REG-Dialight PLC Half Yearly Report – Part 2
Date/Range: 27-JUL-2009
Short Abstract: REG-Dialight PLC Half Yearly Report – Part 2
Part 2 :
IAS27, ‘Consolidated and separate financial statements’, IAS 28 ‘Investments in
associates’ and IAS 31 ‘Interests in joint ventures’, effective prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after 1 July
2009. Management is assessing the impact of the above. The group does not have
any joint ventures.
The revised standard continues to apply the acquisition method to business
combinations with some significant changes. For example, all payments to
purchase a business are to be recorded at fair value at the acquisition date,
with contingent payments classified as debt subsequently re-measured through the
statement of comprehensive income. All acquisition related costs should be
expensed. The group will apply IFRS 3 (revised) to all business combinations
from 1 January 2010.
Estimates and Judgements
The preparation of a condensed set of financial statements requires management
to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
Except as described below, in preparing these condensed interim financial
statements, the significant judgements made by management in applying the
Group’s accounting policies and the key sources of estimation uncertainty were
the same as those applied to the Group financial statements as at 31 December
2008.
During the six months ended 30 June 2009 management reassessed its estimates and
assumptions in respect of post retirement benefit obligations. The obligations
under these plans are recognised in the balance sheet and represent the present
value of the obligation calculated by independent actuaries, with input from
management. These actuarial valuations include assumptions such as discount
rates and inflation rates, details of which are included in note 9 below.
2. Operating segments
The Group has 3 reportable segments, as described below, which are the Group’s
strategic business units. The strategic units offer different products. They
require different technology and marketing strategies. For each of the units the
CEO reviews internal monthly reports monthly. The following summary describes
the operations in each of the Group’s reportable segments.
The Group comprises the following business segments: –
* Signals/Illumination which addresses the increasing demands for Energy
Efficient Lighting solutions through the use of high brightness LEDs and
utilisation of a number of associated technologies. Areas of businessinclude
Traffic and Rail Signals, Obstruction Lights and Solid State Lighting products.
* Components comprising (1) the indication businesseswhose sales are primarily
to Electronics OEMs forstatus indicationand (2) electromagnetic components which
supplies smart meter disconnect switches which are used by utility companies to
manage remotely electrical supply to residential and business premises.
There is no inter-segment revenue.
Reportable segments
Six months ended 30 June 2009 Electromagnetic components Indication business Total Components Signals/ Illumination Total
£’000 £’000 £’000 £’000 £’000
Revenue 5,383 8,013 13,396 21,229 34,625
Contribution 1,338 3,940 5,278 7,539 12,817
Overhead costs (1,239) (2,956) (4,195) (7,188) (11,383)
Segment results 99 984 1,083 351 1,434
Unallocated expenses (820)
Operating profit 614
Net financing income (85)
Profit before tax 529
Income tax expense (207)
Profit after tax 322
Discontinued operations 1,939
Profit for period 2,261
Six months ended 30 June 2008 Electromagnetic components Indication business Total Components Signals/ Illumination
£’000 £’000 £’000 £’000 Total
£’000
Revenue 6,045 9,509 15,554 18,989 34,543
Contribution 1,494 5,015 6,509 5,976 12,485
Overhead costs (1,502) (2,603) (4,105) (5,737) (9,842)
Segment result (8) 2,412 2,404 239 2,643
Unallocated expenses (670)
Operating profit 1,973
Net financing income 168
Profit before tax 2,141
Income tax expense (835)
Profit after tax 1,306
Year ended 31 December 2008 Electromagnetic components Indication business Total Components Signals/ Illumination
£’000 £’000 £’000 £’000 Total
£’000
Revenue 15,073 19,389 34,462 43,393 77,855
Contribution 3,516 10,250 13,766 14,187 27,953
Overhead costs (2,990) (5,342) (8,332) (12,475) (20,807)
Segment results 526 4,908 5,434 1,712 7,146
Unallocated expenses (1,825)
Operating profit 5,321
Net financing income 316
Profit before tax 5,637
Income tax expense (2,168)
Profit after tax 3,469
Note:Contribution is revenue less direct material, direct labour, freight and
sales commissi
Six months ended 30 June 2009
Other Information Electro magnetic components Indication business Total Components Signals/ Illumination Total
£’000
£’000 £’000
£’000 £’000
Capital Additions
137 49 186 199 385
Depreciation and amortisation
223 225 448 888 1,336
Year ended 31 December 2008
Other Information Electro magnetic components Indication business Total Components Signals/ Illumination Total
£’000
£’000 £’000
£’000 £’000
Capital Additions
475 180 655 1,141 1,796
Depreciation and amortisation
411 582 993 1,661 2,654
Total Financial Position – Assets 30 June 2009
Electro magnetic components Indication business Total Components Signals/ Illumination
Total
£’000
£’000 £’000 £’000
£’000
Segment assets
5,652 7,101 12,753 27,412 40,165
Unallocated assets
9,522
Consolidated total assets
49,687
Total Financial Position – Liabilities 30 June 2009
Electro magnetic components Indication business Total Components Signals/ Illumination
Total
£’000
£’000 £’000
£’000 £’000
Segment liabilities
(2,979) (2,106) (5,085) (6,206) (11,291)
Unallocated liabilities
(4,461)
Consolidated total liabilities
(15,752)
Total Financial Position – Assets 31 December 2008
Electro magnetic components Indication business Total Components Signals/ Illumination
Total
£’000 £’000 £’000 £’000
£’000
Segment assets
8,099 9,854 17,953 31,756 49,709
Unallocated assets
7,563
Consolidated total assets
57,272
Total Financial Position – Liabilities 31 December 2008
Electro magnetic components Indication business Total Signals/ Illumination
Components Total
£’000 £’000 £’000
£’000 £’000
Segment liabilities
(2,009) (2,805) (4,814) (6,832) (11,646)
Unallocated liabilities
(8,122)
Consolidated total liabilities
(19,768)
Geographical segments
The Components and Signals/Illumination segments are managed on a worldwide
basis, but operate in three principal geographic areas, UK, Europe and North
America. The following table provides an analysis of the Group’s sales by
geographical market, irrespective of the origin of the goods. All revenue
relates to the sale of goods.
Sales revenue by geographical market
Six months ended 30 June 2009 Six months ended 30 June 2008 Year ended 31 December 2008
North America 24,494 21,335 50,848
UK 3,341 5,178 9,740
Rest of Europe 3,159 4,267 8,823
Rest of World 3,631 3,763 8,444
34,625 34,543 77,855
3. Adjustment to profit from businesses sold in prior years
The adjustment to profit from businesses sold in prior years comprises two
non-cash items being a release of a provision of £0.4m for a business sold in
2003 and a release of a tax provision of £1.5m in connection with the disposal
of businesses in 2005, which are no longer required.
4. Net financing income
6 months ended 6 months ended 12 months ended
30 June 2009 30 June 2008 31 December 2008
Recognised in profit and loss account £’000 £’000 £’000
Interest income on bank deposits 12 95 127
Expected return on assets in the defined benefit pension 868 1,009 2,049
schemes
Finance income 880 1,104 2,176
Interest expense on financial liabilities – (40) (47)
Interest charge on pension scheme liabilities (965) (896) (1,813)
Finance expense (965) (936) (1,860)
Net financing (expense)/income recognised in profit and (85) 168 316
loss account
5. Income tax expense
The tax charge of £207,000 for the half year to 30 June 2009 reflects the
anticipated effective tax rate of 39% for the year ending 31 December 2009. The
effective tax rate for 2009 is higher than the current UK tax rate of 28% due to
the level of group profits in the US which has an effective tax rate of 37% and
unrelieved European losses.
6. Dividends
During the period the following dividends were paid:
6 months ended 6 months ended 12 months ended
30 June 2009 30 June 2008 31 December 2008
£’000 £’000 £’000
Final – 3.9p (2008:3.8p) per ordinary share 1,218 1,187 1,187
Interim – 2.1p per ordinary share – – 656
1,218 1,187 1,843
The Directors have declared an interim dividend of 2.30p per share (2008:2.10p)
costing £719,000 (2008:£656,000). It is payable on 17 September 2009 to
shareholders whose names are on the Register of Members at close of business on
7 August 2009. The ordinary shares will become ex-dividend on 5 August 2009.
As the dividend was declared after the end of the period being reported and in
accordance with IAS 10 ‘Events After the Balance Sheet Date’, the interim
dividend has not been accrued for in these financial statements. It will be
shown as a deduction from equity in the financial statements for the year ending
31 December 2009.
7. Earnings per share
The calculation of basic earnings per share is based on the profit for the
period of £2,261,000 (2008:£1,306,000) and a weighted average number of ordinary
shares outstanding during the six months ended 30 June 2009 of 30,984,000 (2008:
31,050,000).
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2009 2008 2008
Number Number Number
Weighted average number of shares 30,984,000 31,050,000 31,017,000
Diluted effect of share options 702,000 695,000 752,000
Diluted weighted average number of shares 31,686,000 31,745,000 31,769,000
The weighted average number of shares used in the basic earnings per share
calculation excludes 256,000 shares held by the Dialight Employees’ Share
Ownership Plan Trust.
Underlying earnings per share are highlighted below as the Directors consider
that this measurement of earnings gives valuable information on the performance
of the Group.
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2009 2008 2008
Per Share Per Share Per Share
Basic earnings 7.3p 4.2p 11.2p
Profit from businesses sold in prior years (Note 3) (6.3p) – –
Underlying earnings 1.0p 4.2p 11.2p
Diluted earnings 7.1p 4.1p 10.9p
Profit from businesses sold in prior years (Note 3) (6.1p) – –
Underlying diluted earnings 1.0p 4.1p 10.9p
8. Cash and cash equivalents
As part of the Capital Reduction approval in 2005 the Court required certain
cash to be set aside into a separate bank account “Creditors Account” for the
protection of actual, prospective or contingent liabilities of the Company. As
at 30 June 2009 the balance of cash held in the Creditors Account is £19,000 (31
December 2008: £456,000).
9. Pension Scheme Obligations
The net liability for pension scheme liabilities has increased from £4.5m at 31
December 2008 to £5.4m at 30 June 2009. The increase of £0.9m comprises cash
contributions of £0.9m, a charge to the income statement of £0.1m, an exchange
gain of £0.5m, actual return on investments less than expected by £0.6m and an
actuarial loss of £1.6m. The net actuarial loss has arisen in part to changes in
the principal assumptions used in the valuation of the plan’s assets and
liabilities over those used at 31 December 2008. The assumptions subject to
change are the UK discount rate 6% (2008: 6.25%), US discount rate 5.7%
(2008:6%), the UK inflation rate 3.6% (2008:3.2%) and the rate of increase in UK
pensions in payment to 3.6% (2008:3.2%).
10. Principal Exchange Rates
Six months ended 30 June 2009 Six months ended 30 June 2008 Year ended 31 December 2008
Average for the period
Euro 1.12 1.29 1.26
USD 1.49 1.98 1.85
30 June 2009 30 June 2008 31 December 2008
Spot rate
Euro 1.17 1.26 1.05
USD 1.65 1.99 1.46
11. Related Party Transactions
There have been no changes in the nature of related party transactions to those
described in the 2008 Annual Report that could have a material effect on the
financial position or performance of the group in the period to 30 June 2009.
12. Principal Risks and Uncertainties
As required by DTR 4.2.7R of the Disclosure and Transparency Rules we have
described below the principal risks and uncertainties which may impact on the
performance of the Group during the next six months.
Macro-economic conditions
A continuing significant slowdown in economic conditions globally and in certain
territories such as North America could have a material effect on sales and
operating profit in particular for the LED Indication business. Management of
the LED Indication business monitor the general electronics demand index as well
as industry forecasts so as to remain aware of market trends. In addition the
monthly Point of Sales data which is provided by US customers is reviewed on a
monthly basis as this is also considered to provide valuable information on
market demand.
Increasing inflationary pressures on areas such as raw material and sub
contract costs may have a adverse impact on operating margins.
The current adverse economic conditions may cause both private and public
organisations to reduce their capital spending budgets which may impact on sales
of almost all of our products.
Currency exchange rate risk
The Group is exposed to translation exchange rate risk as a significant
proportion of the Group’s results and assets and liabilities are reported in US
Dollars and Euros and are therefore subject to translation to Sterling for
incorporation into the Group’s results. In addition, transactions are carried
out by Group companies in currencies other than Sterling leading to
transactional foreign exchange risk. Where possible the Group nets such
exposures and maintains a hedging programme utilising foreign exchange forward
contracts and currency overdrafts to cover specific contracts and such
proportion of other anticipated exposures as can be estimated with reasonably
certainty.
Disposal of businesses
During the last five years the Group has sold businesses in three separate
transactions to major US corporations. In each transaction the Company was
required to provide certain warranties and indemnities to the purchaser. The
terms and nature of the warranties and indemnities were not unusual for these
types of transactions. A number of the indemnities in relation to taxation are
still in place and will expire over time with the last expiring in December
2011. The Company has not received any claims and has not been notified of any
potential claims by any of the purchasers in relation to these warranties and
indemnities. Management considers that the risk of a material claim by the
purchasers to be remote and accordingly no provision is required to be made.
Competitive environment
We operate in competitive markets and there exists a threat that existing
competitors or potential new entrants will be successful in taking market share.
The threat may, for example, come from an extremely aggressive pricing policy
for larger traffic contract bids in US and Europe.
Our focus on identifying, developing and maintaining sales routes to market,
servicing strong customer relationships, competitive and leading edge product
portfolios and cost efficient manufacturing plants supports the Group as a major
player in our chosen markets and helps to reduce the risk of losing market share
to competition.
Group Strategy for Revenue Growth
The strategy of the Group is to grow sales by compound double-digit percentage.
The achievement of this goal is dependent in growing sales in the chosen markets
within the Signals/Illumination business such as industrial white lighting. The
adoption by the market of LEDs for new applications is principally dependent on
the acceptance of current value propositions offered by LED lighting.
Product Liability Risks
If a product of the Group does not confirm to agreed specifications or is
otherwise defective, the Group may be the subject to claims by its customers
arising from end-product defects or other such claims.
Financial Markets
Recent turmoil in global financial markets could pose risks to the financial
position of both our customers and suppliers and also to the ability of the
Group to renegotiate bank facilities.
Customers are subject to credit checks and there is very close monitoring and
review of debtor days, days outstanding and overdue amounts. Purchase limits are
set for all customers.
There are ongoing reviews of supplier bases to ensure wherever possible that
there is not over-reliance on one specific supplier.
The Group has built up long standing relationships with the Group’s principal
bankers. Currently the Group has no drawdown on the existing facility. Regular
contact will be kept with the banks to ensure that they understand the business
and its requirements.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
* the condensed set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted by the EU;
* the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the financial
year and their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the remaining six
months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
By order of the Board
Roy Burton, Group Chief Executive
Cathy Buckley Group Finance Director
27 July 2009
INDEPENDENT REVIEW REPORT TO Dialight Plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2009 which comprises the Condensed Consolidated Income Statement, Condensed
Consolidated Statement of Comprehensive Income, the Condensed Consolidated
Statement of Changes in Equity, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Statement of Cashflows and the
related explanatory notes. We have read the other information contained in the
half-yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the condensed
set of financial statements.This report is made solely to the company in
accordance with the terms of our engagement to assist the company in meeting the
requirements of the Disclosure and Transparency Rules (“the DTR”) of the UK’s
Financial Services Authority (“the UK FSA”). Our review has been undertaken so
that we might state to the company those matters we are required to state to it
in this 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 for
our review work, for this report, or for the conclusions we have reached.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the DTR of the UK FSA.As disclosed in note
1, the annual financial statements of the group are prepared in accordance with
IFRSs as adopted by the EU. The condensed set of financial statements included
in this half-yearly financial report has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2009 is not prepared, in all
material respects, in accordance with IAS 34 as adopted by the EU and the DTR of
the UK FSA.
G. Watts
For and on behalf of KPMG Audit Plc
Chartered AccountantsBirmingham
27 July 2009
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