more closely to shareholder value
creation through the introduction of a value creation plan.
2 and 22 March 2023
• Chair terms – 2023 remuneration scheme planning – 2022
remuneration report review and approval – 2022 bonus
planand 2020 DRSP outcomes.
5 April 2023
• RSO vesting and 2023 grants – approval of allotment
and announcement.
26 July 2023
• Remuneration timetable planning – DRSP administration.
15 November 2023
• NED fees – EBT administration – VCP design.
14 December 2023
• Committee review – 2023 bonus plan – VCP consultation.
29 January 2024
• Terms of service for new CFO – VCP consultation.
15 February 2024
• VCP consultation – remuneration timetable.
Structure ofbonus plan and DRSP awards.
22 March 2024
• Terms of engagement for new CEO – VCP shareholder
consultation – routine RSP vestings.
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 reporting period ended 31 March
2024, the Remuneration Committee consulted Mercer
Limited, a business of Marsh McLennan Inc, which provided
independent advice (for a total fee of £120,400 excluding
VAT) on: the CEO and CFO salary, benefits and variable
remuneration packages; the design and shareholder
consultation in respect of the VCP (including external market
context); other Board and 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 Lynn Brubaker, the policy outlined on pages 61
to65 and the report on the implementation of the policy on
pages 76 to 78) 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.
DIRECTORS’ REMUNERATION POLICY
This section of the report details the Remuneration Policy
for Executive and Non-Executive Directors. The previous
remuneration policy was approved at the 2021 AGM, effective
for up to three years. Following significant dialogue with major
shareholders, the Committee is seeking shareholder approval
for a new Remuneration Policy at the 2024 AGM. The new
Policy significantly strengthens the linkage between pay and
performance and the alignment between the pay of Executive
Directors and the shareholder experience and introduces
aVCP for a limited period.
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 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 new
Policy has been designed and reviewed so that it reinforces
these principles, in particular to offer significant rewards
for a substantial increase in shareholder value with no long-
term incentives being earned if total shareholder return is
below a stretching threshold. The Committee consulted very
extensively with major shareholders in late 2023 and early
2024. It also took into account prevailing best practice investor
expectations, along with remuneration made generally to
employees of the Group.
The main changes are to long-term incentivesandshare
ownership guidelines and are summarised in theRemuneration
Committee Chair’s Annual Statement on pages 58 and 59.
As noted in the introduction, Neil Johnson will become
Executive Chair, assuming that shareholders make the
necessary approvals for the Value Creation Plan (VCP) to be
implemented. In this case, he will be eligible to receive his
base fee and to participate in the VCP. He will not be eligible
for the Annual Performance Bonus Plan, pension contributions
or taxable benefits.
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Remuneration Committee report continued
REMUNERATION POLICY TABLE
Base salary/Fees
Link to strategy Operation Opportunity Performance metrics
Change to
policy for 2024
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 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
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 page 72.
None. No material
changes.
Benefits – not applicable to Executive Chair
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 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 (eg, relocation)
or in circumstances where
factors outside the Company’s
control have changed
materially (eg, increases
inlife insurance premiums).
Thevalue of benefits awarded
to the Executive Directors
can be found in the table
onpage72.
None. No material
changes.
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Remuneration Committee report continued
Pension – not applicable to Executive Chair
Link to strategy Operation Opportunity Performance metrics
Change to
policy for 2024
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 for Executive
Directors.
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. No material
changes.
Annual Performance Bonus Plan (APBP) – not applicable to Executive Chair
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 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, eg: 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.
No material
changes.
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Remuneration Committee report continued
Dialight Value Creation Plan (VCP)
Link to strategy Operation Opportunity Performance metrics
Change to
policy for 2024
As noted on page 59, in 2024,
Executive Directors will be
eligible for awards under the
VCP. No Executive Director
that receives a VCP award
will be eligible for a 2023
Dialight Restricted Share Plan
(DRSP) award in either 2024
or 2025 except potentially in
the case of “buy outs” under
the appointments policy.
It is anticipated that DRSP
awardswill recommence in
2026 and details of the plan
are set outbelow.
The VCP provides a way to
align remuneration more
closely to shareholder value
creation. The aim of the VCP
is to incentivise the Executive
Chair, CEO and CFO and
other key executives to pursue
ambitious targets for growth.
Participants will be eligible
for a share in a pool of excess
value created over three- and
four-year periods. Thetotal
pool will be calculated as 7.5%
of value created through share
pricegrowth plus dividends
(“TSR”) in excess of350p vs
a four-week average share
price ending 1April) of
approximately 166p; i.e. growth
of approximately 110%.
The award will have two
independent 3- and 4-year
performance measurement
periods (1 April 2024 to
31March 2027 and 1 April
2024 to 31 March 2028).
Each period will determine
50%  the award, i.e. 3.75%
of valuecreated will apply
toeach period.
A 3-month average opening
and closing share price will
be used to measure value
creation for the pool. Awards
will be granted as a number of
units in the pool. At the end
of each performance period,
units will be converted into
an award of shares/nil cost
options with participants
required to hold onto their
vested shares after any sales
required to settle tax and
withholdings on vesting for a
period of five years from grant,
in-line with the provisions of
the Code and market best
practice. To avoid excessive
payouts and shareholder
dilution, the total value of the
pool for all participants will
be capped at 3% of shares in
issue. If the aggregate value
of the pool exceeds this cap,
then awards will be scaled-
back pro-rata on the same
basis for all participants. The
implication is that the slope of
the payout curve reduces once
the share price exceeds 583p.
Awards will be granted to
four to five key individuals
including the Executive
Chair (Neil Johnson), Chief
Executive Officer (Steve Blair)
and Chief Financial Officer
(Carolyn Zhang). Both the
Executive Chair and Chief
Executive Officer would be
granted an award over units
representing 34% of the
pool and the Chief Financial
Officer 17% of the pool, with
the remaining 16% allocated
among other current or future
participants as determined
by the Board. At a share
price of £5, the awards to the
Executive Chair and CEO
would be worth approximately
£1.5m each, representing
around 0.34% each of the
value created for shareholders
above the hurdle. The
Executive Chair and Chief
Executive Officer will be
required to acquire £150,000
worth of Dialight shares by
31 March 2025 in order to be
eligible for VCPpayouts.
No awards would be made
under the DRSP to VCP
participants until 2026.
These awards would vest in
2029, 1 year after the second
element of the VCP awards
vest, ensuring the ongoing
retention of plan participants.
Other senior management
DRSP participants may receive
awards in the usual way.
Awards under the VCP are
subject to malus and clawback
provisions, further details of
which are included as a note
to the policy table.
As described under
“Operation”, the amounts
received by participants
are directly proportional to
shareholder value generated
in excess of a threshold that
represents substantial growth.
The Committee has discretion
to adjust outcomes as
described later in this Policy.
New item.
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Remuneration Committee report continued
Restricted Share Plans – not applicable to Executive Chair
Link to strategy Operation Opportunity Performance metrics
Change to
policy for 2024
The DRSP replaced the 2024
Dialight Performance Share
Plan (DPSP) for awards to
Executive Directors in 2021
and thereafter. There are
nooutstanding DPSP awards
toany executive directors.
Asnoted above, no DRSP
awards will be made to any
Executive Director that
receives a VCP award in
either 2024 or 2025 except
potentially in the case
of “buyouts” under the
appointments policy. It is
anticipated that DRSP awards
will recommence for executive
directors in 2026.
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
previous 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.
Awards to
Executive
Directors
who receive
VCP awards
will not
be made
in 2024
or2025.
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Remuneration Committee report continued
Non-Executive Director fees
Link to strategy Operation Opportunity Performance metrics
Change to
policy for 2024
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. In the event
of the Group reverting to
having a Non-Executive
Chair, the fees for that role
will be 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 page 72.
None. No material
changes.
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Remuneration Committee report continued
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 is 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 underpinned to any future 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 cash conversion measure
for the 2023 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 ABPB may be based on
strategic orother non-financial 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 or APBP award
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.
The VCP, Is based entirely on total shareholder return.
However, the Remuneration Committee is mindful of potential
windfall impacts and will therefore have the ability to make
adjustments to the share price hurdle and/or to payouts.
Adjustments may also be made in the event of a capital raise
and in other circumstances where the Committee considers
this to be necessary and in the interest of the Company. In the
event that a discretionary adjustment in favour of participants
is proposed (within the cost and dilution parameters of the
plan) that goes beyond the usual provisions that exist in
relation to obtaining or maintaining favourable tax, exchange
control or regulatory treatments then the Committee will
consult with major shareholders.
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 roles are typically eligible to participate
in the APBP, with opportunities and performance measures
reflecting organisational level and business area, as
appropriate. A small number of very senior employees will
receive VCP awards. Certain other employees at senior
management level or in key roles may receive DRSP awards.
These arrangements help Dialight remain competitive in the
main talent markets in which it operates, while also continuing
to align plan participants with the interests of shareholders
ingrowing the value of the Company over the longer term.
SHAREHOLDING GUIDELINES
Executive Directors are required to accumulate and maintain
a holding of Dialight shares equivalent in value to 200% of their
base salary. The net of tax number of vested shares under
the Company’s DRSP will normally be required to be retained
until the guideline has been met. Current shareholding levels
are set out on page 77. In light of their recent appointment,
the executive directors will have a period of 5 years to build
up their respective shareholdings to meet this requirement.
However, notwithstanding such period, Steve Blair will still
be required the meet the requirement to purchase £150,000
worth of Dialight shares by 31 March 2025 in order to be
eligible for VCP payments.
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.
In addition to the above, specific share purchase requirements
were applied to the Executive Chair and Chief Executive
Officer in order to be eligible for awards under the VCP
assetout in the Policy table above. This requirement will not
apply to the executive chair role in the event that Neil Johnson
assumes an executive role and participates in the VCP (if the
VCP is approved by shareholders at the 2024 AGM), on the
basis that he would not, in that role, participate in any bonus
scheme, nor be eligible for any DRSP grants. Neil would,
however, in the event of his participation in the VCP, be
required to meet the shareholding requirement specific to
the VCP – ie the purchase of £150,000 worth of Dialight shares
by31 March 2025.
CHANGE TO POLICY FOR 2024:
• Additional share purchase requirements for the Executive
Chair and Chief Executive Office.
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66
Remuneration Committee report continued
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:
• scheme participants;
• the timing of grant and size of awards, subject to the
maximum levels set out above;
• appropriate treatment of vesting of awards in the context
ofa change of control;
• appropriate adjustments to awards in the event of variations
to the Company’s share capital;
• treatment, size and grant of awards in a recruitment
context;and
• 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, VCP and
DRSP (as well as awards already made under the legacy
DPSP 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 VCP, DRSP and the legacy DPSP
awards the provisions apply remain subject to the provisions
throughout the vesting and holding period (where applicable).
Participants in all plans 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.
CHANGE TO POLICY FOR 2024:
• No material changes.
PAY FOR PERFORMANCE
The following charts provide an estimate of the potential future rewards for the Group Chief Executive and Group 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:
Executive Salary Pension Benefits Maximum APBP Share of VCP Pool
Neil Johnson £250,000 n/a n/a n/a Maximum of 34%
Steve Blair £466,000 5% of salary £21,000 150% of salary Maximum of 34%
Carolyn Zhang US $400,000 3% of salary US $34,000 125% of salary 17%
Neil Johnson will only assume the executive chair role if shareholders approve the VCP at the 2024 AGM and he is then
invited to participate in the approved VCP. As executive chair, he would not be entitled to participate in the DRSP nor in any
bonus scheme.
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Remuneration Committee report continued
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. No value is shown
for the VCP since nothing is earned unless total shareholder
return is 110%.
The “Maximum” scenario reflects fixed remuneration plus
APBP pay-out of 100% of maximum. No value is shown
for theVCP since nothing is earned unless there is a very
significant increase in share price.
The “Maximum with share price appreciation” scenario is
based on a share price of 400p which is more than double its
level on 31 March 2024. This is well above the 50% increase
referred to in the regulations since 50% growth would not
beenough to trigger a payout.
EXECUTIVE CHAIR
Minimum
On-target
Maximum + share price growth
Maximum
0 400 800 1,200 1,600 2,000
250
250
250
100%
45%
100%
33% 67%
0%
0%
0%
758
Key
Fixed
APBP
VCP
CEO
Minimum
On-target
Maximum + share price growth
Maximum
0 400 800 1,200 1,600 2,000
510
860
1,209
100%
45%
42%
30%
41%
58%
41% 30%
0%
0%1,717
0%
Key
Fixed
APBP
VCP
CFO (amounts in USD)
Minimum
On-target
Maximum + share price growth
Maximum
0 400 800 1,200 1,600 2,000
447
697
947
100%
45%
47%
37%
36%
53%
42% 21%
0%
0%
0%1,201
Key
Fixed
APBP
VCP
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Remuneration Committee report 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 Approach
Salary 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.
Benefits New appointees will be eligible to receive benefits in line with the current policy, benefits provided tothe
wider workforce in the same location plus (if applicable) expatriation allowances or benefits and any
necessary expenses relating to an executive’s relocation.
Pension 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.
APBP 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.
VCP Awards may be made within the overall pool size and dilution limits described in the policy table.
Therefore, any awards to new hires will need to be funded by via unallocated units and/or awards forfeited
by leavers.
DRSP New appointees may 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. If the individual is granted an award
under the VCP, it is likely that DRSP awards (other than to buy-out awards forfeited as described below)
willbe reduced or delayed until a future year.
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” remuneration forfeited on leaving a previous employer
on a like-for-like basis. If the Committee determines that
itisappropriate to do so it will apply the following approach:
The fair value of these buy-out 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).
The 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 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.
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.
CHANGE TO POLICY FOR 2024:
• VCP added to table.
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.
At the point the Chair becomes Executive Chair his new
contract will comply with Company remuneration policy.
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69
Remuneration Committee report continued
NOTICE PERIODS
Executive Directors’ service contracts require up to 12 months’
notice to be given by Dialight in the event of termination.
Both can be terminated with and without cause and require
up to 12 months’ notice from either party.
Both Steve Blair’s and Carolyn Zhang‘s contracts provide
for pay in lieu of notice but do not contain any additional
compensation provisions, nor do they 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
the Executive Directors’ contracts 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 table below summarises how the awards under the APBP,
DRSP and VCP are typically treated in specific circumstances,
with the final treatment remaining subject to the Committee’s
discretion within the plan Rules.
Annual bonus
Cash 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.
Deferred shares 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
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 shares would typically be pro-rated for the proportion of the
vesting or performance period served and released, subject to applicable conditions, 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.
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.
VCP
In most circumstances, awards will lapse. If the Executive Director is classed as a “good
leaver” and has served for at least 24 months of the plan (ie, until 31 March 2026) they will
remain eligible to receive their awards on the original timetable subject to pro-rating for
time. The Remuneration Committee will have discretion to vest awards on cessation or to
disapply pro-rating subject to the overall pool size of 7.5% and the dilution limit of 3%.
Awards forfeited by leavers would remain in the pool for grants to be made to new joiners
or to individuals whose roles change significantly. The value of awards lapsing due to
leavers would not be shared among existing participants.
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70
Remuneration Committee report continued
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. It is usual in this situation that awards would be pro-
rated for time. 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.
VCP awards would vest immediately on a change of control
before the completion of either performance period, with
value creation measured by reference to the offer price and
no pro-rating for time given that the plan is based on value
creation above a hurdle rather than expressed as an award
of shares.
The Remuneration Committee is also mindful that it is
conceivable that a shareholder agreed corporate event
could occur prior to any vesting of the VCP and at a level
below the VCP hurdle but where the committee believes
that material progress had been made, at that time, towards
the improvement in financial performance envisaged under
theVCP. In those circumstances the committee would
consult with major shareholders with a view to agreeing an
equitabletreatment of VCP participants taking into account
the performance of the Share price and time elapsed.
CHANGE TO POLICY FOR 2024:
• Information added in respect of the new VCP.
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 COMPANY
The Remuneration Committee takes into account what the
general rise in employee salaries was across the Company
at the review date when considering changes to the
remuneration of the Executive Directors. The 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 is regularly
updated on employee matters.
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 remuneration under
the new Remuneration Policy is appropriate.
The Committee consulted very extensively with major
shareholders in late 2023 and early 2024 and this led to the
development of the VCP. The design was tested with major
shareholders who provided helpful and constructive feedback
and challenge that allowed the Committee to refine the
design to that proposed above.
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71
2023/24 Annual Report on remuneration
The remuneration data reported in this section is, notwithstanding the move to USD$ reporting elsewhere in this Annual Report
and Accounts, expressed in GBP£ as this more readily facilitates comparison with prior year reporting.
Single figure of total remuneration (audited information)
The following tables provide details of the Directors’ remuneration for the 2023/24 (15-month) financial year, together
(whererelevant) with their remuneration for the 2022 (12-month) financial year, in each case before deductions for income
taxand national insurance contributions:
2023/24 Directors’ pay –
15 months (£’000s) Salary/fees Benefits
12
Pension
Sub-total
fixed Bonus DPSP/DRSP
Sub-total
variable
Total
remuneration
Executive Directors (current):
Steve Blair
1
56 3 3 62 – – – 62
Carolyn Zhang
2
53 – – 53 – – – 53
Executive Directors (past):
Fariyal Khanbabi
3
609 156
13
23 788 – – – 788
Clive Jennings
4
234 9 12 255 – – – 255
Non-Executive Directors
(current):
Neil Johnson
5
217 – – 217 – – – 217
Nigel Lingwood
6
72 – – 72 – – – 72
Lynn Brubaker
7
49 – – 49 – – – 49
Non-Executive Directors
(past):
David Blood
8
11 – – 11 – – – 11
David Thomas
9
50 – – 50 – – – 50
Gaëlle Hotellier
10
€55 – – €55 – – – €55
Gotthard Haug
11
35 – – 35 – – – 35
Steve Blair
1
54 – – 54 – – – 54
1 Steve Blair became an executive director on 15 February 2024, assuming the CEO role from Fariyal Khanbabi. Prior to that he had been appointed as a non-executive director on 7 June
2023. Steve was senior independent director from 7 June 2023 to 15 February 2024, Chair of the Remuneration Committee from 7 June 2023 to 31 October 2023, and Chair of the
transformation committee from 1 November 2023 to 15 February 2024.
2 Carolyn Zhang was appointed as a director on 1 February 2024.
3 Fariyal Khanbabi received a salary increase from £467k to £492k with effect from 1 April 2023. She stepped down as a director on 15 February 2024 but remained as an employee through
to18 May 2024.
4 Clive Jennings stepped down as a director on 17 September 2023 and remained as an employee through to 5 October 2023 and thereafter received a total of £155,613 as pay in lieu
ofcontractual notice and £12,535 in respect of accrued but untaken holiday.
5 Neil Johnson was appointed as non-executive Chair on 17 May 2023.
6 Nigel Lingwood became Chair of the Audit Committee on 12 January 2023 and senior independent director on 17 February 2024.
7 Lynn Brubaker was appointed as a non-executive director on 1 July 2023. She became the workforce engagement NED on 1 July 2023 and Chair of the Remuneration Committee
on1 November 2023.
8 David Blood stepped down as a non-executive director on 30 March 2023.
9 David Thomas stepped down as a non-executive director on 16 May 2023.
10 Gaëlle Hotellier became the interim-senior independent director on 12 January 2023 and stepped down as a non-executive director on 30 June 2023.
11 Gotthard Haug stepped down as a non-executive director on 30 June 2023.
12 “Benefits” does not include expenses in principle (including overseas secondment) incurred in the ordinary course.
13 This figure includes £130k of company expenses that are not considered ‘taxable benefits’ (representing housing rental and vehicle hire secondment costs for Fariyal Khanbabi
onsecondment to the US) and are disclosed in the interests of transparency.
2022 Directors’ pay –
12 months (£’000s) Salary/fees Benefits Pension
Sub-total
fixed Bonus DPSP
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
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72
2023/24 Annual Report on remuneration continued
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 pension
contributions to executive directors’ during the year.
Steve Blair received Company contributions of 5% of
his base salary (paid in cash). 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 (paid in cash). The Company is fully
compliant with the requirement that Executive Directors’
pension contributions are aligned with the average pension
contribution of the Group’s UK workforce (a rate of 5%) or the
Group’s US workforce (as applicable).
APBP
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 72 to 75.
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. The 2023
Executive Director APBP was based on two elements: 50% of
the available bonus pot being payable against an EBIT metric
and 50% against Absolute Net Debt. The performance ranges
of the 2023 EBIT and Absolute Net Debt performance were
as follows:
Threshold Target Maximum Actual
EBIT element (after
provision for bonus)
£6m £8m £8m £2.3m
Absolute Net Debt £15.5m £13.5m £12.5m £13.0m
As set out above, neither the EBIT nor absolute net debt
performance met the threshold targets and therefore no
payments were made in respect of the APBP.
DPSP AND DRSP AWARDS (AUDITED INFORMATION)
Under the 2021 Remuneration Policy the Company’s DPSP
scheme was replaced by a DRSP scheme (see page 64).
Accordingly, awards of DRSPs were made to the Executive
Directors in the awards window following the release of the
Group’s preliminary results on 27 March2023 as set out on
page 76. The DPSP awards made in 2020 to Fariyal Khanbabi
(with the applicable three-year performance testing period
ended on 27 March 2023) lapsed in their entirety as the
relevant performance conditions were not achieved.
CEO PAY – PAY RATIO METHODOLOGY
The table on page 74 discloses the ratio of the CEO’s pay
against the remuneration of the Group’s UK workforce in
2023/23. 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 2023/24, 2020 AND 2021
The 2023/24 ratio is a blended ratio to reflect the short
period from 15 February 2024 to 31 March 2024 when
SteveBlair was CEO (and paid below the rate received by
Fariyal Khanbabi). 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).
Year
25th percentile
ratio
50th percentile
ratio
75th percentile
ratio
2023/24 10.8:1 8.7:1 5.8:1
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
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73
2023/24 Annual Report on remuneration continued
DIRECTOR PAY – PERCENTAGE CHANGE IN THE
REMUNERATION OF THE DIRECTORS
The following table sets out the change in remuneration
paid to the Directors with continuity of service from 2022
to 2023/24 compared with the average percentage change
for employees as a whole. The above notes in respect of
comparison of pay ratio calculations apply. 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. The salary and benefits changes have
been calculated based on an annualised equivalent for the
15-month period ending 31 March 2024.
% change 2022 – 2023/24
CEO CFO
Non-
Executive
Directors
Group
employees
Salary 5.5% 5.5% 3% 4.2%
Bonus 0% 0% – 0%
Benefits 0% 0% – 0%
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 2022
and 2023/24 relative to the total amount of distributions in
each year:
Spend on pay Distributions
2023/24 £44.0m £0m
2022 £36.6m £0m
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.
Mar 18 Mar 19 Mar 20 Mar 21 Mar 22 Mar 24Mar 23Mar 17Mar 15 Mar 16Mar 14
300
250
200
150
100
50
0
Dialight FTSE 250 Index (exd. investment trusts) FTSE SmallCap Index (exd. investment trusts) FTSE All Share Electronics & Electronical Equipment Index
Source: Datastream
TOTAL CEO REMUNERATION
The table below sets out the “single figure” of total remuneration of the CEO over the past ten years:
2014 2015 2016 2017 2018 2019 2020 2021 2022
2023/24
(12-month
comparator)
2023/24
(actual)
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
F Khanbabi
5
S Blair
5
F Khanbabi
5
S Blair
5
Total
remuneration
(£’000)
£930 £697 £1,182 £602 £605 £573 £447 £911 £507 £531 £850
Bonus outcome
(% of maximum)
29% 0% 74% 0% 0% 0% 0% 62.5% 0% 0% 0%
PSP vesting
outcome
(%ofmaximum)
0% 0% 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 9 August, F Khanbabi from 10 August.
3 F Khanbabi as Interim CEO to 4 March and as permanent CEO from 5 March.
4 2023/24 was a 15-month reporting period – the actual CEO “single figure” data for the 15-month period is shown in the right-hand column – with a 12-month comparator shown in the
adjacent column.
5 F Khanbabi to 15 February 2024, S Blair from 15 February 2024.
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74
2023/24 Annual Report on remuneration continued
DRSP AWARDS MADE IN 2023 (AUDITED INFORMATION)
DRSPs were granted to Fariyal Khanbabi and Clive Jennings
as set out below. In accordance with the Remuneration
Policy, awards were made with vesting conditional on: (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 would have applied to any shares
received by Executive Directors on the vesting or exercise
of these awards (as well as any other applicable restrictions
– see page 70). 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 DPSP 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 subsequent
awards of DRSPs. Across the previous 12 months (to April
2023), the share price had fallen by 45%. The Remuneration
Committee considered this at length, noting that the Group’s
performance had reflected, at least in a material part, external
factors and that nothing was earned by the executive directors
from incentive plans in 2022. Having considered these factors
it was determined that, on balance, no reduction should
be made against the level of DRSPs awarded. It should be
noted that these awards have now lapsed as a result of the
individuals leaving the Group.
Director
Fariyal Khanbabi Clive Jennings
Plan DRSP DRSP
% 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
151,547 76,618
Face value of an award
1
£3 07,79 2 £155,611
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 5 April 2022
Date of end of performance period 5 April 2025 5 April 2022
Outcome 100% lapse on termination
2
100% lapse on termination
2
1 Based on five-day average share price on date of award of £2.031.
2 Awards made to C Jennings lapsed on termination on 5 October 2023, and awards made to F Khanbabi lapsed on termination on 18 May 2024.
PAYMENTS TO PAST DIRECTORS OR FOR LOSS
OFOFFICE (AUDITED INFORMATION)
David Blood (30 March 2023), David Thomas (16 May 2023),
Gaelle Hotellier (30 June 2023) and Gotthard Haug (30 June
2023) all stepped down as non executive directors during
the reporting period, having served notice of their intent to
resign. No exit or other termination payments were made
to them.
Clive Jennings resigned as a director on 17 September 2023.
He left Dialight on 5 October 2023. Between 17 September
2023 and 5 October 2023 Clive was paid contractual salary
and benefits in the ordinary course. Thereafter, Clive was
paid £155,613 in lieu of notice in six monthly instalments
of£25,935.50 together with a payment for accrued and
untaken holiday. No other exit or other termination payments
were made to him with the exception of £1,000 in respect of
legal fees. All DRSP awards lapsed on exit.
Fariyal Khanbabi resigned as a director on 15 February 2024.
She left Dialight on 18 May 2024. Between 15 February 2024
and 18 May 2024 Fariyal was paid contractual salary and
benefits in the ordinary course. No exit or other termination
payments were made to her with the exception of accrued
and untaken holiday. All DPSP and DRSP awards lapsed
on exit.
No bonus was paid in respect of the financial year for
2023/24 and Fariyal Khanbabi did not retain any rights
inanyshare scheme.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
75
Implementation of the remuneration policy for 2024/25
2024/25: EXECUTIVE DIRECTOR SALARIES,
PENSIONSAND BENEFITS
A new, 2024 Remuneration Policy (the 2024 Policy) will be put
to shareholders for approval at the 2024 AGM in September
2024. If the 2024 Policy is adopted, remuneration thereafter
(including benefits) for all Executive Directors in 2024/25 will
comply with that policy.
Steve Blair was appointed as CEO on 16 February 2024 on
a salary of £466,000 and Carolyn Zhang was appointed
as CFO on 1 February 2024 on a salary of US $400,000
(USD). Neither will receive a salary increase for the 2024/25
financial year. Both will receive pensions in line with the
wider workforce in their respective locations – i.e. 5% and
3% of salary,respectively. Annual fee increments of 3% will
be applied for the 2024/25 reporting period in line with the
average increases applied to the wider workforce.
2024/25 APBP
The 2024/25 APBP bonus scheme for Executive Directors
will be in line with that set out in the 2021 Policy. The 2021
Policy may be superseded by the 2024 Policy (if adopted by
shareholders at the 2024 AGM) but the 2024 Policy reflects
the same approach to annual bonus structure as set out in
the 2021 Policy. In respect of the 2024/25 reporting period,
the following APBP performance metrics have been set (with
no element of the bonus apportioned to individual targets,
toreflect the primacy of these three performance metrics):
20% against a cash conversion metric (for which a net debt
target is used); 40% against an EBIT metric; and, 40% against
a revenue metric. 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.
2024/25: DRSP
No share scheme awards for Executive Directors will be
made until after the 2024 AGM. At the 2024 AGM a proposal
will be made for the adoption of a Value Creation Plan (VCP)
(see page 63). Further details on the VCP will be provided
in the notice of AGM. If the VCP is adopted by shareholders
at the 2024 AGM, awards under the VCP will be made to the
executive Directors in the awards window following the 2024
AGM. If the VCP is not adopted at the 2024 AGM, awards
under the DRSP will be made to executive Directors. Any VCP
awards made will comply with the structure set out in the
2024 Policy if adopted. Any shares that vest after the relevant
performance period and holding period (together being not
less than 5 years) will also have to be retained until such time
as the recipient meets the applicable shareholding guidelines.
Type of
award Award date
Number at
01.01.23
Awarded
in year
Vested
in year
Exercised
in year
Lapsed
in year
Number at
31.03.24
Exercise
price
Earliest
vesting/
exercise date Expiry date
Fariyal Khanbabi
PSP NCO 27.03.20 201,367 – – – 201,367 – – – –
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 – 12,163 12,163 – 12,164 – 31.01.24 05.04.27
RSP NCO 05.04.23 – 151,547 – – – 151,547 – 05.04.26 05.04.28
Total 394,361 151,547 12,163 12,163 (201,367) 332,378
Clive Jennings
RSP NCO 05.04.22 41,201 – – – 41,201 – – – –
RSP NCO 05.04.23 – 76,618 – – 76,618 – – – –
Total 41,201 76,618 – – 117,819 –
Notes:
NCO denotes nil-cost options. Those under the DPSP were subject to applicable TSR and EBIT-related performance conditions.
The average closing market price of a share over the five trading days of 29 March 2023 to 4 April 2023, which was used for the purpose of calculating award values on 5 April 2023
(the date of the awards recorded in the tables above as made during the year) was 203.1 pence.
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 2023/24 reporting period, the range of share prices was 144 pence to 325 pence, with the price on 31 March 2023 being 174.50 pence.
All share options held by Fariyal Khanbabi as at 31 March 2024 lapsed automatically on her departure on 18 May 2024.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
76
Implementation of the remuneration policy for 2024/25 continued
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 DPSP/
DRSP 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).
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 Policy.
This approach is maintained under the proposed 2024 Policy.
Both Carolyn Zhang and Steve Blair have assumed Executive
Director roles within 2 months of the end of the Reporting
Period. Steve Blair had acquired 31,446 shares in Dialight
during his term as a Non-Executive Director, and under
the terms of the proposed VCP he would have to acquire
atotal shareholding of at least £150,000 by 31 March 2025
in order to be eligible for the VCP. 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 March 2024 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 March 2024 by each of the Directors:
Beneficially held shares
1
Year
Ordinary shares
at 1 January 2023
Ordinary shares
at 31 March 2024
Unvested and/or subject to
performance conditions
2
Steve Blair
3, 4
– 31,446 –
Carolyn Zhang
3
– – –
Neil Johnson
4
– 96,393 –
Lynn Brubaker – 25,157 –
Nigel Lingwood – 11,289 –
1 Some of these shares may be held through nominees.
2 Relates to outstanding awards (if any) under the DRSP and APBP.
3 Both Steve Blair and Carolyn Zhang are required to build up a shareholding equivalent in value to 200% of their base salary within 5 years of their appointment.
4 Both Neil Johnson and Steve Blair will be required to purchase £150,000 worth of Dialight shares by 31 March 2025 in order to be eligible for VCP payouts.
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 March
2024 are as follows:
Directors Commencement date Expiry date of current employment/service agreement or letter of appointment
Steve Blair 15 February 2024 The contract is terminable by the Company or the Director
on twelve months’ notice.
Carolyn Zhang 1 February 2024 The contract is terminable by the Company or the Director
on six months’ notice.
Neil Johnson 17 May 2023 Letter of appointment was for an initial term of three years.
Lynn Brubaker 1 July 2023 Letter of appointment was for an initial term of three years.
Nigel Lingwood 1 November 2022 Letter of appointment was for an initial term of three years
(ending on 31October 2025).
• The Chair and CEO would both be required to acquire £150,000 worth of Dialight shares by 31 March 2025 to be eligible
forVCP payouts.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
77
Directors’ report
The Directors present their report and the audited
consolidated financial statements of Dialight plc for
theyearended 31 March 2024.
ACTIVITIES
Dialight plc is a holding company. Our businesses by sector
and their activities are set out on pages 138 to 139.
ORDINARY DIVIDENDS
The Company has repaid in full, during the reporting period
its COVID-19 CLBILS and associated additional commercial
loan facilities. Those facilities had previously prevented
distributions by the Company. Notwithstanding the
repayment of the CLBILS facilities, the Board is not proposing
any final dividend payment for 2023/4 (2022: 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.
The Company has established the Dialight Employee Share
Ownership Plan Trust (”ESOT”), in respect of which all
employees of the Group, including Executive Directors, are
potential beneficiaries. The ESOT held 192,675 shares in the
Company as at 31 March 2024 (2022: 225,451). It acquired
a small number of shares in April 2024 69,281and it is likely
that it will acquire further shares in the Company in 2024/5 in
anticipation of future vestings under the 2023 DRSP and the
2014 DPSP. 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 11 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 2023/4 under the authority granted at the 2023
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).
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.
SUBSTANTIAL INTERESTS IN SHARES
As at 23 July 2024, 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
Generation Investment
Management LLP
6,532,248 16.32
Odyssean Capital 6,444,000 16.10
Aberforth Partners LLP 6,218,568 15.54
Schroder Investment Management 5,061,963 12.65
The Wellcome Trust Ltd 3,698,639 9.24
Sterling Strategic Value Fund S.A.,
SICAV-RAIF
3,342,517 8.35
Blackmoor Investment Partners 1,378,979 2.85
EMPLOYEE SHARE PLANS
Details of employee share plans are set out in note 16 to the
consolidated financial statements. The Company currently
has in place two share plans: the 2023 Restricted Share
Plan (“2023DRSP”) (which succeeded the 2014 Dialight
Performance Share Plan (“2014 DPSP”), but under which
granted options will continue to vest for their respective
vesting periods) and the Annual Performance Bonus Plan
(“APBP”). The 10-year fixed term forthe grant of options
under the Company’s 2014 Sharesave Plan expired on 15 April
2014, and there are no active savers under the Sharesave Plan.
Further details of these share plans are provided in the report
of the Remuneration Committee.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
78
Directors’ report continued
The rules of the 2023 DRSP (and the preceding 2014 DPSP,
under which terms granted options will continue to vest
until each relevant vesting period ends) provide that,
intheevent of a change of control through a general offer
or scheme of arrangement, shares subject to awards under
the2023 DRSP (and the 2014 DPSP) could be released within
one month of the date of notification of the likely change
ofcontrol. The ESOT held 192,675 shares as at 31 March 2024
(2022: 225,451). It acquired a small number of shares in April
2024 (69,281 ) and it is likely that it will acquire further shares
in the Company in 2024/5 in anticipation of future vestings
under the 2023 DRSP and the 2014 DPSP. 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
The appointment and replacement of Directors of the
Company is governed by the Company’s 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
2024 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 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 42.
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 US $34.0m multi-currency
revolving credit facility with HSBC Bank plc (“HSBC”) which
was entered into on 21 July 2022 for an initial duration of four
years expiring 21 July 2026. Under the terms of this facility,
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
2024 AGM, an ordinary resolution will be proposed which,
if passed, will authorise the 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 2023 AGM will have expired by the
time of the 2024 AGM. 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 2024 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 2024 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 2024 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 88% of voting shareholders
supported the allotment resolutions at the 2023 AGM.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
79
Directors’ report continued
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 herself/himself
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 re-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. Grant Thornton was first appointed as the Company’s
auditor in 2023, following a competitive tender exercise
in 2022.
AGM
The Company’s AGM will be held on 23 September 2024.
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 15-month period ended 31 March 2024.
The Corporate Governance report set out on pages 33 to 81,
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 multicurrency revolving credit facility of $34.0m with
HSBC was extended on 14 June 2024 to 21 July 2026
onthe same terms as the original revolving credit facility
agreement; and
• the disposal of the Company’s non-core rail and
traffic business to Leotek Electronics USA, LLC for
US$5.8million USD.
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 02
to 31. Details related to employee matters are in the “Our
people” section on pages 14 and 15. Environmental matters,
including greenhouse gas emissions reporting, are included
within the ESG Report on pages 11 to 18. Information about
the use of financial instruments by the Company and its
subsidiaries is given in note 29 to the financial statements.
The Company made no political donations during the year.
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
29 July 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
80
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). Directors must
be satisfied that the financial statements 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.
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, confirms that to the best of her/
his 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
Steve Blair
Group Chief Executive
29 July 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
81
FINANCIAL
STATEMENTS
Independent auditor's report to the
members of Dialight plc 83
Consolidated income statement 97
Consolidated statement of comprehensive income 98
Consolidated statement of changes in equity 99
Consolidated statement of total financial position 100
Consolidated statement of cash flows 101
Notes to the consolidated financial statements 102
Appendix – Comparison of GBP and USD
31 December 2022 primary statements 140
Company balance sheet (prepared under FRS 102) 142
Company statement of changes in equity 143
Notes to the company financial statements 144
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
82
Independent auditor's report to the members of Dialight plc
OPINION
Our opinion on the financial statements is unmodified
We have audited the financial statements of Dialight plc (the "Parent Company" and its subsidiaries (the "Group") for the
period from 1 January 2023 to 31 March 2024, which comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Total Financial Position, the Consolidated Statement
of Changes in Equity, the Consolidated Statements of Cash Flows, the Company balance sheet, the Company Statement of
Changes in Equity and notes to the financial statements including a summary of significant accounting policies. The financial
reporting framework that has been applied in the preparation of the Group financial statements is applicable law and UK-
adopted international accounting standards. The financial reporting framework that has been applied in the preparation of
the Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including Financial
Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom
Generally Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at
31 March 2024 and of the Group’s loss for the period then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international
accounting standards;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; 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 under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial
statements’ section of our report. We are independent of the Group and the Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
We draw attention to the going concern paragraph in note 2(b) in the financial statements which indicates that the Directors
believe the Group will be able to deliver on its transformation plan, generate forecast organic sales growth and realise cost
reductions within the next 12 months. The Directors recognise that the transformation plan is in its early stages and as such, a
reliable history of its effectiveness is not yet available. In the reverse stress test, whilst revenues are forecast to decrease from
FY24 to FY26, total gross profit is forecast to increase by 3% between FY24 to FY26. As a result, the Group are required to
increase total gross profit in excess of this level in order to avoid breaching covenants. The directors have therefore concluded
that a plausible risk of covenant breaches and insufficient liquidity exists within the reverse stress test scenario.
Further, the legal claim against the Company by Sanmina, which is outlined in note 26 represents a possible adverse outcome
outside of the Group’s control which could result in a material cash outflow. In this scenario, the Group would have insufficient
liquidity in the going concern period in management’s downside case, without taking mitigating actions or securing
additional funding.
In addition, the Company has sought retrospective covenant waivers from the Group's bank. The waivers are subject to legal
finalisation at the date of approval of the financial statements.
As stated in the going concern paragraph in note 2(b), these events or conditions indicate that a material uncertainty exists
that may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
In auditing the financial statements, we have concluded that the director’s use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
OUR EVALUATION OF MANAGEMENT’S ASSESSMENT OF THE ENTITY’S ABILITY
TOCONTINUEASAGOINGCONCERN
Our evaluation of the directors’ assessment of the Group’s and the Parent Company’s ability to continue to adopt the going
concern basis of accounting included obtaining management’s going concern forecast covering the period to 31 March 2026
and performing the following procedures:
• Obtained an understanding of the key controls over management’s going concern forecast including those over the inputs
and assumptions used in the forecast;
• Obtained management’s forecasts and performed arithmetical and model integrity checks on the forecast cash flows;
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
83
• Challenged management’s key trading, working capital and cash flow assumptions made within the forecasts by comparing
management’s forecasted position against their historic position;
• Obtained management’s downside scenarios (including management’s downside case (lower revenue and margin and lower
revenue and margin and adverse Sanmina outcome) and reverse stress test), which reflect management’s assessment of
uncertainties. We evaluated the assumptions regarding the forecast period under each of these scenarios;
• Assessed the accuracy of management’s past forecasting for the previous two financial years by comparing management’s
forecasts to actual results for those years and have considered the impact on the plausibility of the going concern forecast;
• Evaluated management’s assessment on whether there were any breaches in covenants in the period;
• Evaluated events that occurred post balance sheet date and challenged management as to whether these have been correctly
reflected in the forecasts prepared; and
• Evaluated the completeness and accuracy of the directors’ assessment of the material uncertainty by assessing the disclosure
against information available in the public domain and the board minutes, and through our inquiries with management, the
finance team, legal counsel and the board of directors.
OUR RESPONSIBILITIES
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to
the date of our report. However, future events or conditions may cause the Group or the Parent Company to cease to continue
as a going concern. The responsibilities of the directors with respect to going concern are described in the “Responsibilities of
directors for the financial statements” section of this report.
REPORTING UNDER THE UK CORPORATE GOVERNANCE CODE
Except for the material uncertainty identified above, in relation to the Group’s and the Parent Company’s reporting on how
they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to
the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going
concern basis of accounting and directors’ identification in the financial statements of any material uncertainties related to the
entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.
OUR APPROACH TO THE AUDIT
Materiality Key audit
matters
Scoping
Overview of our audit approach
Overall materiality:
Group: US $1,136,000 which represents 0.5% of the Group’s total revenue.
Parent company: US $1,025,000, which represents 1% of the Parent Company’s total assets,
Parent Company component materiality has been capped at an amount less than group
materiality for group audit purposes (US $738,000).
Key audit matters were identified as:
• Risk of fraud in revenue recognition (Group)
• Valuation & Allocation of goodwill and other intangible assets (Group)
• Valuation & Allocation of inventory (Group)
• Going concern (Group)
• Management override of controls (Group)
• Valuation & Allocation of Parent Company’s investments (Parent company)
The auditor’s report for the year ended 31 December 2022 included four key audit matters
that have not been reported as key audit matters in our current year’s report.
We have performed an audit of the financial information using component materiality (full
scope audit procedures) on the financial information of Dialight plc (Parent Company) and
Dialight Corporation (USA).
We performed specified audit procedures and specific-scope audit on the financial
information of three components Dialight Penang Sdn, Dialight Europe and Dialight ILS
Australia. Analytical procedures were performed on all other entities within the Group.
Independent auditor's report to the members of Dialight plc
continued
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
84
Independent auditor's report to the members of Dialight plc
continued
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters
included those that had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material uncertainty
related to going concern section, we have determined the
matter(s) described below to be the key audit matter(s) to be
communicated in our report.
In the graph below, we have presented the key audit matters
and significant risks relevant to the audit. This is not a
complete list of all risks identified by our audit.
Description
Disclosures
Audit response
Our results
KAM
POTENTIAL
FINANCIAL
STATEMENT
IMPACT
EXTENT OF MANAGEMENT JUDGEMENT
High
Low
Low High
Key audit matter (KAM) Significant risk
Going concern
Risk of fraud in
revenue recognition
Valuation and Allocation
ofinventory
Valuation and Allocation
of goodwill and other
intangible assets
Termination of outsourced
manufacturing agreement
(Sanmina)
Management
override of controls
Inventory overhead
absorption
Valuation and Allocation
of Parent Company’s
investments (Parent)
Defined benefits pensions
scheme liabilities
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
85
Independent auditor's report to the members of Dialight plc
continued
Key Audit Matter – Group How our scope addressed the matter – Group
Risk of fraud in revenue recognition
We identified revenue recognition as one of the most
significant assessed risks of material misstatement due
to fraud.
Under ISA (UK) 240 ‘The Auditor’s Responsibilities Relating
to Fraud in an Audit of Financial Statements’, there is a
rebuttable presumption that there is a risk of fraud in
revenue recognition.
Given we would expect revenue recognition to follow the
revenue cycle process, we pinpointed the significant risk of
fraud in revenue recognition to the occurrence of the revenue
transactions that do not follow the expected transaction
process (“outliers”), which we have defined as unusual
transactions and therefore subject to a higher risk of fraud
Group revenue for the 15 months period totals $226.0m
(12-month period 2022: $209.8m).
In responding to the key audit matter, we performed the
following audit procedures:
• Understood the revenue to receivables to cash process,
including performance of a walkthrough to assess the design
and implementation of key controls to confirm that revenue
ismoving through the cycle in line with our expectation.
• Evaluated management’s revenue recognition policies and
assessed compliance with IFRS 15’Revenue from Contracts
with Customers’ by performing an assessment of contract
terms for a sample of customers with varying terms, across
allkey jurisdictions;
• Having gained an understanding of the revenue cycle
process, we utilised audit data analytics to identify unusual
transactions outside of the revenue cycle process of in-scope
components. We checked the nature of these transactions
and agreed the transactions to relevant underlying
information and revenue accounting recognition accounting
policies, including compliance with IFRS 15;
• Performed substantive testing on a sample of revenue to
obtain evidence over the occurrence and accuracy of the
transaction, including supporting third party documentation
such as evidence of dispatch and cash collection.
Relevant disclosures in the Annual Report
andAccounts 2024
• Financial statements: Note 4 for the accounting policy,
Note 5 for Revenue and Segmental information
Our results
We did not identify any material misstatements in relation
to revenue transactions which did not follow the expected
transaction flow.
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continued
Key Audit Matter – Group How our scope addressed the matter – Group
Valuation and Allocation of goodwill and other
intangible assets
We identified valuation of goodwill and other intangible
assets as one of the most significant assessed risks of
material misstatement due to fraud and error due to the high
estimation uncertainty, and the impact of these estimates on
the financial performance of the Group.
A review for impairment was performed by management
at 31 December 2023 which resulted in a full impairment of
goodwill of US $11.2m being recognised during the period
which had been previously allocated to the Lighting cash
generating unit (CGU). Following an impairment review at
31 March 2024, US $4.1m of capitalised development costs
were also impaired.
Impairment testing involves the use of estimates and
judgements including estimates of revenue growth, margin
and the appropriate rate at which to discount the forecast
cashflows within the impairment model.
In responding to the key audit matter, we performed the
following audit procedures:
• Evaluated the Group’s accounting policy for consistency
withInternational Accounting Standards (IAS) 36 ‘Impairment
of Assets’ and considering whether the accounting policy
was applied accurately and consistently;
• Tested the historical accuracy of management’s forecasts
bycomparing budgeted results to actual in the prior year;
• Engaged internal auditor’s experts to test the discount rate
applied by management to the forecast cashflows and to
determine an auditor’s range for the discount rate;
• Tested the mathematical accuracy of the impairment
model including whether the assumptions were accurately
incorporated within the impairment model, assessing the
computational accuracy of the model and agreeing the
carrying value of allocated assets to the underlying records
of the Group;
• Assessed the method of allocating assets between the
Lighting and Signals & Components CGUs and challenging
the level of impairment of development costs for
product families;
• Performed sensitivity analysis to the revenue growth rates,
discount rates and gross profit margins to assess the
sensitivity of the impairment model to those key assumptions;
• Challenged management’s assumptions concerning forecast
cash flows, based on historical trends and any changes in
customer preferences and regulations. This also involved
considering any contradictory evidence noted in other areas
of the audit; and
• Assessed the disclosures made in the financial statements
forcompleteness and accuracy in line with the requirement
of IAS 36.
Relevant disclosures in the Annual Report
andAccounts 2024
• Financial statements: Note 4 for the accounting policy,
Note 14 for Intangible Assets
Our results
Our audit testing and challenge of management resulted in
an additional impairment charge of US $4.1m being recorded
against capitalised development costs. No further material
errors over the valuation and allocation of goodwill and
other intangible assets were identified as a result of our
audit procedures.
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continued
Key Audit Matter – Group How our scope addressed the matter – Group
Valuation and Allocation of inventory
We identified valuation and allocation of inventory as one of
the most significant assessed risks of material misstatement
due to fraud and error.
We identified a risk of fraud that management could generate
improved results through provision manipulation or make
inappropriate judgements which cause the provision to be
materially inappropriate.
We also identified a risk of error as the underlying provision
computation is complex and involves management
judgement. The group holds US $49.1m (2022: US $64.8m)
of inventory on its balance sheet which represents 35%
(2022: 37%) of Group total assets.
The Group operates in an industry whereby development in
product technology may result in inventory becoming slow
moving or obsolete. Levels of older or longer dated inventory
may indicate an element of slow moving or obsolete inventory
that requires a provision.
In responding to the key audit matter, we performed the
following audit procedures:
• Gained an understanding of the Group’s processes
and controls with respect to inventory as part of overall
understanding of the entity and business process;
• Assessed the methodology behind the provision calculation
to consider whether judgements applied were reasonable
and incorporated the accounting standards appropriately;
• For finished goods:
– considered the prior year accuracy of the inventory
provision by assessing management’s retrospective
review of prior year provision amounts by comparing
those provisions to subsequent inventory turn, usage
andrealisation, thus confirming if the two-year assessment
made by management is appropriate;
– tested the net realisable value of a sample of finished
goods with reference to recent sales data; and
– tested that finished goods on hand at the end of the period
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.
• For raw materials and sub-assemblies:
– evaluated usage of inventory aged greater than two years
to assess management’s judgement that two years is an
appropriate provision criterion for raw material inventory;
– assessed sales and usage for inventory aged 12-24 months
to challenge whether there is indication that this inventory
may also be at risk of excess and or obsolescence;
– considered the prior year accuracy of the inventory
provision by assessing management’s retrospective
reviewof prior year provision amounts by comparing those
provisions to subsequent utilisation of finished goods; and
– assessed the aging data element in the provision
calculation for raw materials and sub-assemblies;
• By selecting a sample of purchases, we substantively tested
the perpetual inventory costing and ensuring that the
purchase price variance has been accounted for correctly; and
• Assessed the quality, completeness and transparency of
disclosures in the financial statements.
Relevant disclosures in the Annual Report
andAccounts 2024
• Financial statements: Note 4 for the accounting policy,
Note 17 for financial disclosure
Our results
We did not identify any material misstatement to level of
inventory provision.
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continued
Key Audit Matter – Group How our scope addressed the matter – Group
Management override of controls
We identified management override of controls as one of
themost significant assessed risks of material misstatement
due to fraud.
In the period, there were a number of significant changes
to the senior executive team, initially resulting in the CFO
departing on 18 September 2023 with the permanent position
being filled on 30 January 2024, thus resulting in the Group
not having a CFO in post for a significant proportion of the
period. Furthermore, the CEO departed from her role in
February 2024 without compensation with an immediate
replacement. There have also been significant changes within
the senior finance team post year end.
As set out in the Audit Committee Report, the Board
instructed the Company’s lawyers to carry out a substantive
and detailed review of certain matters that had come to the
attention of the Board following the CEOs departure that
merited further attention. Furthermore, the newly appointed
executive management team carried out a thorough review
of the Group’s operating controls and processes, including
those relating to expense approval and matters to be
reported to the Board.
These matters and management’s investigation increases
therisk of management override of control, in accordance
with ISA 240 (The Auditor’s Responsibilities Relating to Fraud
in an Audit of Financial Statements).
Through the Board instructed investigation and our work
we have become aware of a number of matters, which raise
concerns over previous management’s integrity and actions
during the period.
These changes have specifically heightened the risk of
management override during the period, prior to the
individuals’ departures.
The Group’s loan facilities include financial covenants which
are measured quarterly.
There is a risk that the nature of concerns raised above, could
result in estimates and judgements being manipulated to
either present favourable trading results to the markets or
toensure compliance with loan facility covenants.
In responding to the key audit matter, we performed the
following audit procedures, alongside those outlined in our key
audit matters on valuation & allocation of inventory, revenue
recognition, and valuation and allocation of goodwill and other
intangible assets, included:
• Engaged auditor’s experts to assist the audit team
to consider:
– The appropriateness of management’s response to this risk,
including assessing the work performed by management’s
specialist; and
– whether additional procedures should be performed by
the engagement team in addition to those performed
by management and their experts to respond to the
perceived risk.
• Performed additional procedures, where considered
necessary, in addition to managements own investigations,
for example by expanding our journals testing to target
specific account and journal patterns and widening our
enquiries of management who posted journals during
the year;
• Assessed the accounting for significant transactions that
are outside the Group’s normal course of business or are
otherwise unusual, such as those items disclosed in note 6;
• Applied a risk-based approach to increase our samples of
expenses which we assessed against source documentation
and corroborative explanation by Executive Directors
where necessary;
• Conducted inquiries of individuals involved in the financial
reporting process about inappropriate or unusual activity
relating to the processing of journal entries and other
adjustments, and followed up on any concerns;
• Further considered potentially unusual transactions which
arose throughout our testing, made enquiries and sought
further evidence to establish whether they represented
management override of controls or had an impact on
reporting and covenants;
• Evaluated management’s assessment on whether there were
any factual breaches in covenants in the period by agreeing
the calculation back to the terms of the facility agreement and
considering the results of our testing;
• Assessed the changes to estimates and judgements in the
period to the methods and underlying assumptions used to
prepare accounting estimates and judgements, for example
as described in our valuation and allocation of inventory key
audit matter;
• Assessed and tested the completeness and accuracy
ofrelated party disclosures; and
• Assessed and tested the completeness and accuracy of
disclosures surrounding the banking facility, associated
covenant compliance and the post year end covenant waiver
confirmation received from the bank on 26 July 2024.
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Key Audit Matter – Group How our scope addressed the matter – Group
Relevant disclosures in the Annual Report
andAccounts 2024
• Audit Committee Report
• Financial statements: Note 2(b) Consolidated Basis of
Preparation: Going concern, Note 23 Borrowings
Our results
Managements investigation and our work has contributed
to the disclosures set out in Note 2(b) and 23 in respect of
covenant compliance. No further material matters arose from
our work.
Key Audit Matter – Parent Company How our scope addressed the matter– Parent Company
Valuation and Allocation of Parent Company’s investments
We identified valuation and allocation of Parent Company
investments as one of the most significant assessed risks of
material misstatement due to error due to the high degree of
estimation uncertainty in reaching the recoverable amount
of investments.
Investments in subsidiaries of £11.7 million (2022: £10.9 million)
are accounted for in the Parent Company balance sheet at
cost less provision for impairment.
Investments are tested for impairment if impairment
indicators exist. If such indicators exist, the recoverable
amounts of the investments in subsidiaries are estimated
in order to determine the extent of the impairment loss,
if any. Any such impairment loss is recognised in the
income statement.
A review for indicators of impairment was performed by
management, including considering the latest available
forecasts and developments in the Group during the period.
Management’s assessment identified an impairment indicator
in respect of the investments in Dialight Corp.
Following identification of indicators of impairment, the
recoverable amount was assessed based on value-in-use
calculations. These calculations indicated that an impairment
was not required.
In responding to the key audit matter, we performed the
following audit procedures:
• evaluated management’s determination of whether there
were any other indicators of impairment. This included:
– comparing the carrying value of investments with the
market capitalisation of the Group at 31 March 2024; and
– considering the carrying value of investments with the
carrying amount of investees’ net assets.
• performed the following in respect of management’s
value-in-use calculations where indicators of impairment
were identified:
– assessed the consistency of management’s model to
the Group going concern and goodwill model and
reperformed the calculations within the discounted cash
flow forecasts;
– tested the key assumptions underpinning management’s
model to corroborate the consistency with the Group going
concern model; and
– Assessed the disclosures made in the financial statements
for completeness and accuracy in line with the accounting
standards and the Group’s accounting policies.
Relevant disclosures in the Annual Report
andAccounts 2024
Financial statements: Note 2c(ii) in Company accounts
for the accounting policy, Note 5 Investment in
subsidiary undertaking.
Our results
We found the assessment of the carrying value of
theCompany’s investments and associated disclosures
tobeconsistent with the evidence obtained.
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Independent auditor's report to the members of Dialight plc
continued
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion
inthe auditor’s report.
Materiality was determined as follows:
Materiality measure Group Parent Company
Materiality for financial
statementsasa whole
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use materiality in determining the
nature, timing and extent of our audit work.
Materiality threshold $1,136k, which represents 0.5% of the Group’s
total revenues. The range of component
materialities used across the Group was
$454kto $1,022k.
£760k, which represents 1% of the Parent
Company’s total assets, Parent Company
component materiality has been capped at an
amount less than group materiality for group
audit purposes (£585k).
Significant judgements
made by auditorin
determining materiality
In determining materiality, we made the
following significant judgements:
• Total revenue was considered to be the
most appropriate benchmark because this
is a key performance indicator used by the
Directors to report to the investors on the
financial performance of the Group; and
• The measurement of 0.5% of revenue
is, in our view appropriate given user
expectations and industry benchmarking
which results in a materiality
which is sufficient to identify any
material misstatements.
Materiality for the current period is higher
that was determined for the period ended
31 December 2022.
In determining materiality, we made the
following significant judgements:
• Total assets was considered to be the most
appropriate benchmark for the Parent
company because in our view, it is the most
reflective of the financial position of the
parent and it’s nature of operations; and
• The measurement of 1% total assets is, in our
view, appropriate given user expectations
and industry benchmarking which results in
a materiality which is sufficient to identify any
material misstatements.
Materiality for the current period is higher than
the level that was determined for the period
ended 31 December 2022.
Performance materiality
used todrivethe extent
ofour testing
We set performance materiality at an amount less than materiality for the financial statements
as a whole to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial statements
asa whole.
Performance
materiality threshold
US $738k, which is 65% of financial
statement materiality.
£494k, which is 65% of financial
statement materiality.
Significant judgements made
by auditorin determining
performance materiality
In determining performance materiality, we
made the following significant judgements:
• Our review of the predecessor’s audit file
and assessment of prior year adjustments;
and
• Our risk assessment – we considered
control deficiencies previously reported by
the predecessor auditor and the potential
impact on the current period’s audit when
performing our risk assessment procedures.
In determining performance materiality, we
made the following significant judgements:
• Our previous experience with the Group –
as this is our initial audit engagement, we
reviewed predecessor’s audit file in relation
to adjustments made in the previous
periods; and
• Our risk assessment – we considered
control deficiencies previously reported by
the predecessor auditor and the potential
impact on the current period’s audit when
performing our risk assessment procedures.
Specific materiality We determine specific materiality for one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
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Materiality measure Group Parent Company
Specific materiality We determined a lower level of specific
materiality for the following areas:
• director’s remuneration; and
• related party transactions
We determined a lower level of specific
materiality for the following areas:
• director’s remuneration; and
• related party transactions
Communication
of misstatements
totheaudit committee
We determine a threshold for reporting unadjusted differences to the audit committee.
Threshold
for communication
US $57k and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£29k and misstatements below that threshold
that, in our view, warrant reporting on
qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the range of component
materiality and the threshold for communication to the audit committee.
Key
Group revenue US $
226.0m
FSM US $
1.14m
OVERALL MATERIALITY – GROUP
Key
Total assets £
76.0m
FSM £
760k
OVERALL MATERIALITY – PARENT
FSM
US $1.14m
PM
US $738k
RoM
US $1.02m to US $454k
TfC
US $57k
FSM PM TfC
£760k
£494k
£29k
FSM: Financial statement materiality, PM: Performance materiality, RoM: Range of materiality at 2 components,
TfC: Threshold for communication to the audit committee
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Independent auditor's report to the members of Dialight plc
continued
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
We performed a risk-based audit that requires an understanding of the Group’s and the Parent Company’s business and in
particular matters related to:
Understanding the Group, its components, and their environments, including group-wide controls
Our audit approach was a risk-based approach founded on a thorough understanding of the Group’s and Parent Company’s
business, its environment and risk profile. The Group engagement team obtained an understanding of the Group and its
environment, and assessed the risks of material misstatement at the Group level;
We obtained an understanding of the business processes for all significant classes of transactions, including significant risks,
inorder to confirm our understanding of the control environment across the Group;
For significant components requiring a full-scope audit approach, we or the component auditors obtained an understanding
ofthe controls over the entity-specific financial reporting systems identified as well as the centralised financial reporting system
as part of our risk assessment; and
We documented and assessed the design and implementation of controls related to key audit matters and other significant risks
communicated in this report.
Identifying significant components
Component significance was determined based on their relative share of the key group financial metrics including group
revenue and group profit before taxation. These metrics were used to identify components classified as ‘individually financially
significant to the Group’ and full-scope audits were performed.
We also considered whether any components were likely to include significant risks of material misstatement to the Group
financial statements due to their specific nature or circumstances. No additional significant components were identified as a
result of this consideration.
Type of work to be performed on financial information of parent and other components
(including how it addressed the key audit matters)
In order to address the audit risks identified during our planning procedures, the Group engagement team performed the
following audit procedures:
Full-scope audits on the financial statements of two components, being Dialight Corporation (US) and Dialight Plc (parent
entity). These full-scope audits included all our work on the identified key audit matters described above. These two
components contributed 80% of the Group revenue and 96% of the Group profit before taxation;
Specific-scope and specified audit procedures related to the risks of material misstatement of the financial statements of three
component Dialight Penang Sdn, Dialight ILS Australia and Dialight Europe. All component audits were performed either by the
Group team or by Grant Thornton member firms worldwide;
We performed analytical procedures on the financial information of all the remaining group components.
Performance of our audit
In total, percentage revenue coverage of full-scope audit and specified audit procedures equated to 87% of group revenue
and96% of group profit before taxation.
Audit approach
No. of
components
% coverage total
assets
% coverage
revenue % coverage PBT
Full-scope audit 2 76% 80% 96%
Specific-scope audit 1 3% 0% 0%
Specified audit procedures 2 4% 7% 0%
Analytical procedures 5 17% 13% 4%
Total 10 100% 100% 100%
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continued
Communications with component auditors
The specific-scope audit of Dialight Penang Sdn (Malaysia) was performed by Grant Thornton Malaysia and specified audit
procedures on Dialight ILS Australia were performed by Grant Thornton Australia. The specified audit procedures on Dialight
Europe were performed by the Group engagement team;
Each of the overseas teams were issued with detailed group audit instructions. These instructions highlighted the significant
risks that needed to be addressed through the audit procedures and specified the information that we required to be reported
to the Group engagement team;
Throughout the planning, fieldwork, and concluding stages of the Group audit, the Group engagement team communicated
with all component auditors and conducted a review of their work. Key working papers were prepared by the Group
engagement team to summarise their review of component auditor files;
Additionally, members of the Group engagement team visited the US and Mexican based locations of Dialight Corporation to
gain an in-depth understanding of their operations and the risks associated with them; and
The Group engagement team held detailed discussions with the component auditors and performed remote reviews of the
work performed, update calls on the progress of the fieldwork and by attending the component audit clearance meetings with
component management.
OTHER INFORMATION
The other information comprises the information included in the Annual Report and Accounts, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information contained within the Annual
Report and Accounts. Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed,
weconclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinions on other matters prescribed by the Companies Act 2006 are unmodified
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial period for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matter on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained
inthecourse of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Parent 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.
CORPORATE GOVERNANCE STATEMENT
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review by the Listing Rules.
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continued
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any
material uncertainties identified as set out on page 29;
• the directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the
period is appropriate as set out on page 29;
• the director’s statement on whether they have a reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as set out on page 29;
• the directors’ statement on fair, balanced and understandable as set out on page 54;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks as set out on page 20;
• the section of the annual report that describes the review of the effectiveness of risk management and internal control
systems as set out on page 19; and
• the section describing the work of the audit committee as set out on page 51.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement as set out on page 81, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent 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 the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
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 an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a 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 the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. The extent to which our procedures
are capable of detecting irregularities, including fraud, is detailed below:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Parent Company, the
Group and sector in which they operate and how the Parent Company and the Group are complying with those legal
and regulatory frameworks, through our commercial and sector experience, making enquiries of management and
those charged with governance, and inspection of the Parent Company’s and the Group’s key external correspondence.
We corroborated our enquiries through our inspection of board minutes and other information obtained during the course
of the audit. We evaluated the Parent Company’s and Group’s compliance with laws and regulations that have a direct
impact on the financial statements. These laws and regulations include financial reporting legislation (including related
companies legislation), distributable profits legislation, pension legislation, company legislation, climate regulation, and
taxation legislation.
• Our assessment of the Group’s compliance with these laws and regulations was integrated into our procedures on the related
financial statement items. We obtained an understanding of the Group’s systems and processes for monitoring compliance,
tested key controls, and evaluated the effectiveness of the Group’s compliance program. We also reviewed relevant
documentation and obtained representations from management regarding their compliance with these laws and regulations.
• To gain assurance on the Group’s compliance with laws and regulations, we made enquiries of management and the Board
of Directors to determine if they were aware of any instances of noncompliance with laws and regulations and whether they
had any knowledge of actual, suspected or alleged fraud and corroborated this with our review of the board minutes. We also
assessed the susceptibility of the Parent Company’s and the Group’s financial statements to material misstatement, including
fraud risk.
• Our audit procedures were specifically designed to prevent and detect fraud, and included:
a. Enquiring of management, the finance team and the Board of Directors about the risks of fraud at the Group and the Parent
Company and the controls implemented to address those risks. Assessing the design and implementation of controls
relevant to the audit that management has in place to prevent and detect fraud, including updating our understanding
ofthe internal controls over journal entries, including those related to the posting of entries used to record non-recurring,
unusual transactions or other non-routine adjustments;
b. Identifying and testing journal entries, with selection based on risk profiling;
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
95
Independent auditor's report to the members of Dialight plc
continued
c. Running specific keyword searches (including to related parties and of those previously connected to related entities) over the
journal entry population to identify descriptions that could indicate fraudulent activity or management override of controls;
d. Planning specific procedures responding to the risk of fraudulent recognition of revenue as detailed within the Key Audit
Matters section above and performing the procedures responding to the risk of fraud arising from management override of
control as detailed within the Key Audit Matters section above;
e. Assessing the disclosures within the annual report, including principal and emerging risks; and
f. Challenging assumptions and judgements made by management in its significant accounting estimates.
• These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or
error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error,
as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed
non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely
we would become aware of it.
• As part of the engagement partner’s assessment of the engagement team’s collective competence and capabilities, they
considered the team’s understanding of, and practical experience with, audit engagements of a similar nature and complexity
through appropriate training and participation. They also evaluated the team’s knowledge of the industry in which the Parent
Company and the Group operate, as well as the team’s understanding of the legal and regulatory requirements specific to the
Parent Company and the Group.
• We communicated relevant laws and regulations and potential fraud risks to all engagement team members, including internal
specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
• In assessing the potential risks of material misstatement, we obtained an understanding of:
– the entity’s operations, including the nature of its revenue sources, products and services and of its objectives and
strategies to understand the classes of transactions, account balances, expected financial statement disclosures and
business risks that may result in risks of material misstatement;
– the applicable statutory provisions;
– the rules and interpretative guidance issued by the Financial Conduct Authority; and
– the entity’s control environment, including the policies and procedures implemented to comply with the requirements of
its regulator, including the adequacy of the training to inform staff of the relevant legislation, rules and other regulations
of the regulator, the adequacy of procedures for authorisation of transactions, internal review procedures over the entity’s
compliance with regulatory requirements, the authority of, and resources available to the compliance officer and procedures
to ensure that possible breaches of requirements are appropriately investigated and reported.
• For components at which audit procedures were performed, we requested component auditors to report to us for non-
compliance with laws and regulations that gave rise to a material misstatement of the Group financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
We were appointed by the Board on 19 June 2023 to audit the financial statements for the period ending 31 March 2024. This is
the first period of our engagement as auditor of Dialight plc.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
USE OF OUR REPORT
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.
Jonathan Maile BSc (Hons) FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
LONDON
29 July 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
96
Consolidated income statement
for the 15 month period ended 31 March 2024
15 month 12 month
period endedperiod ended
31 March 202431 December 2022
NotesUS $mUS $m
Revenue
5
226.0
209.8
Cost of sales
(158.9)
(142.4)
Gross profit
67.1
67.4
Distribution costs
(36.8)
(31.5)
Administrative expenses
(60.5)
(33.1)
(Loss)/Profit from operating activities
5
(30.2)
2.8
Underlying (loss)/profit from operating activities
(4.6)
6.1
Non underlying items
6
(25.6)
(3.3)
(Loss)/Profit from operating activities
5
(30.2)
2.8
Financial expense
8
(4.1)
(2.2)
(Loss)/Profit before tax
(34.3)
0.6
Taxation credit/(charge)
9
1.8
(0.1)
(Loss)/Profit for the period
(32.5)
0.5
(Loss)/Profit the period attributable to:
Equity of the Company
(32.5)
0.5
Non-controlling interests
–
–
(Loss)/Profit for the period
(32.5)
0.5
(Loss)/Profit per share
Basic
11
(91.1) cents
1.5 cents
Diluted
11
(91.1) cents
1.5 cents
The accompanying notes form an integral part of these financial statements.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
97
Consolidated statement of comprehensive income
for the 15 month period ended 31 March 2024
15 month 12 month
period endedperiod ended
31 March 202431 December 2022
NotesUS $mUS $m
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations
0.4
0.3
Income tax on exchange differences on translation of foreign operations
–
–
0.4
0.3
Items that will not be reclassified subsequently to profit and loss
Remeasurement of defined benefit pension liability
16
(0.5)
0.4
Income tax on remeasurement of defined benefit pension liability
9
0.1
(0.1)
(0.4)
0.3
Other comprehensive income for the year, net of tax
–
0.6
(Loss)/Profit for the period
(32.5)
0.5
Total comprehensive (expense)/income for the period
(32.5)
1.1
Attributable to:
Owners of the Parent
(32.5)
1.1
Non-controlling interest
–
–
Total comprehensive (expense)/income for the period
(32.5)
1.1
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
98
Consolidated statement of changes in equity
for the 15 month period ended 31 March 2024
CapitalNon
ShareMergerTranslationredemptionShareOwnRetainedcontrollingTotal
capitalreservereservereservepremiumSharesearningsTotalinterestsequity
US $mUS $mUS $mUS $mUS $mUS $mUS $mUS $mUS $mUS $m
At 1 January 2023
1.0
1.0
12.2
4.3
1.2
(1.1)
64.2
82.8
0.2
83.0
Loss for the period
–
–
–
–
–
–
(32.5)
(32.5)
–
(32.5)
Other comprehensive income:
Foreign exchange translation
–
–
0.4
–
–
–
–
0.4
–
0.4
differences, net of tax
Remeasurement of defined benefit
–
–
–
–
–
–
(0.4)
(0.4)
–
(0.4)
pension liability, net of tax
Total other comprehensive income/
–
–
0.4
–
–
–
(0.4)
–
–
–
(expense)
Total comprehensive income/
–
–
0.4
–
–
–
(32.9)
(32.5)
–
(32.5)
(expense) for the period
Transactions with owners,
directly recorded in equity
Issue of share capital (note 20)
0.2
–
–
–
12.7
–
–
12.9
–
12.9
Transaction costs (note 20)
–
–
–
–
(0.9)
–
–
(0.9)
–
(0.9)
Share-based payments
–
–
–
–
–
–
1.5
1.5
–
1.5
Re-purchase of own shares
–
–
–
–
–
(0.1)
–
(0.1)
–
(0.1)
Total transactions with owners
0.2
–
–
–
11.8
(0.1)
1.5
13.4
–
13.4
At 31 March 2024
1.2
1.0
12.6
4.3
13.0
(1.2)
32.8
63.7
0.2
63.9
CapitalNon
ShareMergerTranslationredemptionShareOwnRetainedcontrollingTotal
capitalreservereservereservepremiumSharesearningsTotalinterestsequity
US $mUS $mUS $mUS $mUS $mUS $mUS $mUS $mUS $mUS $m
At 1 January 2022
1.0
1.0
11.9
4.3
–
(1.0)
63.4
80.6
0.8
81.4
Profit for the year
–
–
–
–
–
–
0.5
0.5
–
0.5
Other comprehensive income:
Foreign exchange translation
–
–
0.3
–
–
–
–
0.3
–
0.3
differences, net of tax
Remeasurement of defined benefit
–
–
–
–
–
–
0.3
0.3
–
0.3
pension liability, net of tax
Total other comprehensive income
–
–
0.3
–
–
–
0.3
0.6
–
0.6
Total comprehensive income for
the year
–
–
0.3
–
–
–
0.8
1.1
–
1.1
Transactions with owners,
directly recorded in equity
Share-based payments
–
–
–
–
–
–
0.6
0.6
–
0.6
Re-purchase of own shares
–
–
–
–
–
(0.1)
–
(0.1)
–
(0.1)
Minority interest purchase
–
–
–
–
1.2
–
(0.6)
0.6
(0.6)
–
Total transactions with owners
–
–
–
–
1.2
(0.1)
–
1.1
(0.6)
0.5
At 31 December 2022
1.0
1.0
12.2
4.3
1.2
(1.1)
64.2
82.8
0.2
83.0
The accompanying notes form an integral part of these financial statements.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
99
Consolidated statement of total financial position
at 31 March 2024
31 March 202431 December 202231 December 2021
NotesUS $mUS $mUS $m
Assets
Property, plant and equipment
12
12.7
16.8
16.2
Right-of-use assets
13
8.8
12.7
15.3
Intangibles assets
14
8.1
25.9
28.9
Deferred tax assets
15
5.8
2.8
1.8
Employee benefits
16
5.4
5.5
5.2
Other receivables
18
5.9
6.8
6.4
Total non-current assets
46.7
70.5
73.8
Inventories
17
49.1
64.8
57.4
Trade and other receivables
18
32.3
36.6
35.4
Income tax recoverable
0.8
0.8
1.6
Cash and cash equivalents
19
11.5
2.0
1.6
Total current assets
93.7
104.2
96.0
Total assets
140.4
174.7
169.8
Liabilities
Trade and other payables
21
(34.3)
(45.2)
(44.4)
Provisions
22
(1.2)
(0.7)
(0.8)
Current tax liabilities
(1.4)
(2.8)
(2.4)
Lease liabilities
13
(2.0)
(1.5)
(1.7)
Borrowings
23
(27.9)
(2.4)
(5.4)
Total current liabilities
(66.8)
(52.6)
(54.7)
Provisions
22
(1.6)
(1.9)
(1.7)
Borrowings
23
–
(25.0)
(17.4)
Lease liabilities
13
(8.1)
(12.2)
(14.6)
Total non-current liabilities
(9.7)
(39.1)
(33.7)
Total liabilities
(76.5)
(91.7)
(88.4)
Net assets
63.9
83.0
81.4
Equity
Issued share capital
20
1.2
1.0
1.0
Merger reserve
1.0
1.0
1.0
Share premium
20
13.0
1.2
–
Other reserves
15.7
15.4
15.2
Retained earnings
32.8
64.2
63.4
63.7
82.8
80.6
Non-controlling interest
0.2
0.2
0.8
Total equity
63.9
83.0
81.4
The accompanying notes form part of these financial statements. These financial statements were approved by the Board of
Directors on 29 July 2024 and were signed on its behalf by:
Steve Blair Carolyn Zhang
Group Chief Executive Chief Finance Officer
Company number: 2486024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
100
Consolidated statement of cash flows
for the 15 month period ended 31 March 2024
31 March 202431 December 2022
NotesUS $mUS $m
Operating activities
(Loss)/profit for the period
(32.5)
0.5
Adjustments for:
Financial expense
8
4.1
2.2
Income tax (income)/expense
9
(1.8)
0.1
Share-based payments
1.5
0.6
Depreciation of property, plant and equipment
12
4.3
3.6
Impairment losses on property, plant and equipment
12
1.1
–
Depreciation of right-of-use assets
13
3.0
2.2
Gain on lease modification
(0.2)
–
Amortisation of intangible assets
14
7.7
5.3
Impairment losses on intangible assets
14
15.8
1.6
Operating cash flows before movements in working capital
3.0
16.1
Decrease/(increase) in inventories
15.7
(8.3)
Decrease/(increase) in trade and other receivables
5.2
(1.4)
(Decrease)/increase in trade and other payables
(10.9)
1.6
Increase in provisions
0.2
0.4
Pension contributions less than/(more than) income statement charge
0.1
(0.5)
Cash generated by operations
13.3
7.9
Income taxes paid
(2.6)
(1.0)
Interest paid
2
(4.1)
(2.2)
Net cash generated by operations
6.6
4.7
Investing activities
Purchase of property, plant and equipment
12
(1.4)
(4.2)
Purchase of intangible assets
14
(5.4)
(4.6)
Purchase of Dialight Australia shares
–
(0.1)
Net cash used in investing activities
(6.8)
(8.9)
Financing activities
Proceeds on issue of shares – net of issue costs
20
12.0
–
Drawdown of bank facility
23
6.2
18.6
Repayment of bank facility
23
(5.9)
(13.0)
Arrangement fee for revised facility
–
(0.6)
Re-purchase of own shares
(0.1)
(0.1)
Repayment of lease liabilities
1
13
(2.9)
(2.0)
Net inflow from financing activities
9.3
2.9
Net increase in cash and cash equivalents
9.1
(1.3)
Cash and cash equivalents at beginning of period
19
2.0
1.6
Effects of exchange rates
0.4
1.7
Cash and cash equivalents at end of period
19
11.5
2.0
The Group has classified:
1 cash payments for the principal portion of lease payments as financing activities; and
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
101
Notes to the consolidated financial statements
for the 15 month period ended 31 March 2024
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 152 under the “Directory and shareholder Information” section.
The consolidated financial statements of the Company for the 15 month period ended 31 March 2024 comprise the Company
and its subsidiaries (together referred to as the “Group”). The Group has changed the reporting date from 31 December to
31 March to better align with the seasonality of the business. Therefore amounts presented in the financial statements are not
entirely comparable.
2. BASIS OF PREPARATION
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards.
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
Going concern
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 01 to 31. 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 25 to 28.
The Directors’ assessment of the viability of the Group is set out in the Viability Statement on page 31. In addition, note
24 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial
risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and
liquidity risk.
Net debt has decreased from US $25.4m to US $16.4m following the equity raise in the second half of 2023 which generated
net proceeds of US $12.0m after transaction costs of US $0.9m. At 31 March 2024 the Group had US $34.0m in facilities of which
US $27.9m was drawn with US $11.5m of cash on hand.
The Group’s multicurrency revolving credit facility of US $34.0m with HSBC was extended on 14 June 2024 to 21 July 2026 on the
same terms as the original revolving credit facility agreement. The covenants are tested quarterly and are as follows:
Ratio Calculation Threshold
Leverage ratio Net debt : proforma unaudited EBITDA <3.0x
Interest cover Proforma unaudited EBITDA : interest expense >4.0x
The covenants for the quarter ending 30 September 2023 were temporarily reset from a leverage ratio maximum target of less
than 3x to 4.5x, and an interest cover minimum target of a maximum 4x to 2.5x. The covenants reverted to the original hurdles
from quarter ending 31 December 2023 onwards.
A retrospective review of covenant calculations for the 15-month period to 31 March 2024 was performed by management as
part of the year-end audit after certain matters came to the attention of the Board. This retrospective review identified that
breaches of the covenants had and/or may have had occurred when also retrospectively applying finalised year-end accounting
adjustments. These waiver requests were communicated to HSBC who have agreed to issue retrospective covenant waivers
for the relevant quarters. The waivers are subject to legal finalisation at the date of this report. Given the covenants were and/
or may potentially have been breached before and at 31 March 2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date, the outstanding borrowings under the RCF of US $27.9m have
been classified as a current liability.
Further details, including the relevant covenant tests, are included in note 23.
In assessing the going concern assumptions, the Directors have prepared four main scenarios being the base case, a downside
case in relation to revenue and margin, a downside case in relation to revenue and margin including an adverse Sanmina
outcome and a reverse stress test (break-even assessment) over the going concern period which the Directors have assessed
as being a two-year period to 31 March 2026. Various upside scenarios also exist but those result in very positive outcomes
and have not been included here given the focus of the Directors, and its auditors, is on the risk to the going concern basis of
preparation to the financial statements. Nonetheless, the Directors consider these upside scenarios as realistic outcomes and
continue to drive the group’s performance and other activities to seek to achieve those positive results.
The downside scenarios reflect the risk of lower-than expected organic revenue growth in core Lighting markets, lower gross
margins than forecast due to lower revenue forecasts and cost savings not being realised to the full extent forecasted. In the
downside scenario including an adverse Sanmina outcome, an estimated worst-case outflow of US $7.9m has been modelled,
consistent with the disclosures provided in note 26.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
102
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
2. BASIS OF PREPARATION (CONTINUED)
Base case
The base case is derived from the most recent Board approved 2024 budget, which assumes that revenues and margin will
improve over the going concern period due to the Group’s transformational project undertaken by management. The base
case is based on organic sales growth and the annualization of the efficiency and material cost reduction projects launched in
the financial year. In this scenario, the Directors consider that the Group will continue to operate within its available committed
facilities of US $34.0m with sufficient headroom with covenant compliance throughout the forecast period.
The market conditions faced by the Group in the 15 months to 31 March 2024 are considered to be short-term in nature, with
signs that trading conditions will improve into 2024 and will see the benefits from price increases and lower raw material costs
coming through. These improvements, together with the actions that management is taking in relation to right-sizing its cost
base and reducing product costs, are expected to deliver improving profitability over 2024 and beyond.
The key assumptions in the base case include:
• continued net revenue growth in both years driven by a combination of factors including increasing benefits from strategic
relationships, price increases and increased source & sell product range sales resulting in net revenue growth of 6.7% in FY25
and 1.9% in FY26;
• continued net revenue growth in Lighting due to our focus on markets with growing demand and where growth is driven by
structural, safety and sustainability factors at a higher level than seen in 2024;
• a small recovery from the cyclical downturn in the opto-electronic segment;
• gross margins normalise 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 resulting in a gross profit margin
improvement of 4% in FY25 and a further 2% in FY26 respectively; and
• operating costs are flexed in line with the incremental revenue and increasing operational leverage.
Downside case – lower revenue and margin
The Directors have assumed:
• reduction of expected net revenue growth to 4.9% and -2.8% in FY25 and FY26 respectively across Lighting, Opto-electronics
and Vehicle; and
• lower gross profit margin than base case through risk factor applied to estimated operational efficiencies with a 4%
improvement in FY25 and no improvement in FY26.
Downside case – lower revenue, margin and an adverse Sanmina outcome
The Directors have assumed:
• reduction of expected net revenue growth to 4.9% and -2.8% in FY25 and FY26 respectively across Lighting,
Opto-electronics and Vehicle;
• lower gross profit margin than base case through risk factor applied to estimated operational efficiencies with a 4%
improvement in FY25 and no improvement in FY26; and
• estimated Sanmina outflow of $7.9m in Q2 FY25.
Reverse stress test (break-even assessment)
The Directors have assumed:
• reduction of expected net revenue growth to 1.1% and -8.1% in FY25 and FY26 respectively across Lighting, Opto-electronics
and Vehicle; and
• lower gross profit margin than base case through risk factor applied to estimated operational efficiencies with an
improvement of 3% in FY25 and no improvement in FY26.
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.
In the base case scenario and in the downside scenario (lower revenue and margin), the Group have sufficient liquidity and are
not forecast to breach any covenants in the going concern period. In the downside case (lower revenue, margin and an adverse
Sanmina outcome), the current Group liquidity becomes insufficient in Q2 FY25 following a forecast payment to settle the
adverse outcome. In the reverse stress test, the interest cover ratio is forecast to breach in Q3 FY25 with further breaches of
both the leverage ratio and interest cover in Q1 FY26 onwards. In this case, the Group are forecast to have insufficient liquidity
in Q4 FY26.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
103
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
2. BASIS OF PREPARATION (CONTINUED)
Whilst the Directors believe the Group will be able to deliver on its transformation plan, generate forecast organic sales growth
and realise cost reductions within the next 12 months, the Directors recognise that the transformation plan is in its early stages
and as such, a reliable history of its effectiveness is not yet available. In the reverse stress test, whilst revenues are forecast to
decrease from FY24 to FY26, total gross profit is forecast to increase by 3% between FY24 to FY26. As a result, the Group are
required to increase total gross profit in excess of this in order to avoid breaching covenants. The directors have therefore
concluded that there is a plausible risk of covenant breach and insufficient liquidity within the reverse stress test scenario.
Further, the legal claim against the Company by Sanmina, which is outlined in note 26 represents a possible adverse outcome
outside of the Group’s control which could result in a material cash outflow. In this scenario, the Group would have insufficient
liquidity in the going concern period in management’s downside case, without taking mitigating actions or securing
additional funding.
In addition, whilst HSBC have agreed to issue a retrospective covenant waiver for the relevant quarters as set out above, the
waivers are subject to legal finalisation at the date of this report.
These circumstances give rise to a material uncertainty, which may cast significant doubt on the entity’s ability to continue as
a going concern, meaning it may be unable to realise it assets and discharge its liabilities in the normal course of business.
Notwithstanding this material uncertainty, the Directors consider it remains appropriate to continue to adopt the going concern
basis in the preparation of the financial statements.
(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 26, 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 US $7.4m (2022: US $13.9m) 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. Following the decision to dispose of the Traffic business US $0.5m
of development costs have been written off. An impairment review of the total balance was performed resulting in a further US
$3.5m of development costs and US $0.6m of concessions, patents, licences and trademarks costs being impaired during the
period. The total impairment of US $4.6m has been 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.
Inventory reserve – disposal of traffic business
Following the decision by management to dispose of the traffic business a judgement has been made to fully provide for all
related inventory given the inventory remains property of the Group at the date of completion and there is no obligation by
the acquirer to purchase any such inventory subsequent to completion. While under the sales and purchases agreement the
acquirer will have the right to acquire all or part of the related inventory, at the date of the approval of these financial statements
the intention of the acquirer is not known. The provision totals $3.0m as at 31 March 2024. This has been recognised within costs
of goods sold and is disclosed as a non-underlying item within note 6.
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Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
2. BASIS OF PREPARATION (CONTINUED)
Estimates
Inventory reserve
The total value of the inventory provision for all categories of inventory over which judgement has been exercised was US $6.6m
(2022: US $5.0m) and this represents 11.8% (2022: 7.2%) of the gross inventory value.
Details of the inventory reserve are set out in note 17.
Inventory reserve – raw materials and sub-assemblies
All raw and sub-assembly inventory that is over 24-months old at the balance sheet date is provided for. 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 has been assessed 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 continues to be skewed as a result of 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.
The value of the inventory provision for raw materials and sub-assemblies as at 31 March 2024 was US $5.9m (2022: US $4.3m).
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 inventory provision for finished goods as at 31 March 2024 was US $0.7m (2022: US $0.7m).
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 prior 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 (2024: 76 days 2022: 68 days). The value of directly attributable costs
over which judgement was exercised was US $7.6m (2022: US $8.5m) and this represents 15% (2022: 13%) of the inventory value.
For every day that the estimate of the days used for the overheads absorbed changes, it changes the calculation by US $97k.
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 (2024: 187 days, 2022: 151 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 US $2.8m (2022: US $5.0m) and this represents 6% (2022: 8%)
of the inventory value. For every day that the estimate of the days used for the overhead absorbed changes, it changes the
calculation by US $17k.
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
The Group tests at least annually whether goodwill has suffered any impairment in accordance with the accounting policy set
out in note 4(j). The recoverable amounts of the Group’s CGUs 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.
A review for impairment was performed at 31 December 2023 which has resulted in the goodwill balance of US $11.2m being
fully impaired. 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.
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Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
3. CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
The Group has changed its presentational currency from GBP sterling to US dollars to provide greater transparency in the
Group’s performance for investors and other stakeholders and to reduce exchange rate volatility in reported figures.
In accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, this change in presentational
currency was applied retrospectively and accordingly, prior year comparatives have been restated. Financial information
included in the consolidated financial statements for years ended 31 December 2022 and 31 December 2021 has been restated
in US dollars as follows:
• assets and liabilities in non-US denominated currencies were translated into US dollars at the rate of exchange ruling at the
relevant balance sheet date;
• non-US dollar income statements and cash flows were translated into US dollars at average rates of exchange for the relevant
period; and
• share capital, share premium and all other equity items were translated at the historical rates.
The exchange rates used were as follows:
12 months ended 31 December 2022
12 months ended 31 December 2021
At balance At balance
Average rate
sheet date
Average rate
sheet date
Pound sterling
0.8086
0.8271
0.7271
0.7402
Euro
0.9510
0.9338
0.8457
0.8815
Canadian dollar
1.3015
1.3541
1.2535
1.2697
Mexican peso
20.1025
19.4663 20.2748 20.4560
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:
• Classification of Liabilities as Current or Non-current (Amendments to IAS 1);
• IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts;
• Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
• Definition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
The following amendments to standards and interpretations have also been issued, but are not yet effective and have not been
early adopted for the period ended 31 March 2024:
• Non-current Liabilities with Covenants and classification of Liabilities as Current or Non-current (Amendments to IAS 1);
• Lease liability in a Sale and Leaseback (Amendments to IFRS 16);
• Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7); and
• Lack of Exchangeability (Amendments to IAS 21).
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 March 2024.
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 reassesses 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.
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Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
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 including goodwill;
• 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.
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107
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 years
New product 4 years
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 CGU. 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 expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and
impairment losses.
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108
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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 smallest 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.
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. 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.
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Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 except for trade receivables that do not have a significant financing
component which are measured at transaction price 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.
(r) Revenue recognition
The Group’s revenue is derived from the single performance obligation to transfer lighting products under arrangements in
which the transfer of control of the products and the fulfilment of the Group’s performance obligations occur at the same time.
Revenue from the sale of goods is recognised when the Group has transferred control of the goods to the buyer and the buyer
obtains the benefits from the goods based on Incoterms, the potential cash flows and the amount of revenue (the transaction
price) can be measured reliably, and it is probable the Group will collect the consideration to which it is entitled to in exchange
for the goods.
The majority of sales are on an ex works basis with revenue recognised on dispatch of finished goods. Warranty is not a
separable performance obligation so has no impact on revenue recognition.
The Group does not have any contracts where the period between the transfer of the promised goods or services to the
customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction
prices for the time value of money.
Where rebates agreements are in place revenue is recognised based on the price specified in the contract net of the estimated
rebate discount. Accumulated experience is used to estimate and provide for the discounts and revenue is only recognised to
the extent that it is highly probable that a significant reversal will not occur. A contract liability is recognised for expected rebate
discounts payable to customers in relation to sales made until the end of the reporting period.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
110
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(v) 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, and (d) in a similar economic environment. The rate reflects the
amount that the Group could borrow over the term of the lease.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
111
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 2.5% and 8.0%.
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.
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
112
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
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.
Reportable segments
Signals &
Lighting Components Unallocated Total
15 month period ended 31 March 2024 US $m US $m US $m US $m
Revenue
171.1
54.9
–
226.0
Underlying gross profit
57.6
12.5
–
70.1
Underlying overheads
(50.8)
(12.3)
(11.6)
(74.7)
Underlying profit/(loss) from operating activities
6.8
0.2
(11.6)
(4.6)
Non-underlying items
(20.6)
(3.6)
(1.4)
(25.6)
Loss from operating activities
(13.8)
(3.4)
(13.0)
(30.2)
Financial expense
–
–
(4.1)
(4.1)
Loss before tax
(13.8)
(3.4)
(17.1)
(34.3)
Taxation
–
–
1.8
1.8
Loss after tax
(13.8)
(3.4)
(15.3)
(32.5)
Signals &
Lighting Components Unallocated Total
12 month period ended 31 December 2022 US $m US $m US $m US $m
Revenue
149.6
60.2
–
209.8
Gross profit
50.2
17.2
–
67.4
Overheads
(41.7)
(10.3)
(9.3)
(61.2)
Underlying profit/(loss) from operating activities
8.5
6.9
(9.3)
6.1
Non-underlying items
(3.3)
–
–
(3.3)
Profit/(loss) from operating activities
5.2
6.9
(9.3)
2.8
Financial expense
–
–
(2.2)
(2.2)
Profit/(loss) before tax
5.2
6.9
(11.5)
0.6
Taxation
–
–
(0.1)
(0.1)
Profit/(loss) after tax
5.2
6.9
(11.6)
0.5
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
113
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
5. OPERATING SEGMENTS (CONTINUED)
15 month period ended 31 March 2024
12 month period ended 31 December 2022
Signals & Signals &
Lighting Components Total Lighting Components Total
Other segmental data US $m US $m US $m US $m US $m US $m
Depreciation of property, plant and equipment
3.3
1.0
4.3
2.6
1.0
3.6
Depreciation of right-of-use assets
2.3
0.7
3.0
1.6
0.6
2.2
Amortisation of intangible assets
7.7
–
7.7
5.4
–
5.4
Impairment of property, plant and equipment
1.1
–
1.1
–
–
–
Impairment of goodwill
11.2
–
11.2
–
–
–
Impairment of other intangible assets
4.1
0.5
4.6
1.6
–
1.6
Geographical segments
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.
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
Sales revenue by geographical market US $m US $m
North America
183.7
164.1
EMEA
18.3
17.9
Rest of World
24.0
27.8
6. NON-UNDERLYING ITEMS
The Group incurs cost and earns income that is non-recurring in nature or that, in the Director’s judgement, need to be
separately disclosed for users of the consolidated financial statements 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 items recognised in the income statement. All costs are
recognised within administrative expenses unless otherwise stated.
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Transformation project
4.5
–
Impairment of goodwill (note 14)
11.2
–
Impairment of other intangible assets (excluding business disposal impairment)
4.1
1.6
Litigation cost
2.3
1.7
Business disposal costs
3.5
–
Non-underlying items
25.6
3.3
The Group has incurred US $4.5m of non-underlying costs relating to the transformation plan. This is a significant multi-year
change programme for the Group which is designed to address legacy issues associated with excess cost and complexity
within the organisation, whilst at the same time focusing more resources on the most attractive growth opportunities within
its core industrial LED lighting market. Implementation of the transformation plan is expected to be complete by 31 March
2026. The multi-year transformation plan is a material, infrequent programme and is not considered to be part of the underlying
performance of the business. The costs incurred in the 15-month period to 31 March 2024 relate to resetting and realigning the
Group’s cost base including severance costs, and legal and professional fees. An impairment charge of US $1.1m for property,
plant, and equipment (note 12) and dilapidation costs of US $0.4m (note 22) have been recognised in relation to the planned
vacation of the Malaysian facility later in 2024.
Please refer to note 14 for details of the impairment of goodwill and other intangible assets.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
114
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
6. NON-UNDERLYING ITEMS (CONTINUED)
During the 15-month period to March 2024 costs of US $1.9m have been expensed (2022: US $1.2m) relating to a legal claim with
Sanmina, a manufacturing partner. Please refer to note 26 for further details of this claim. Other litigation costs of US $0.4m for
the 15-month period to 31 March 2024 (2022: US $0.5m) relate to a contractual litigation case relating to the use of intellectual
property which was concluded in 2023.
Business disposal costs relate to the post year end disposal of the Traffic business. These costs relate to a US $0.5m impairment
of development costs for projects that will no longer be pursued and US $3.0m of specific inventory that will no longer be sold
which has been recognised within costs of goods sold.
7. PERSONNEL EXPENSES
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Wages and salaries
54.9
45.3
Social security costs
6.9
5.4
Equity-settled share-based payment transactions
1.5
0.6
Contributions to defined contribution plans
1.1
1.1
Total charge for defined benefit plans
0.1
0.1
Total personnel expenses
64.5
52.5
The average number of employees by geographical location was:
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
Number Number
US and Mexico
1,335
1,708
Rest of World
226
262
Total average number of employees
1,561
1,970
The Group employed an average of 948 direct staff (2022: 1,358) and 613 indirect staff (2022: 612).
The main Board Directors are considered to be the Group’s key management personnel.
Key management personnel compensation comprised the following:
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Short-term employee benefits
2.3
1.5
Share-based payments
1.5
0.6
3.8
2.1
The aggregate of remuneration and amounts receivable under long-term incentive schemes of the highest-paid Director
was US $1.0m (2022: US $0.6m), and pension contributions of US $0.0m (2022: US $0.0m) were made to a money purchase
scheme on their behalf. During the period, the highest-paid Director received 151,547 (2022: 103,447) shares under a long-term
incentive scheme.
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
Number of directors accruing benefits under money purchase schemes
4
2
Number of directors who exercised share options
1
–
Number of directors whose qualifying services shares were received or receivable under long-term
2
2
incentive schemes
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
115
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
8. FINANCIAL EXPENSES
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Net interest income on defined benefit pension asset
(0.3)
(0.1)
Interest expense on financial liabilities, excluding lease liabilities
3.3
1.6
Facility arrangement fee expense
0.4
–
Interest expense on lease liabilities
0.7
0.7
Net financing expense recognised in the consolidated income statement
4.1
2.2
9. TAXATION
Recognised in the income statement
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Current tax expense
Current period
1.2
2.5
Adjustment for prior years
(0.1)
(0.2)
Total current tax expense
1.1
2.3
Deferred tax expense
Origination and reversal of temporary differences
(4.0)
(2.3)
Adjustment for prior years
0.7
0.1
Impact of change in tax laws and rates
0.4
–
Total deferred tax credit
(2.9)
(2.2)
Total tax (credit)/expense
(1.8)
0.1
Reconciliation of effective tax rate
15 month 15 month 12 month 12 month
period ended period ended period ended period ended
31 March 31 March 31 December 31 December
2024 2024 2022 2022
% US $m % US $m
(Loss)/profit for the period after tax
(32.5)
0.5
Total tax credit/(charge)
1.8
(0.1)
(Loss)/profit for the period before tax
(34.3)
0.6
Income tax using the corporation rate of 23.8% (2022: 19.0%)
23.8
(8.2)
19.0
0.1
Effect of higher taxes on overseas earnings
(1.5)
0.5
16.7
0.1
Change in tax laws and rates
(1.2)
0.4
–
–
Expenses not deductible for tax purposes
(8.5)
2.9
16.7
0.1
Current year losses for which no deferred tax is recognised
(2.9)
1.0
16.7
0.1
Adjustment for prior years
(1.5)
0.5
(16.7)
(0.1)
Research and development credits
0.3
(0.1)
(16.7)
(0.1)
Foreign taxes incurred
(3.5)
1.2
(16.7)
(0.1)
5.2
(1.8)
16.7
0.1
The effective tax rate for the period is 5.2% compared with 16.7% in the prior year and the standard rate of 23.8% (2022: 19.0%)
in the UK. During the period, the Group made a loss before tax of US $34.3m (2022: profit of US $0.6m) which resulted in a tax
credit in the period of US $1.8m (2022: tax charge of US $0.1m).
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
116
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
9. TAXATION (CONTINUED)
The normalised tax rate for the Group in the period is 23.8% (tax rate before adjustments) and based on a pre-tax loss of
US $34.3m this would generate a tax credit of US $8.2m. The Group’s overall tax rate was 5.2% which is significantly lower than
the normalised tax rate as a result of the following major adjustments:
• Non-deductible current year expenses of US $2.9m arising predominantly on foreign exchange movements relating to the
Group’s goodwill and expenses incurred in the UK.
• Unrecognised losses in the European Lighting business resulting in US $1.0m of tax losses not being recognised in the period.
• Mexican taxes of US $1.0m suffered in the US.
Tax (credit)/charge recognised directly in equity
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Employee benefits
(0.1)
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 23.8% (2022: 19.0%).
Group
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 (2022: 24%, including 21% federal tax and 3% state tax).
10. LOSS FOR THE PERIOD
Loss for the period has been arrived at after charging:
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Research and development costs:
Expensed as incurred
4.2
7.5
Amortisation of development costs
6.0
4.0
Total research and development costs
10.2
11.5
Depreciation of property, plant and equipment (note 12)
4.3
3.6
Depreciation of right-of-use assets (note 13)
3.0
2.2
Impairment of property, plant, and equipment (note 12)
1.1
–
Impairment of goodwill (note 14)
11.2
–
Impairment of other intangible assets (note 14)
4.6
1.6
Gain on lease modification
(0.2)
–
Cost of inventories recognised as expense
90.8
97.7
Employee benefit expense (note 7)
64.5
52.4
Auditor’s remuneration
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Audit of these financial statements
1.3
0.9
Audit of financial statements of subsidiaries pursuant to legislation
0.1
0.2
Fees payable to the Group’s auditor for non-audit services:
Assurance related services
0.1
–
1.5
1.1
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
117
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
11. EARNINGS PER SHARE
Basic earnings per share
The calculation of basic earnings per share (“EPS”) at 31 March 2024 was based on a loss for the period of US $32.5m (2022: US
$0.5m profit) and the weighted average number of ordinary shares outstanding during the year of 35,603,515 (2022: 32,574,668).
Weighted average number of ordinary shares
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
k k
Weighted average number of ordinary shares
35,604
32,575
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
Basic (loss)/earnings per share
(91.1) cents
1.5 cents
Diluted earnings per share
The calculation of diluted earnings per share (“EPS”) at 31 March 2024 was based on a loss for the period of US $32.5m
(2022: US $0.5m profit) and the weighted average number of ordinary shares outstanding during the year of 35,603,515
(2022: 33,231,301).
Where a loss has been recognised the same number of shares are used in both the basic and diluted loss per share calculation
as there is no dilutive effect when the Group is in a loss-making position.
Weighted average number of ordinary shares
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
k k
Weighted average number of ordinary shares
35,604
33,231
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
Diluted (loss)/earnings per share
(91.1) cents
1.5 cents
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
118
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
12. PROPERTY, PLANT AND EQUIPMENT
Plant,
Land and equipment
buildings and vehicles Total
US $m US $m US $m
Cost
At 1 January 2022
3.9
63.6
67.5
Additions
–
4.2
4.2
Disposals
–
(0.1)
(0.1)
Foreign exchange movements
0.1
–
0.1
At 31 December 2022
4.0
67.7
71.7
Additions
–
1.4
1.4
Other disposals
–
–
–
Transfers
1.0
(1.0)
–
Foreign exchange movements
0.4
–
0.4
Balance at 31 March 2024
5.4
68.1
73.5
Accumulated depreciation
At 1 January 2022
(3.9)
(47.4)
(51.3)
Charge for the year
–
(3.6)
(3.6)
Disposals
–
0.1
0.1
Foreign exchange movements
(0.1)
–
(0.1)
At 31 December 2022
(4.0)
(50.9)
(54.9)
Charge for the period
(0.2)
(4.1)
(4.3)
Impairment charge
–
(1.1)
(1.1)
Foreign exchange movements
–
(0.5)
(0.5)
Balance at 31 March 2024
(4.2)
(56.6)
(60.8)
Carrying amount at 31 March 2024
1.2
11.5
12.7
Carrying amount at 31 December 2022
–
16.8
16.8
Carrying amount at 1 January 2022
–
16.2
16.2
During the period a review of property, plant, and equipment was performed where it was identified that certain assets relating
to the Malaysian facility are no longer in use following the planned vacation of the existing Malaysian site. As a result, an
impairment loss has been recognised within non-underlying items (note 6) given it relates to the transformation plan.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
119
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
13. LEASES
Right-of-use assets
Non-property
Buildings leases Total
US $m US $m US $m
Cost
Balance at 1 January 2022
22.6
0.7
23.3
Disposals
(1.4)
–
(1.4)
Foreign exchange movements
(1.2)
(0.1)
(1.3)
Balance at 31 December 2022
20.0
0.6
20.6
Additions including modifications
0.6
–
0.6
Disposals including modifications
(2.1)
(0.6)
(2.7)
Foreign exchange movements
(0.8)
–
(0.8)
Balance at 31 March 2024
17.7
–
17.7
Accumulated depreciation
Balance at 1 January 2022
(7.6)
(0.4)
(8.0)
Charge for the year
(2.0)
(0.2)
(2.2)
Disposals
1.4
–
1.4
Foreign exchange movements
0.9
–
0.9
Balance at 31 December 2022
(7.3)
(0.6)
(7.9)
Charge for the period
(3.0)
–
(3.0)
Disposals
1.2
0.6
1.8
Foreign exchange movements
0.2
–
0.2
Balance at 31 March 2024
(8.9)
–
(8.9)
Carrying value at 31 March 2024
8.8
–
8.8
Carrying value at 31 December 2022
12.7
–
12.7
Carrying value at 1 January 2022
15.0
0.3
15.3
Lease liabilities
Non-property
Buildings leases Total
US $m US $m US $m
Balance at 1 January 2022
(15.9)
(0.3)
(16.2)
Interest expense
(0.7)
–
(0.7)
Repayment of lease liabilities
2.5
0.2
2.7
Foreign exchange movements
0.4
0.1
0.5
Balance at 31 December 2022
(13.7)
–
(13.7)
Interest expense
(0.7)
–
(0.7)
Repayment of lease liabilities
3.6
–
3.6
Additions
(0.6)
–
(0.6)
Disposals
1.2
–
1.2
Foreign exchange movements
0.1
–
0.1
Balance at 31 March 2024
(10.1)
–
(10.1)
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
120
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
13. LEASES (CONTINUED)
Group as lessee
The Group leases various industrial premises and office buildings.
The leases typically run for a period of 1–10 years, with various options to renew the leases after that date. Lease terms are
negotiated on an individual basis and contain a wide range of different terms and conditions. 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. The lease agreements do not impose any covenants, but leased assets may not be used as security for
borrowing purposes. See accounting policy in note 4(u).
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 leases IT and other equipment with contract terms of 1–4 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.
Amounts recognised in income statement
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Depreciation expense on right-of-use assets
3.0
2.2
Interest expense on lease liabilities
0.7
0.7
Expenses relating to short-term leases
0.1
0.1
Expenses relating to leases of low-value assets
–
0.1
Total recognised in profit and loss
3.8
3.1
Amounts recognised in statement of cash flows
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Repayment of lease liabilities
2.9
2.0
Payment of interest expense on lease liabilities
0.7
0.7
Payments relating to short-term leases
0.1
0.1
Payments relating to leases of low-value assets
–
0.1
Total cash outflow for leases
3.7
2.9
Group as lessor
The Group has a lease on an office that was entered into during 2019 and which it is also sub-letting. 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. 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. The lessee does not have an option to purchase property at the expiry of the lease period.
Rental income recognised by the Group during the 15 month period to 31 March 2024 was US $0.4m (December 2022: US $nil).
The following table sets out a maturity analysis of the lease rentals receivable relating to the sub-lease, showing the lease
payments to be received after the reporting date:
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
121
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
13. LEASES (CONTINUED)
Operating leases minimum rentals receivable under IFRS16
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Less than one year
0.3
0.2
One to two years
0.3
0.2
Two to three years
0.3
0.4
Three to four years
–
0.4
Four to five years
–
–
Total
0.9
1.2
14. INTANGIBLE ASSETS
Concessions,
patents,
licences and Software Development
trademarks Goodwill and licences costs Total
US $m US $m US $m US $m US $m
Cost
At 1 January 2022
13.8
17.3
8.2
18.0
57.3
Additions
1.1
–
0.2
3.3
4.6
Foreign exchange movements
0.1
(1.1)
(0.4)
(0.2)
(1.6)
At 31 December 2022
15.0
16.2
8.0
21.1
60.3
Additions
1.2
–
0.3
3.9
5.4
Disposals
–
–
–
–
–
Foreign exchange movements
(0.4)
0.2
(0.2)
0.2
(0.2)
At 31 March 2024
15.8
16.4
8.1
25.2
65.5
Amortisation and impairment losses
At 1 January 2022
(11.5)
(5.7)
(7.2)
(4.0)
(28.4)
Charge for the year
(1.0)
–
(0.3)
(4.0)
(5.3)
Impairment charge
–
–
–
(1.6)
(1.6)
Foreign exchange movements
(0.1)
0.6
0.4
–
0.9
At 31 December 2022
(12.6)
(5.1)
(7.1)
(9.6)
(34.4)
Charge for the period
(1.2)
–
(0.5)
(6.0)
(7.7)
Impairment charge
(0.6)
(11.2)
–
(4.0)
(15.8)
Foreign exchange movements
0.2
(0.1)
0.2
0.2
0.5
At 31 March 2024
(14.2)
(16.4)
(7.4)
(19.4)
(57.4)
Carrying amount at 31 March 2024
1.6
–
0.7
5.8
8.1
Carrying amount at 31 December 2022
2.4
11.1
0.9
11.5
25.9
Carrying amount at 1 January 2022
2.3
11.6
1.0
14.0
28.9
The amortisation charge for the period is included within administrative expenses in the income statement.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
122
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
14. INTANGIBLE ASSETS (CONTINUED)
Goodwill impairment
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. The goodwill balance has been fully allocated to the Lighting CGU.
As a result of under performance of the Lighting CGU a review for impairment was performed at 31 December 2023 which
has resulted in an impairment of goodwill of US $11.2m being recognised. The underperformance can be attributed to lower
than forecast sales. The recoverable amount of the Lighting segment based on value in use was calculated as US $66.7m.
The impairment charge is material, non-cash, and non-operational related items and has therefore been excluded from
underlying results (note 6).
The basis of the recoverable amount is the value in use using was management’s latest 5-year forecast as at 31 December
2023. This forecast reflects the growth opportunities inherent in the business in the medium term, including the revenues and
gross margin stemming from the implementation of the transformation plan. The long-term growth rate for the valuation 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.
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 discount rate has
increased due to the Company specific risk increasing following the announcement of the transformation plan. 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 key assumptions used in the value in use calculation are set out below:
31 March 31 December
2024 2022
US $m US $m
Discount rate – pre tax
19.0%
17.9%
Terminal growth rate
2.0%
2.3%
Annual 5-year revenue growth rate range for lighting segment
10.0%
12.0–13.0%
Annual 5-year gross margin improvement
6.4%
6.8%
Stewardship allocation
80.0%
80.0%
Other intangible asset impairment
Development costs relating to the traffic business (Signals & Components) of US $0.5m have been fully impaired as they relate to
projects that will no longer be pursued.
In addition a further US $3.5m of development costs and US $0.6m of concessions, patents, licences and trademarks costs
relating to the Lighting segment have been impaired during the period. An impairment review of other intangible assets was
performed as at 31 March 2024 following the preparation of revised 5 year cashflow forecasts which showed reduced growth.
The basis of the recoverable amount is the value in use using the revised 5-year forecast. A 1% increase in the discount rate
increases the impairment charge by US $60k. The value in use of the Lighting CGU is disclosed above in the goodwill section.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
123
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
15. DEFERRED TAX
(i) Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
31 March 31 December 31 March 31 December 31 March 31 December
2024 2022 2024 2022 2024 2022
US $m US $m US $m US $m US $m US $m
Property, plant and equipment
–
–
(0.5)
(1.1)
(0.5)
(1.1)
Intangible assets
0.7
–
–
(0.2)
0.7
(0.2)
Employee benefits
–
–
(1.0)
(1.1)
(1.0)
(1.1)
Provisions
3.4
3.1
–
–
3.4
3.1
Right-of-use assets
–
–
(2.0)
(2.9)
(2.0)
(2.9)
Lease liabilities
2.4
3.3
–
–
2.4
3.3
Restricted interest
0.8
0.4
–
–
0.8
0.7
Losses and other items
2.0
1.3
–
–
2.0
1.0
Tax assets/(liabilities)
9.3
8.1
(3.5)
(5.3)
5.8
2.8
(ii) Movement in temporary differences during the year
Property,
plant and Intangible Employee Right-of-use Lease Restricted Losses and
equipment assets benefits Provisions asset liabilities interest other items Total
US $m US $m US $m US $m US $m US $m US $m US $m US $m
Balance at
1 January 2022
(1.8)
(1.6)
(0.9)
3.8
(2.9)
3.3
0.4
1.5
1.8
Recognised in income
0.3
0.8
(0.1)
(0.2)
–
–
–
0.7
1.5
Recognised in equity
–
–
(0.1)
–
–
–
–
(0.5)
(0.6)
Foreign exchange
movements
0.4
0.6
–
(0.5)
–
–
–
(0.4)
0.1
Balance at
31 December 2022
(1.1)
(0.2)
(1.1)
3.1
(2.9)
3.3
0.4
1.3
2.8
Recognised in income
0.6
0.9
–
0.3
0.9
(0.9)
0.4
0.7
2.9
Recognised in equity
–
–
0.1
–
–
–
–
–
0.1
Foreign exchange
movements
–
–
–
–
–
–
–
–
–
Balance at
31 March 2024
(0.5)
0.7
(1.0)
3.4
(2.0)
2.4
0.8
2.0
5.8
The group has recognised a net deferred tax asset of US $5.8m (2022: US $2.8m). Of this balance, US $4.8m (2022: US $2.3m)
arises in the US with US $3.2m (2022: US $2.7m) relating to short term timing differences that typically unwind on a yearly basis,
US $0.7m (2022: US $0.2m DTL) arising on intangible assets and US $1.5m (2022: US $0.3m) arising on losses and restricted
interest deductions which have no expiry dates. This is offset by a US deferred tax liability of US $0.7m (2022: US $0.8m) arising
on property, plant and equipment.
The group considers it highly probably that sufficient future taxable profits will arise in the US based on both the earning
history and the future forecasted profits. In addition, the Group is satisfied that the losses will unwind in the same period as the
forecasted taxable profits.
The remaining US $1.1m of the recognised net deferred tax asset arises in respect of right of use assets and lease liabilities
recognised at a group level (US $0.4m) and individually immaterial net DTAs recognised by the Group’s subsidiary entities
in various geographical locations.
Provisions
This deferred tax item amounting to US $3.4m (2022: US $3.1m) primarily arises respect of amounts recorded in the US and
comprises of a provision recorded in respect of the Sanmina dispute of US $0.8m (2022: US $0.8m), inventory reserves of US
$1.1m (2022: US $0.6m), trade receivable allowance of US $0.4m (2022: US $0.5m), warranty reserves of US $0.4m (2022: US $0.5m)
and UNICAP adjustments held in the US of US $0.3m (2022: US $0.2m).
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
124
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
15. DEFERRED TAX (CONTINUED)
Losses and other items
Of the US $2.0m (2022: US $1.3m) deferred tax asset relating to losses and other items, US $1.0m (2022: US $1.3m) arises in the
UK and has been recognised to offset a deferred tax liability arising on employee benefits in that territory. No losses over
and above the offset of the deferred tax liability have been recognised in the UK as the Group do not consider that sufficient
taxable profits will arise against which further losses can be recognised. The remaining deferred tax asset of US $1.0m (2022: nil)
arises in respect of carried forward unused tax losses in the US ($0.8m 2022: deferred tax liability of US $0.2m) and Singapore
(US $0.2m 2022: US $0.2m) which have no expiry dates.
(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.
31 March 2024 31 December 2022
US $m US $m
Gross Tax Gross Tax
amount effect amount effect
Deductible temporary differences
–
–
–
–
Tax losses
51.1
12.9
49.0
12.7
51.1
12.9
49.0
12.7
(iv) Tax losses carried forward
Tax losses for which no deferred tax assets were recognised expire as follows:
31 March 31 December
2024 Expiry 2022 Expiry
US $m date US $m date
Expire
–
–
–
–
Never expire
51.1
–
49.0
–
In accordance with IAS 12, management have determined that the recoverability of deferred tax assets is not supportable in
excess of deferred tax liabilities based on current 3 year forecasts.
At 31 March 2024, the Group has unrecognised deferred tax assets of US $12.9m which are not expected to be realised in the
near future.
The Group has gross tax losses of US $51.1m arising in Dialight Europe US $33.5m (2022: US $32.4m), Dialight plc US $15.9m
(2022: US $10.5m) and Dialight GmbH US $1.7m (2022: US $1.7m) which are available to offset against the future profits of the
businesses and are not subject to expiration.
16. EMPLOYEE BENEFITS
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 (eg, 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
US $0.5m in respect of the Funds in the year to 31 March 2025. The weighted average duration of the defined benefit obligation
is seven years for Plan A and nine years for Plan B. 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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
125
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
16. EMPLOYEE BENEFITS (CONTINUED)
The Trustees of the pension schemes are aware of the court case involving Virgin Media and the resulting judgement which
has potentially wide-ranging implications as it voids changes to contracted-out schemes that were made without a section 37
certificate under the Pension Scheme Act 1993. If upheld it will require affected schemes to undergo rectification exercises and
could lead to extra liabilities for some sponsors. No adjustment has been made to the liabilities of either scheme for potential
prior scheme amendments which may be impacted by this ruling. The Trustees are not yet in a position to quantify the impact
of this case on the pension schemes.
The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit asset
and its components:
Fair value of plan assets
Defined benefit obligation
Net defined benefit asset
31 March 31 December 31 March 31 December 31 March 31 December
2024 2022 2024 2022 2024 2022
US $m US $m US $m US $m US $m US $m
Balance at start of period
25.2
36.9
(19.7)
(31.7)
5.5
5.2
Included in profit or loss
Current service cost
(0.4)
(0.2)
–
–
(0.4)
(0.2)
Interest income/(cost)
1.5
0.6
(1.2)
(0.5)
0.3
0.1
1.1
0.4
(1.2)
(0.5)
(0.1)
(0.1)
Included in other comprehensive income
Remeasurements (gain)/loss
–
–
–
8.3
–
8.3
Actuarial (gain)/loss arising from:
–
–
–
–
–
–
– changes in demographic assumptions
–
–
0.4
0.1
0.4
0.1
– changes in financial assumptions
–
–
(0.7)
–
(0.7)
–
– other experience items
–
–
(0.2)
–
(0.2)
–
– past service cost
–
–
0.1
(0.5)
0.1
(0.5)
– return on plan assets excluding interest income
(0.1)
(7.4)
–
–
(0.1)
(7.4)
(0.1)
(7.4)
(0.4)
7.9
(0.5)
0.5
Other
Contributions paid by the employer
0.3
0.5
–
–
0.3
0.5
Benefits paid
(2.0)
(1.5)
2.0
1.5
–
–
(1.7)
(1.0)
2.0
1.5
0.3
0.5
Foreign exchange movements
1.1
(3.7)
(0.9)
3.1
0.2
(0.6)
Balance at end of period
25.6
25.2
(20.2)
(19.7)
5.4
5.5
31 March 31 December
2024 2022
Represented by: US $m US $m
Net defined benefit asset (Plan A)
0.6
0.5
Net defined benefit asset (Plan B)
4.8
5.0
5.4
5.5
Plan assets consist of the following:
31 March 31 December
2024 2022
US $m US $m
Equities (class 2)
–
3.3
Bonds and gilts (class 2)
24.6
21.6
Annuities
–
0.3
Cash
1.0
–
25.6
25.2
All equity securities and government bonds have quoted prices in active markets.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
126
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
16. EMPLOYEE BENEFITS (CONTINUED)
Actuarial assumptions
The principal assumptions at the balance sheet date are:
31 March 31 December
2024 2022
% %
Discount rate
4.6
4.9
Future salary increases
n/a
n/a
Future pension increases
3.3
3.1
Inflation – RPI
3.4
3.2
Inflation – CPI
2.7
2.4
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:
Plan A
Plan B
31 March 31 December 31 March 31 December
2024 2022 2024 2022
Life expectancy at age 65 for current pensioners
Males
88.1
88.5
85.1
85.6
Females
89.7
90.0
88.3
88.7
Life expectancy at age 65 for current members aged 45
Males
89.0
89.5
86.0
86.5
Females
90.7
91.1
89.4
89.8
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:
Plan A – Plan B –
Defined benefit Defined benefit
obligation obligation
US $m US $m
Discount rate – increase by 0.5%
(0.1)
(0.8)
Discount rate – decrease by 0.5%
0.1
0.7
Rate of inflation – increase by 0.5%
0.1
0.4
Rate of inflation – decrease by 0.5%
(0.1)
(0.6)
Assumed life expectancy at age 65 – increase by 1 year
0.1
0.8
The present value of the defined benefit obligation has been calculated with the same method as the defined benefit obligation
recognised in the consolidated statement of financial position. The sensitivity analyses are based on a change in one assumption
while not changing all other assumptions. This analysis may not be representative of the actual change in the defined benefit
obligation as it is unlikely the change in any of the assumptions would occur in isolation of one another as some of the
assumptions are correlated.
Based on the sensitivity analysis the Directors’ do not consider the actuarial assumptions to be a major source of
estimation uncertainty.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
127
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
16. EMPLOYEE BENEFITS (CONTINUED)
Share-based payments PSP and DRSP
During the period, 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.
Number of Number of Number of Number of Number of
awards at the awards granted awards awards awards Fair value
beginning of during vested during forfeited during at the end of pence Vesting Maturity
Date of award the period the period the period the period the period per share period date
March 2020 (EPS)
100,684
–
–
(100,684)
–
205
3 years
March 2023
March 2020 (TSR)
100,684
–
–
(100,684)
–
130
3 years
March 2023
March 2020
273,677
–
(273,677)
–
–
205
3 years
March 2023
(service condition)
April 2021
273,701
–
–
(27,433)
246,268
257
3 years
April 2024
(service conditions)
May 2021
89,547
–
–
–
89,547
307
3 years
May 2024
(service conditions)
April 2022
356,720
–
–
(78,576)
278,144
349
3 years
April 2025
(service conditions)
April 2022
12,164
–
–
–
12,164
349
3 years
April 2025
(service conditions)
April 2022
12,164
–
–
–
12,164
349
2 years
April 2025
(service conditions)
April 2023
–
292,562
–
(135,553)
157,009
203
3 years
April 2026
(service conditions)
April 2023
–
379,109
–
(49,282)
329,827
203
3 years
April 2026
(service conditions)
Total
1,219,341
671,671
(273,677)
(492,212)
1,125,123
Further details of the DRSP are included in the Directors’ Remuneration Report on pages pages 72 to 77.
The 2022 and 2023 awards linked to service conditions have been valued using the five-day weighted average share price prior
to award date. The employee expense in the 15 month period to March 2024 is US $1.5m (2022: US $0.6m).
17. INVENTORIES
31 March 31 December
2024 2022
US $m US $m
Raw materials and consumables
18.8
27.5
Work in progress
13.4
14.4
Finished goods
16.7
22.7
48.9
64.6
Spare parts
0.2
0.2
49.1
64.8
Inventories to the value of US $90.8m (2022: US $97.7m) were recognised as expenses in the period.
The inventory reserve at the balance sheet date was US $6.6m, which represents 11.8% of gross inventory (2022: US $5.0m
representing 7.2% of gross inventory). Additional reserves of US $4.4m were booked in the period with an increase of US $0.1m
due to foreign exchange movements, being offset by utilisation of US $2.9m, resulting in a net increase in the reserve of US $1.6m.
As at 31 March 2024, management’s best estimate of the amount of inventory that will not be used within the next 12 months is
c. US $8.1m (2022: US $5.8m).
In 2022 the Group 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. The 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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
128
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
18. TRADE AND OTHER RECEIVABLES
Amounts falling due within one year
31 March 31 December
2024 2022
US $m US $m
Trade receivables
27.6
32.2
Other non-trade receivables
1.4
1.6
Prepayments and accrued income
3.3
2.8
32.3
36.6
The Group’s exposure to credit and currency risks and impairment losses related to trade and other receivables is disclosed
in note 24.
Amounts falling due in more than one year
31 March 31 December
2024 2022
US $m US $m
Other receivables
5.9
6.8
These relate to deposits on leasehold properties 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. Please refer to note 26.
19. CASH AND CASH EQUIVALENTS
31 March 31 December
2024 2022
US $m US $m
Cash and cash equivalents
11.5
2.0
20. CAPITAL AND RESERVES
Share capital
15 month 15 month 12 month 12 month
period ended period ended period ended period ended
31 March 31 March 31 December 31 December
2024 2024 2022 2022
Number US $m Number US $m
Authorised
Ordinary shares of 1.89p each
Issued and fully paid:
39,828,141
1.2
32,946,371
1.0
At beginning of the period
32,946,371
1.0
32,610,025
1.0
Issued during the period
6,881,770
0.2
336,346
–
At end of period
39,828,141
1.2
32,946,371
1.0
On 5 April 2023 a total of 246,513 new ordinary shares of 1.89 pence each in the capital of the Company were issued.
On 31 October 2023 a total of 6,635,257 new ordinary shares of 1.89 pence each in the capital of the Company have been
allotted to raise gross proceeds of approximately US $12.9 million.
Share premium account
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
At beginning of the period
1.2
–
Minority interest purchase
–
1.2
Issued during the period
12.7
–
Share issues costs
(0.9)
–
At end of period
13.0
1.2
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
129
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
20. CAPITAL AND RESERVES (CONTINUED)
Share premium
Share issue costs of US $0.9m have been netted off against the share premium arising on the new share issue. The share
premium recognised in the 12-month period to December 2022 represents the fair value of 266,958 shares issued by the Group
to acquire a further 12.5% share of its subsidiary Dialight ILS Australia Pty Ltd.
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 US $1.0m 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
In the 15-month period to 31 March 2024 the Company purchased 19,048 shares on the open market for US $0.1m, which are
being held in an employee benefit trust to settle share options in the future (2022: 20,425 shares for US $0.1m).
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.
21. TRADE AND OTHER PAYABLES
31 March 31 December
2024 2022
US $m US $m
Trade payables
24.2
29.0
Other taxes and social security
1.1
1.2
Non-trade payables and accrued expenses
9.0
15.0
34.3
45.2
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.
Trade payables relate to amounts owed to suppliers for goods or services purchased on credit, primarily raw materials and other
inventory purchases. Non-trade payables and accrued expenses relate to goods-in-transit and other professional fees.
22. PROVISIONS
Warranty and Lease
claims restoration 2022
US $m US $m US $m
Balance at 1 January 2023
2.4
0.2
2.6
Provisions made during the period
0.2
0.4
0.6
Provisions utilised during the period
(0.4)
–
(0.4)
Foreign exchange movements
–
–
–
Balance at 31 March 2024
2.2
0.6
2.8
The warranty provision relates to sales made over the past nine years. 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:
2024 Total
US $m US $m
Within one year
1.2
0.7
Between one and five years
1.3
1.5
After five years
0.3
0.4
2.8
2.6
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
130
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
23. BORROWINGS
The Group’s funding includes a revolving credit facility (RCF) of US $34.0 million from HSBC which was extended on 14 June 2024
to 21 July 2026 on the same terms as the original agreement. Aligned with the Group’s robust commitment to environmental,
social, and governance (ESG) principles, the RCF facility operates as a sustainability-linked loan.
The RCF facility is subject to quarterly covenants encompassing maximum leverage and minimum interest cover. The covenants
for the quarter ending 30 September 2023 were temporarily reset from a leverage ratio maximum target of less than 3x to 4.5x,
and an interest cover minimum target of a maximum 4x to 2.5x. The covenants reverted to the original hurdles from quarter
ending 31 December 2023 onwards.
A retrospective review of covenant calculations for the 15-month period to 31 March 2024 was performed by management as
part of the year-end audit after certain matters came to the attention of the Board. This retrospective review identified that
breaches of the covenants had and/or may have had occurred when also retrospectively applying finalised year-end accounting
adjustments. These waiver requests were communicated to HSBC who have agreed to issue retrospective covenant waivers
for the relevant quarters. The waivers are subject to legal finalisation at the date of this report. Given the covenants were and/
or may potentially have been breached before and at 31 March 2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date, the outstanding borrowings under the RCF of US $27.9m have
been classified as a current liability.
Please refer to note 2(b) for details of how this has been considered as part of the going concern assessment.
As agreed, the Group has repaid the £10 million Covid-19 Large Business Interruption Loan (CLBIL), with the final £2 million
repaid in the first half of 2023.
Loans
US $m
At 1 January 2022
22.8
Facility drawdown (RCF – USD)
18.1
Facility repayment (RCF – USD)
(8.0)
Facility drawdown (RCF – GBP)
0.5
Facility repayment (RCF – GBP)
–
Facility repayment (CBILS)
(5.0)
Foreign exchange movements
(1.0)
At 31 December 2022
27.4
Facility drawdown (RCF – USD)
5.8
Facility repayment (RCF – USD)
(1.0)
Facility drawdown (RCF – GBP)
0.4
Facility repayment (RCF – GBP)
(2.4)
Facility repayment (CBILS)
(2.5)
Foreign exchange movements
0.2
At 31 March 2024
27.9
Amount drawn Amount drawn
down as at down as at
Interest rate Maturity 31 March 31 December
Details of the facilities
Tenure
per annum* date 2024
2022
US $34m revolving credit facility
3 years
8.31%*
July 2026
27.9
25.0
£8m CLBILS
3 years
6.50%**
June 2023***
–
1.9
£2m commercial loan
3 years
7.02%**
June 2023***
–
0.5
27.9
27.4
* Indicative rate as at March 2024.
** Indicative rate at June 2023.
*** Loans were repaid in equal instalments over three years from January 2021.
The banking covenants are as follows:
Ratio
Calculation
Covenant
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
>1.2x
* 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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
131
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
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:
Specific Specific
Gross Impairment Gross Impairment
31 March 31 March 31 December 31 December
2024 2024 2022 2022
US $m US $m US $m US $m
Not past due
22.7
–
26.5
–
Past due 0–30 days
4.4
–
3.7
–
Past due 30+ days
0.5
–
2.0
–
Total
27.6
–
32.2
–
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 US $8.3m (2022: US $8.4m) are not past due and have no impairment. The ECL
provision for the current period 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. Please refer to note 23 for details of the
Groups borrowings.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
132
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
24. FINANCIAL RISK MANAGEMENT (CONTINUED)
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 GBP 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:
31 March 31 March 31 March 31 December 31 December 31 December
2024 2024 2024 2022 2022 2022
GBP m CAD m EUR m GBP m CAD m EUR m
Trade receivables
0.3
3.5
0.7
0.8
4.0
1.9
Currency cash
4.1
0.2
–
(5.4)
0.1
0.5
Trade payables
(2.0)
–
(0.3)
(1.5)
–
(0.6)
Total
2.4
3.7
0.4
(6.1)
4.1
1.8
The following significant exchange rates applied during the period:
31 March 31 December
31 March 2024 31 December 2022
2024 At balance 2022 At balance
Average rate sheet date Average rate sheet date
Pound sterling
0.8010
0.7925
0.8086
0.8271
Euro
0.9240
0.9264
0.9510
0.9338
Canadian dollar
1.3491
1.3540
1.3015
1.3541
Mexican peso
17.5790
16.5558
20.1025
19.4663
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:
Carrying Contractual 2 months More than
amount cash flow or less 2–12 months 1–2 Years 2–5 Years 5 years
31 March 2024 US $m US $m US $m US $m US $m US $m US $m
Non-derivative financial liabilities
Trade and other payables
(21.3)
(21.3)
(14.5)
(2.0)
(0.9)
(3.9)
–
Borrowings
(27.9)
(27.9)
–
–
–
(27.9)
–
Lease liabilities
(10.1)
(10.1)
–
(2.0)
(2.0)
(6.0)
(0.1)
(59.3)
(59.3)
(14.5)
(4.0)
(2.9)
(37.8)
(0.1)
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
133
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
24. FINANCIAL RISK MANAGEMENT (CONTINUED)
Carrying Contractual 2 months More than
amount cash flow or less 2–12 months 1–2 Years 2–5 Years 5 years
31 December 2022 US $m US $m US $m US $m US $m US $m US $m
Non-derivative financial liabilities
Trade and other payables
(29.0)
(29.0)
(23.3)
(1.6)
–
(4.1)
–
Borrowings
(27.4)
(27.4)
(0.8)
(1.6)
–
(25.0)
–
Lease liabilities
(13.7)
(13.7)
–
(2.3)
(2.1)
(7.0)
(2.3)
(70.1)
(70.1)
(24.1)
(5.5)
(2.1)
(36.1)
(2.3)
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 March 2024,
this totalled US $63.9m (2022: US $83.0m).
The Board is not proposing a final dividend for the period ending 31 March 2024. 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.
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 March 2024, it is estimated that a general increase of 1% in the value of the GBP sterling and the Euro against US Dollar
would not have a material impact on the Group’s loss before tax for the period ended 31 March 2024
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 Carrying
amount Fair value amount Fair value
31 March 31 March 31 December 31 December
2024 2024 2022 2022
31 March 2024 US $m US $m US $m US $m
Financial assets
Cash and cash equivalents
11.5
11.5
2.0
2.0
Loans and receivables
Trade and other receivables
29.0
29.0
33.8
33.8
Total financial assets
40.5
40.5
35.8
35.8
Financial liabilities
Trade and other payables
(32.9)
(32.9)
(44.0)
(44.0)
Borrowings
(27.9)
(27.9)
(27.4)
(27.4)
Lease liabilities
(10.1)
(10.1)
(13.7)
(13.7)
Total financial liabilities
(70.9)
(70.9)
(85.1)
(85.1)
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 the balance sheet date for which no provision has been made in the accounts were:
31 March 31 December
2024 2022
US $m US $m
Contracted
2.5
3.5
Capital commitments relate to planned capacity improvements, factory improvements and end of life asset replacement.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
134
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
26. 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 20 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 March 2024, Dialight has not made any provision for future legal costs.
The claim filed by Dialight that Dialight is now pursuing, alleges that Dialight suffered significant costs and losses (with total
potential damages of approximately US $92.8m) as a result of: (a) Sanmina’s fraudulent inducement of Dialight to enter into
the MSA; (b) Sanmina breaching the terms of the MSA and engaging in willfull misconduct while doing so. If Sanmina’s claim
is successful, the range of outcomes could include the payment by Dialight to Sanmina of between US $0 and US $8.3m (plus
legal costs and standard judicial / contractual interest at the rate of 1% per month from the date of the alleged breach), 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 US $0 and c. US $92.8m (excluding legal costs and judicial / contractual interest).
The fraudulent misrepresentation element of the damages could attract judicial interest of 9% per annum backdated to the
date of signing of the MSA in March 2016. The upper amount recoverable by Dialight was reduced from c. $220m (excluding
legal costs and interest) to c. $159.6m (inclusive of interest but excluding legal costs) as a result of decisions by the court on
pre-trial motions that excluded evidence relating to loss of market capitalisation but allowed Dialight’s remaining arguments and
evidence relating to loss of profit damages.
Sanmina lodged a motion for summary judgement to dismiss certain elements of Dialight’s claims and counter-claims.
The Court’s ruling on Sanmina’s dismissal motion (with pleadings first filed on 2 May 2022) 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 judgement on Sanmina’s accounts receivable claim.
Sanmina subsequently filed a motion of reconsideration seeking the reversal of the judge’s denial of summary adjudication of
Sanmina’s US $5.3m accounts receivable claim. The Court’s ruling on Sanmina’s motion for reconsideration was released under
seal on 28 November 2023 and stated that: (a) it was granting the motion for reconsideration solely to the extent that the Court’s
prior opinion could be construed as finding that certain evidence established as a matter of law that Dialight timely rejected
invoices comprising Sanmina’s accounts receivable claim; (b) otherwise Sanmina’s motion for reconsideration was denied; and (c)
affirmed its prior opinion denying Sanmina’s motion for summary judgement on its accounts receivable claim.
Dialight’s fraudulent inducement and willfull misconduct in the breach of contract claims, together with Sanmina’s claims relating
to excess and obsolete inventory and accounts receivable, and Dialight’s defences to these claims, will now proceed to trial, and
Dialight will continue to rigorously pursue its claims. A trial date was originally set for 15 July 2024 and anticipated to last for 10
days. As announced on 23 July 2024, that trial was declared a mis-trial (as a result of the excusing of 2 jurors for medical-related
reasons) and re-scheduled for 9 September 2024.
Open court documents, including the ruling and pleadings in respect of the motion for summary judgement, 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) and at Dialight’s corporate website at www.dialight.com/ir/shareholder-
information/sanmina-litigation/. An overview of the key facts in the case by found at www.dialight.com/ir/shareholder-
information/sanmina-litigation/sanmina-litigation-faqs/.
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
135
27. RECONCILIATION TO NON-GAAP PERFORMANCE MEASURES
Certain financial information set out in the consolidated year end financial statements and Annual Report is not defined under
International Financial Reporting Standards (“IFRS”). These key Alternative Performance Measures (“APMs”) represent additional
measures in assessing performance and for reporting both internally and to shareholders and other external users. The Group
believes that the presentation of these APMs provides useful supplemental information which, when viewed in conjunction with
IFRS financial information, provides readers with a more meaningful understanding of the underlying financial and operating
performance of the Group.
None of these APMs should be considered as an alternative to financial measures drawn up in accordance with IFRS.
12-month comparatives
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Revenue – 12 month period from January to December
185.0
209.8
Revenue – 3 month period from January 2024 to March 2024
41.0
–
Revenue
226.0
209.8
Gross profit – 12 month period from January to December
58.4
67.4
Gross profit – 3 month period from January 2024 to March 2024
8.7
–
Gross profit
67.1
67.4
Underlying gross profit – 12 month period from January to December
58.4
67.4
Underlying gross profit – 3 month period from January 2024 to March 2024
11.7
–
Underlying gross profit
70.1
67.4
(Loss)/Profit from operating activities – 12 month period from January to December
(14.7)
2.8
(Loss)/Profit from operating activities – 3 month period from January 2024 to March 2024
(15.5)
–
(Loss)/Profit from operating activities
(30.2)
2.8
Underlying profit from operating activities – 12 month period from January to December
0.1
6.1
Underlying (loss)/profit from operating activities – 3 month period from January 2024 to March 2024
(4.7)
–
Underlying (loss)/profit from operating activities
(4.6)
6.1
Non-underlying items – 12 month period from January to December
(14.8)
(3.3)
Non-underlying items – 3 month period from January 2024 to March 2024
(10.8)
–
Non-underlying items
(25.6)
(3.3)
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
136
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
27. RECONCILIATION TO NON-GAAP PERFORMANCE MEASURES (CONTINUED)
Other non-GAAP performance measures
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Gross profit
67.1
67.4
Non-underlying items (note 6)
3.0
–
Underlying gross profit
70.1
67.4
(Loss)/Profit from operating activities
(30.2)
2.8
Non-underlying items (note 6)
25.6
3.3
Underlying (loss)/profit from operating activities
(4.6)
6.1
(Loss)/Profit from operating activities
(30.2)
2.8
Non-underlying items (note 6)
25.6
3.3
Depreciation of property, plant and equipment (note 12)
4.3
3.6
Amortisation of intangible assets (note 14)
7.7
5.4
Underlying EBITDA
7.4
15.1
(Loss)/Profit from operating activities
(30.2)
2.8
Non-underlying items (note 6)
25.6
3.3
Depreciation of property, plant and equipment (note 12)
4.3
3.6
Amortisation of intangible assets (note 14)
7.7
5.4
Share-based payments
1.5
0.6
Net movement on working capital (inventories, trade and other receivables, trade and other payables)
as per Consolidated Statement of Cash Flows
10.0
(8.1)
Underlying operating cash flow
18.9
7.6
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.
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.
Net debt
Net debt is defined as total Group borrowings (excluding lease liabilities recognised under IFRS 16) less cash. Net debt of US
$16.4m at the period end (2022: US $25.4m) consisted of borrowings of US $27.9m (2022: US $27.4m) less cash of US $11.5m
(2022: US $2.0m).
28. RELATED PARTIES
The ultimate Parent Company 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.
Other related party transactions
During the period the Company paid for a lease agreement for the previous CEO Fariyal Khanbabi which was cohabited with
her son and his partner.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
137
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
29. SUBSIDIARIES
(a) Trading companies
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries as at 31 March 2024 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.
Name
Percentage owned
Registered office
Principal activity
Dialight Corporation*
100%
1501
Route, 34 South
Design, assembly and sale
Farmingdale NJ 07727 of Lighting and Signals &
United States Components products
Dialight Europe Limited**
100%
Highdown House
Sale of Lighting products
Yeoman Way
Worthing
West Sussex
United Kingdom BN99 3HH
Dialight GmbH*
100%
Maximilianstrasse 54
Sale of Lighting products
80538
Munchen
Germany
Dialight ILS Australia Pty Limited*
100%
Level 2 Spectrum
Sale of Lighting products
100
Railway Road Subiaco
WA 6008
Australia
Dialight Asia Pte. Ltd*
50%
07–72 Vertex (Tower A)
33 Ubi Avenue 3
Sale of Lighting products
Singapore, 408868
Dialight Penang Sdn. Bhd.*
100%
Room B, 3rd Floor
“Assembly and sale of Lighting and
309-K Perak Road 10150, Penang Signals & Components products”
Malaysia
Dialight de Mexico, S. de R.L. de C.V.*
100%
Calle Lirios S/N
“Assembly and sale of Lighting and
Colona Pacheco Ensenada Signals & Components products”
Baja California
Mexico
Dialight Latin America, S. de R.L.
100%
Calle Lirios S/N
“Sale of Lighting and Signals
de C.V.* Colona Pacheco Ensenada & Components product”
Baja California
Mexico
* The investment is held directly by Dialight plc except for those companies indicated by *.
** These companies are exempt from the requirement to prepare individual audited financial statements in respect of the period ended 31 March 2024, by virtue of Sections 479A and 479C of
the Companies Act 2006.
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries as at 31 March 2024 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.
The effect on Group equity is summarised in the table below:
15 month 12 month
period ended period ended
31 March 31 December
2024 2022
US $m US $m
Carrying amount of non-controlling interest acquired
–
0.6
Consideration paid to non-controlling interest
–
(1.2)
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)
* US $0.1m consideration plus US $0.1m of costs.
There were no transactions with non-controlling interests in the 15-month period to 2024.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
138
Notes to the consolidated financial statements continued
for the 15 month period ended 31 March 2024
29. 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 152 under the “Directory and shareholder information” section.
Name
Percentage owned
Registered office
Principal activity
Belling Lee Limited**
100%
Highdown House
Intermediary holding company
Yeoman Way
Worthing
West Sussex
United Kingdom BN99 3HH
Roxboro Overseas Limited**
100%
Highdown House
Non-trading/intermediary
Yeoman Way holding company
Worthing
West Sussex
United Kingdom BN99 3HH
The Roxboro Trust Company
100%
Highdown House
Dormant
Limited** Yeoman Way
Worthing
West Sussex
United Kingdom BN99 3HH
The Roxboro UK Pension
50%
Highdown House
Corporate pension fund trustee
Trustee Limited* Yeoman Way
Worthing
West Sussex
United Kingdom BN99 3HH
Roxboro Analytical Inc.*
100%
1501
Route 34 South
Non-trading
Farmingdale
NJ 07727
United States
Roxboro Holdings Inc.*
100%
The Corporation Trust Co.
Non-trading/intermediary
Corporation Trust Centre holding company
1209
Orange Street
County of New Castle DE City of Wilmington
United States
Roxboro Metrology Inc.*
100%
1501
Route 34 South
Non-trading
Farmingdale NJ 07727
United States
* The investment is held directly by Dialight plc except for those companies indicated by *.
** These companies are exempt from the requirement to prepare individual audited financial statements in respect of the period ended 31 March 2024, 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.
30. POST BALANCE SHEET EVENTS
The Group’s multicurrency revolving credit facility of $34.0m with HSBC was extended on 14 June 2024 to 21 July 2026 on the
same terms as the original revolving credit facility agreement.
On 9 July 2024 the Group announced that it has entered into an agreement for the sale of its business manufacturing signal
lights used in traffic, pedestrian and railroad management in North America (the Traffic Business) to Leotek Electronics USA LLC
and realising gross cash proceeds of US $5.8m. After transaction and other costs, net cash proceeds are US $5.5m which will be
used to reduce group indebtedness. The Business had previously been identified as non-core.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
139
Appendix – Comparison of GBP and USD
31 December 2022 primary statements
CONSOLIDATED INCOME STATEMENT
12 month
period ended
31 December
2022
US $m
12 month
period ended
31 December
2022
£m
Revenue 209.8 169.7
Cost of sales (142.4) (115.1)
Gross profit 67.4 54.6
Distribution costs (31.5) (25.5)
Administrative expenses (33.1) (26.8)
Profit from operating activities 2.8 2.3
Underlying (loss)/profit from operating activities 6.1 5.0
Non underlying items (3.3) (2.7)
Profit from operating activities 2.8 2.3
Financial expense (2.2) (1.8)
Profit before tax 0.6 0.5
Taxation (0.1) (0.1)
Profit for the year 0.5 0.4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
12 month
period ended
31 December
2022
US $m
12 month
period ended
31 December
2022
£m
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations 0.3 8.1
Income tax on exchange differences on translation of foreign operations – (0.6)
0.3 7.5
Items that will not be reclassified subsequently to profit and loss
Remeasurement of defined benefit pension liability 0.4 0.3
Income tax on remeasurement of defined benefit pension liability (0.1) (0.1)
0.3 0.2
Other comprehensive income for the year, net of tax 0.6 7.7
Profit for the period 0.5 0.4
Total comprehensive income for the year 1.1 8.1
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
140
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December
2022
US $m
31 December
2022
£m
Assets
Property, plant and equipment 16.8 13.9
Right-of-use assets 12.7 10.5
Intangibles assets 25.9 21.4
Deferred tax assets 2.8 2.4
Employee benefits 5.5 4.5
Other receivables 6.8 5.6
Total non-current assets 70.5 58.3
Inventories 64.8 53.6
Trade and other receivables 36.6 30.2
Income tax recoverable 0.8 0.6
Cash and cash equivalents 2.0 1.7
Total current assets 104.2 86.1
Total assets 174.7 144.4
Liabilities
Trade and other payables (45.2) (37.3)
Provisions (0.7) (0.6)
Tax liabilities (2.8) (2.3)
Lease liabilities (1.5) (1.2)
Borrowings (2.4) (2.0)
Total current liabilities (52.6) (43.4)
Provisions (1.9) (1.6)
Borrowings (25.0) (20.6)
Lease liabilities (12.2) (10.1)
Total non-current liabilities (39.1) (32.3)
Total liabilities (91.7) (75.7)
Net assets 83.0 68.7
Equity
Issued share capital 1.0 0.6
Merger reserve 1.0 0.5
Share premium 1.2 1.0
Other reserves 15.4 18.9
Retained earnings 64.2 47.5
82.8 68.5
Non-controlling interest 0.2 0.2
Total equity 83.0 68.7
Appendix – Comparison of GBP and USD
31 December 2022 primary statements continued
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
141
Note
31 March
2024
£m
Restated
31 December
2022
£m
Fixed assets
Intangibles assets 4 0.1 0.2
Investments 5 39.4 39.8
39.5 40.0
Current assets
Debtors 8 28.5 32.7
Cash and cash equivalents 8.0 –
36.5 32.7
Creditors: Amounts falling due within one year 9 (25.2) (2.5)
Net current assets 11.3 30.2
Total assets less current liabilities 50.8 70.2
Creditors: Amounts falling due after more than one year 10 – (23.5)
Net assets 50.8 46.7
Capital and reserves
Called up share capital 11 0.7 0.6
Share premium 12 10.7 1.0
Capital redemption reserve 12 2.2 2.2
Other reserves 12 5.9 4.7
Profit and loss account 12 31.3 38.2
Equity shareholders' funds 50.8 46.7
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 loss for the period was £6.9m (2022: profit of £7.6m).
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 29 July 2024 and weresigned on its behalf by:
Steve Blair Carolyn Zhang
Group Chief Executive Chief Financial Officer
Company balance sheet (prepared under FRS 102)
as at 31 March 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
142
Share capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
reserve
£m
Share premium
£m
Own shares
£m
Retained
earnings
£m
Total
equity
£m
Balance at
1January2023
0.6 5.5 2.2 1.0 (0.8) 38.2 46.7
Loss for the period – – – – – (6.9) (6.9)
Total other
comprehensive expense
– – – – – – –
Total comprehensive
expense for the period
– – – – – (6.9) (6.9)
Transactions with
owners, recorded
directly in equity
Share-based payments,
net of tax
– 1.2 – – – – 1.2
Repurchase of own
shares
– – – – – – –
Issue of shares
(note 11 and note 12)
0.1 – – 9.7 – – 9.8
Total contribution
byand distribution
toowners
0.1 1.2 – 9.7 – – 11.0
Balance at
31March2024
0.7 6.7 2.2 10.7 (0.8) 31.3 50.8
Share capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
reserve
£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 for the period – – – – – 7.6 7.6
Total other
comprehensive income
– – – – – – –
Total comprehensive
expense for the period
– – – – – 7.6 7.6
Transactions with
owners, recorded
directly in equity
Share-based payments,
net of tax
– 0.5 – – – – 0.5
Repurchase of own
shares
– – – – (0.1) – (0.1)
Issue of shares – – – 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
Company statement of changes in equity
for the period ended 31 March 2024
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
143
Notes to the company financial statements
for the period ended 31 March 2024
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 152 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 GBP 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
As set out in note 2(b) of the consolidated financial statements, the Directors have identified circumstances which give rise
to a material uncertainty which may cast significant doubt on the entity’s ability to continue as a going concern, meaning it
may be unable to realise it assets and discharge its liabilities in the normal course of business. Notwithstanding this material
uncertainty, the Directors consider it remains appropriate to continue to adopt the going concern basis in the preparation of the
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.
(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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
144
Notes to the company financial statements continued
for the period ended 31 March 2024
2. BASIS OF PREPARATION (CONTINUED)
(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.
The defined benefit scheme surplus or deficit is recognised in full and presented on the face of the balance sheet.
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.
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
145
Notes to the company financial statements continued
for the period ended 31 March 2024
2. BASIS OF PREPARATION (CONTINUED)
(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 KEYS 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.
Significant judgements
Termination of outsourced manufacturing agreement
As set out in note 2 of the consolidated financial statements 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 26 of the consolidated financial statements, which contains further details
on the matter.
Estimates
Impairment of investments in subsidiaries and loans to subsidiaries
The Directors perform an annual impairment assessment for the investments held in subsidiaries and loans to subsidiaries by
the Company by performing a review for indicators of impairment by assessing the performance of the subsidiaries against
qualitative and quantitative factors. If any of these factors are present a detailed impairment review is undertaken. A detailed
impairment assessment is performed by assessing the subsidiary’s value in use which requires management to make a
number of estimates. The calculations use five-year discounted cash flow projections based on financial budgets approved
by management.
No provision for impairment has been recognised in the current period (2022: nil).
Recoverability of amounts due from subsidiary undertakings
The Directors assess whether amounts due from subsidiary undertakings are recoverable based on the trading results and cash
generation of group companies. Amounts due are deemed impaired if subsidiaries do not generate sufficient cast to enable
short-term repayment of such balances.
No provision for impairment has been recognised in the current period (2022: nil).
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
146
Notes to the company financial statements continued
for the period ended 31 March 2024
4. INTANGIBLE ASSETS
Software
£m
Cost
At 1 January 2023 0.2
Additions –
At 31 March 2024 0.2
Amortisation and impairment losses
At 1 January 2023 –
Amortisation for the period (0.1)
At 31 March 2024 (0.1)
Net book value at 31 March 2024 0.1
Net book value at 31 December 2023 0.2
5. INVESTMENTS
Investments in
subsidiaries
£m
Restated
Loan to
subsidiaries
£m
Restated
Total
£m
Cost
At 1 January 2023 22.3 28.9 51.2
Share-based payments 0.8 – 0.8
Foreign exchange movements – (1.2) (1.2)
At 31 March 2024 23.1 27.7 50.8
Provisions
At 1 January 2023 (11.4) – (11.4)
Impairment charge for period – – –
At 31 March 2024 (11.4) – (11.4)
Net book value at 31 March 2024 11.7 27.7 39.4
Net book value at 31 December 2023 10.9 28.9 39.8
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 29 to the consolidated financial statements.
A reclassification at 31 December 2022 has been made for an amount of £28.9m from "Debtors" within "Current assets" to
"Investments" within "Fixed assets" as the ‘Loan to subsidiaries’ is intended for use on a continuing basis in the company’s
activities and not due for repayment until more than 12 months after the balance sheet date.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
147
Notes to the company financial statements continued
for the period ended 31 March 2024
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 GBP 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:
31 March
2024
£m
31 March
2022
£m
Currency cash 26.7 23.5
Gross balance sheet exposure 26.7 23.5
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 76 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
31 March
2024
£m
Restated
31 December
2022
£m
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 26.8 31.4
Other debtors 1.2 0.9
28.0 32.3
Amounts falling due after more than one year:
Pension fund asset (note 13) 0.5 0.4
28.5 32.7
A reclassification at 31 December 2022 has been made for an amount of £0.4m from "Pension fund asset" within "Fixed
assets" to "Debtors" within ‘Current assets’ as the "Pension fund asset" is not intended for use on a continuing basis in the
company’s activities.
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
31 March
2024
£m
31 December
2022
£m
Bank loans (note 10) 22.1 –
Amounts owed to subsidiary undertakings 0.4 0.4
Accruals and deferred income 0.7 0.7
Other creditors 2.0 1.4
25.2 2.5
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
148
Notes to the company financial statements continued
for the period ended 31 March 2024
10. CREDITORS: AMOUNTS FALLING AFTER MORE THAN ONE YEAR
31 March
2024
£m
31 December
2022
£m
Bank loans – 23.5
Bank loans
The Group’s funding includes a revolving credit facility (RCF) of US $34.0 million from HSBC which was extended on 14 June 2024
to 21 July 2026 on the same terms as the original agreement. Aligned with the Group’s robust commitment to environmental,
social, and governance (ESG) principles, the RCF facility operates as a sustainability-linked loan.
The RCF facility is subject to quarterly covenants encompassing maximum leverage and minimum interest cover. The covenants
for the quarter ending 30 September 2023 were temporarily reset from a leverage ratio maximum target of less than 3x to 4.5x,
and an interest cover minimum target of a maximum 4x to 2.5x. The covenants reverted to the original hurdles from quarter
ending 31 December 2023 onwards.
A retrospective review of covenant calculations for the 15-month period to 31 March 2024 was performed by management as
part of the year-end audit after certain matters came to the attention of the Board. This retrospective review identified that
breaches of the covenants had and/or may have had occurred when also retrospectively applying finalised year-end accounting
adjustments. These waiver requests were communicated to HSBC who have agreed to issue retrospective covenant waivers
for the relevant quarters. The waivers are subject to legal finalisation at the date of this report. Given the covenants were and/
or may potentially have been breached before and at 31 March 2024, when also retrospectively applying finalised year-end
accounting adjustments, and no waiver was in place at that date, the outstanding borrowings under the RCF of US $27.9m have
been classified as a current liability.
Please refer to note 2(b) of the consolidated financial statements for details of how this has been considered as part of the going
concern assessment.
As agreed, the Group has repaid the £10 million Covid-19 Large Business Interruption Loan (CLBIL), with the final £2 million
repaid in the first half of 2023.
Bank loans
£m
At 1 January 2023 23.5
Facility drawdown (RCF – USD) 4.6
Facility repayment (RCF – USD) (0.8)
Facility drawdown (RCF – GBP) 0.3
Facility repayment (RCF – GBP) (1.9)
Facility repayment (CBILS) (2.0)
Foreign exchange movements (1.6)
As at 31 March 2024 22.1
11. CALLED UP SHARE CAPITAL
15 month
period ended
31 March
2024
Number
15 month
period ended
31 March
2024
£m
12 month
period ended
31 December
2022
Number
12 month
period ended
31 December
2022
£m
Authorised
Ordinary shares of 1.89p each 39,828,141 0.7 32,946,371 0.6
Issued and fully paid:
At beginning of the period 32,946,371 0.6 32,610,025 0.6
Issued during the period 6,881,770 0.1 336,346 –
At end of period 39,828,141 0.7 32,946,371 0.6
On 5 April 2023 a total of 246,513 new ordinary shares of 1.89 pence each in the capital of the Company were issued.
On 31 October 2023 a total of 6,635,257 new ordinary shares of 1.89 pence each in the capital of the Company have been
allotted to raise gross proceeds of approximately £10.5 million.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
149
Notes to the company financial statements continued
for the period ended 31 March 2024
12. CAPITAL AND RESERVES
15 month
period ended
31 March
2024
£m
12 month
period ended
31 December
2022
£m
At beginning of period 1.0 –
Minority interest purchase – 1.0
Issued during the period 10.4 –
Share issues costs (0.7) –
At end of period 10.7 1.0
Share premium
Share issue costs of £0.7m have been netted off against the share premium arising on the new share issue.
The share premium recognised in the 12 month period to December 2022 represents the fair value of 266,958 shares issued
bythe Group to acquire a further 12.5% share of its subsidiary Dialight ILS Australia Pty Ltd.
Dividends
No dividends were declared in the current period 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
In the 15-month period to 31 March 2024 the Company purchased 19,048 shares on the open market for £0.0m, which are being
held in an employee benefit trust to settle share options in the future (2022: 20,425 shares for £0.1m).
13. 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.
Recognised assets for defined benefit arrangements
31 March
2024
£m
31 December
2022
£m
Present value of funded obligations (2.0) (2.1)
Fair value of plan assets 2.5 2.5
Recognised asset for defined benefit arrangements 0.5 0.4
Plan assets consist of the following:
31 March
2024
£m
31 December
2022
£m
Bonds 2.5 2.5
The assets do not include any investments in shares of the Company.
Movements in the present value of defined benefit obligations
31 March
2024
£m
31 December
2022
£m
Liabilities at start of period 2.1 2.9
Interest cost on obligation 0.1 0.1
Benefits paid (0.1) (0.1)
Changes in financial assumptions (0.1) (0.8)
Liabilities at end of period 2.0 2.1
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
150
Notes to the company financial statements continued
for the period ended 31 March 2024
13. PENSIONS (CONTINUED)
Movements in fair value of plan assets
31 March
024
£m
31 December
2022
£m
Assets at start of period 2.5 3.1
Interest income on assets 0.1 0.1
Employer contributions – 0.1
Benefits paid (0.1) (0.1)
Return on plan assets less interest – (0.7)
Assets at end of period 2.5 2.5
Expense recognised in the profit and loss account
31 March
2024
£m
31 December
2022
£m
Interest cost on obligation 0.1 0.1
Interest income on assets (0.1) (0.1)
Assets at end of period – –
Liability for defined benefit obligations
31 March
2024
%
31 December
2022
%
Discount rate at end of period 4.6 4.9
Future pension increases 3.3 3.1
Inflation – RPI 3.4 3.2
Inflation – CPI 2.7 2.4
For its UK pension arrangements, the Group has for the purpose of calculating its liabilities as at 31 March 2024, used SAPS
S2NA mortality tables based on year of birth (as published by theInstitute and Faculty of Actuaries).
Weighted average life expectancy to determine benefit obligations
31 March
2024
31 December
2022
Male life expectancy:
Retiring at age 65 now 88.1 88.5
Retiring at age 65 in 20 years 89.7 90.0
Female life expectancy:
Retiring at age 65 now 89.0 89.5
Retiring at age 65 in 20 years 90.7 91.1
For its UK pension arrangements, the Group has for the purpose of calculating its liabilities as at 31 March 2024, used SAPS
S3NMAL mortality tables based on year of birth (as published by theInstitute and Faculty of Actuaries).
14. EMPLOYEE EXPENSES
15 month
period ended
31 March 2024
£m
12 month
period ended
31 December
2022
£m
Wages and salaries 2.7 2.2
Social security costs 0.3 0.3
Contributions to defined contribution plans 0.1 0.1
Total charge for defined benefit plans – –
Total personnel expenses 3.1 2.6
The average number of employees during the period was 17 (2022: 18).
Further details on directors’ remuneration are included in the Directors’ Remuneration Report on pages 72 to 77.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
151
Directory and shareholder 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
60 Petty France
London SW1H 9EU
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.ir.dialight.com, 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 by email at www.ir.dialight.com/news-and-media/emailalerts/. You can also
review this year’s Annual Report and Accounts. 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.
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 0371 384 2495 (international callers: +44 121 415 7047)
between 8.30am and 5.30pm Monday to Friday, excluding bank holidays.
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.
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
152
Directory and shareholder information continued
ADVISERS:
Financial advisers
Investec Bank plc
30 Gresham Street
London EC2V 7QP
Auditors
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
2024 FINANCIAL CALENDAR
Annual General Meeting: Monday 23 September 2024.
Any amendments to the financial calendar will be notified on the Company’s website (www.dialight.com).
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 2024 Strategic Report Governance Financial Statements Other information
153
Notes
Dialight plc Annual Report and Accounts 2024 Strategic Report Governance Financial Statements Other information
154
Designed and producedby:
Radley Yeldar | www.ry.com
Dialight plc
60 Petty France
London SW1H 9EU
+44 (0)20 3058 3541
info@dialight.com
www.dialight.com
Registered in England and Wales
Company number: 2486024