This announcement contains inside information for the purposes of article 7 of EU Regulation 596/2014
("Dialight" or "the Group")
Update on contract manufacturing partner arrangements and impact on trading
Dialight plc (LSE: DIA.L), the global leader in sustainable LED lighting for industrial applications, announces it has given notice to terminate the agreement with its contract manufacturing partner and provides an update on current year outlook.
Termination of contract manufacturing agreement
We have made considerable progress since the half year results announcement in transitioning production of High Bay, our largest product line, back to our own facilities and we are on track to be completed by mid-October. We have seen a significant reduction in late orders on this line and service levels are nearing normal levels. We have successfully initiated assembly of our lighting products in Penang, Malaysia to better serve our APAC and EMEA business which has significant growth opportunity. We have taken active steps to materially de-risk our supply chain. We now have approximately 50% of all our lighting products produced within our own facilities.
Since the half-year results announcement on 30 July 2018, the performance of our contract manufacturing partner, which was disappointing but stable, has deteriorated. This worsening performance, coupled with the success achieved in our own facilities, has led us to serve them with notice of termination. The decision to accelerate the transition now puts the Group in a better position to meet customers' needs and improve its profitability.
We are now focusing on transitioning the remainder of final product assembly, and have demonstrated success in our next two largest products lines, Area Lights and Linear product. Supply of subassemblies from third-party suppliers has continued to ramp up since the half-year, and this will continue as the transition to the hybrid model matures and as we withdraw production volumes from our contract manufacturing partner. Our suppliers have adequate capacity to support our entire assembly requirements.
Current year outlook
We now expect our full year operating profit to be in the range of £8m to £10m. This reflects the potential short-term transition disruption to the business. Included in the full year operating profit is £6m-£7m (H1 2108: c. £4m) additional costs relating to dual running costs and higher freight charges as a result of our contract manufacturing partner's performance.
Our year-end net cash position is expected to be lower to reflect the transition of additional inventory built up in advance of exiting from our contract manufacturing partner. This will have a short-term impact on cash and will reverse as inventory is converted to finished goods then sold.
We will provide a further update in the first week of December.
The Group's full year results announcement for the year ending 31 December 2018 will be released on 25 February 2019.
Prospects for 2019
Despite the recent supply chain difficulties, we have continued to develop our strategy to address an expanded industrial LED market by developing our capacity to develop new products. In addition, we are significantly advanced in the development of three major new products which will be launched in the second half of 2019.
We highlighted in our interim results our intention to move to a regional hybrid structure to increase our speed to our end markets and the fact that the industrial LED market has strong regional differences. We have made significant progress with this initiative as evidenced in our Penang facility. Our global end markets continue to be robust and we are well positioned to capture the growth opportunity.
Marty Rapp, Group Chief Executive, said:
"We have demonstrated our ability to provide significantly improved service levels on the production already moved back to our facilities. Our focus now is to move the rest of the assembly to our facilities. We will continue to procure some subassemblies from third-party suppliers in a hybrid model.
"Our new manufacturing arrangements will put us in a much better position to meet our customers' needs. Our focus is on making the right decisions to restore the performance, sustainability and profitability of the Group."
Tel: +44 (0)203 058 3542
Marty Rapp - Group Chief Executive
Tel: +44 (0)203 058 3542
Fariyal Khanbabi - Group Finance Director
Tel: +44 (0)20 3128 8570
The person responsible for arranging the release of this announcement on behalf of Dialight is Fariyal Khanbabi.
Dialight (LSE: DIA.L) is a global leader in sustainable LED lighting for industrial applications. Dialight's LED products are providing the next generation of lighting solutions that deliver reduced energy consumption and create a safer working environment. Our products are specifically designed to provide superior operational performance, reliability and durability, reducing energy consumption and ongoing maintenance and achieving a rapid return on investment.
The company is headquartered in the UK with operations in the USA, UK, Denmark, Germany, Malaysia, Singapore, Australia, Mexico, Dubai and Brazil. www.dialight.com.
Cautionary Statement: This announcement contains certain statements, statistics and projections that are or may be forward-looking. The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Dialight Plc and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as 'intends', 'expects', 'anticipated', 'estimates' and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Dialight Plc believes that the expectations will prove to be correct. There are a number of factors, many of which are beyond the control of Dialight Plc, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. This announcement contains inside information on Dialight Plc.
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