DIALIGHT PLC
ANNUAL REPORT
AND ACCOUNTS 2021
1
INTRODUCTION
MAKING A
POSITIVE IMPACT
THAT LASTS
WHO WE ARE
At Dialight we are passionate about
playing our part in building a fairer and
more resilient world for generations to
come. We are committed to being a net
zero* company by 2040 and see the
transition as both an opportunity, and
an obligation to help drive meaningful
change in the industrial sector.
WHAT WE DO
We offer the largest selection of cutting-
edge LED lighting products to suit
virtually any industrial application.
Our controls seamlessly integrate with
existing factory and building automation
solutions, reducing energy costs
by up to 70%.
* We are targeting Net Zero across Scopes 1,2 and 3 by 2040,
see pages 33 to 35 for more details
THE BENEFITS
OF LED LIGHTING
Durability
Solid components that can endure
harsh and rugged environments
Environmental impact
Reduces the carbon footprint
for customers
Efficiency
Uses 30% to 70% less power
Reaction time
Turn on and off instantly
Low maintenance
Longer operating life than
traditional lighting
Temperature
Used in extreme temperatures
Our products
– Used in both hazardous
and non-hazardous locations
– Function at a range of temperatures
from -40c to +65c
– Withstand significant vibration
– Used as marker lights on
tall structures
We serve a wide range of markets
– Mining
– Heavy industry
– Pulp and paper
– Power generation
– Oil and gas
Introduced the
most efficient heavy
industrial product
Dialight plcAnnual Report and Accounts 2021 2
PERFORMANCE AT A GLANCE
Financial
Group revenue
2020: £119.0m
131.6M
Robust MRO demand in Lighting
Net debt*
2020: £11.4m
£15.7M
Working capital movement, including inventory
Group On time delivery
2020: 81%
Inventory
2020: £32.5m
71%
Adverse impact of global commodity shortages
£42.4M
Growth in raw material inventory to protect
supply chain
See our Website, for full performance data
Gross margin
2020: 29%
36%
Improved factory efficiency and benefit
from cost reduction programmes
Working hours lost
2020: 0.001%
0.00%
Safety continues to be a major focus
Underlying EBIT*
2020: £(6.4)m
£4.5M
Strong revenue and margin improvement
combined with cost control
Profit/(loss)
2020: £(7.8)m
£0.3M
Strong revenue and margin improvement
combined with cost control
Growth in order take
2020: (14)%
24%
Reclaiming market share and
recovery in end markets
Reduction in Scope 1 & 2 emissions per £m of revenue
2020: 2% increase
3%
This is an intensity measure for internal processes that are
captured by Scope 1 & 2; see page 22 for details
DURABILITY
Products that last up to 5x longer
than legacy lighting
EPD CERTIFIED
Key Lighting product families are now EPD
certified
FOCUSED
Pure play LED lighting company
with global footprint
* Alternative performance measures are defined in
note 28 of the consolidated financial statements
WORLDWIDE
Our industrial LED lighting base now
has more than 2.5 million fixtures
ISO 14001 CERTIFIED
Our main production facilities have Environmental
Management Systems, certified to ISO 14001
Dialight plcAnnual Report and Accounts 2021 3
INNOVATIVE BY DESIGN
We aim to produce the first fully
recyclable industrial lighting fixture
NET ZERO BY DESIGN
Our key Lighting products
have independently verified
Environmental Product Declarations
CONTENTS
STR ATEGIC REPORT
04 – Our business at a glance
05 – Chair’s statement
11 – Group Chief Executive’s review
14 – The market
15 – Our business model
16 – Strategy at a glance
17 – Key performance indicators
19 – Environmental, Social and Governance
40 – Risk management
42 – Principal and emerging risks and uncertainties
45 – Chief Financial Officer’s review
48 – Going concern and viability statement
GOVERNANCE
49 – Chair’s introduction to governance
50 – Compliance statements
53 – Board: Governance
61 – Nominations Committee report
62 – Audit Committee report
65 – Remuneration Committee report
75 – 2021 Remuneration
80 – Other statutory information
82 – Directors’ responsibility statement
83 – Independent auditor’s report to the members
of Dialight plc
FINANCIAL STATEMENTS
90 – Consolidated income statement
90 – Consolidated statement of comprehensive income
91 – Consolidated statement of changes in equity
92 – Consolidated statement of total financial position
93 – Consolidated statement of cash flows
95 – Notes to the consolidated financial statements
123 – Company balance sheet (prepared under FRS 102)
124 – Company statement of changes in equity
125 – Notes to the Company financial statements
131 – Five-year summary (unaudited)
SHAREHOLDER INFORMATION
132 – Directory and shareholder information
LEADING WITH PURPOSE
We help our customers reduce
their costs and carbon footprint
PRODUCT DESIGN
Our LED products have a lifespan
up to 5x longer than legacy lighting
technologies
GROWING A SUSTAINABLE BUSINESS
We are pioneers in lighting energy
efficiency through long-term
strategic investment in R&D
DIALIGHT FOUNDATION
Our mission is to transform the lives of
people in need in our local communities
Dialight plcAnnual Report and Accounts 2021 4
OUR BUSINESS
AT A GLANCE
Operational footprint
Engineering
– Primary facility in
New Jersey
Product management
– Regionally located
Operations
– Manufacturing in Mexico,
US and Malaysia
– Distribution centres in Mexico,
Holland, Malaysia and Australia
Sales
– Global and regional, depending
on customer. Major markets in
USA, Australia and EMEA
Europe
£10.2m revenue
Americas
£101.0m revenue
Australia
and Asia
£20.4m revenue
Our Purpose
Our Values
Our divisions
Dialight has been a pure LED company
for over 50 years with all our products
developed in-house. We are working
to accelerate the transition to greener
solutions through our cutting-edge
technology and support our industrial
customers to achieve their sustainability
targets.
Our Vision
We see a world where our
environmentally friendly LED technology
and market-leading innovations reduce
the carbon footprint of harsh and
hazardous industries whilst also
improving the safety and well-being
of people working in those sectors.
Cultural genes
These are the unique cultural and behavioural
principles we must protect and leverage to
optimise our organisational genes and deliver
our purpose.
Live the process
Be passionate about making the world safer,
cleaner and healthier. See real problems and
create innovative solutions.
Embrace the adventure
Continually grow and change, as individuals
and collectively. Challenge assumptions
and see opportunities. Seek insight from all
directions and leverage diverse points of view.
Be an entrepreneur
Be an owner, risk taker, visionary.
Transform bold ambitions into reality. Be agile
and responsive in the face of constant change.
Can do
A “can do” attitude to conflicting priorities.
Build for tomorrow and deliver today.
Have stability and constantly evolve.
Enjoy autonomy and eagerly collaborate to
accomplish our goals.
Integrity
Play to win, but not at the expense of
others. Operate with impeccable ethics,
transparency and integrity in all that we do.
LED Industrial Lighting
Signals and Components
Our range of LED Industrial Lighting is aimed at a
market that is still dominated by older, more inefficient
technologies. With low levels of conversion to LED,
the catalyst for mass conversion is significant energy
savings, lower maintenance costs and increased
regulation to phase out older technologies.
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.
Revenue
2020: £81.7m
£90.5m
Underlying EBIT
2020: £(3.1)m
£5.3m
Revenue
2020: £37.3m
£41.1m
Underlying EBIT
2020: £2.6m
£5.5m
ESG
Dialight is
committed to
being net zero
by 2040
Read more on pages 19 to 39
Environmental
LED lighting provides
significant energy
savings and
reduction in
carbon emissions
Social
We are committed
to an inclusive and
diverse culture within
a safe working
environment
Governance
Our structure
prioritises ethical
behaviour,
transparency and
accountability
Dialight plcAnnual Report and Accounts 2021
5
Dialight plc
Annual Report and Accounts 2021
CHAIR’S STATEMENT
IMPRESSIVE
RECOVERY
WITH AN
EXCITING
FUTURE
Learn more about Karen Oliver
The health and wellbeing of our people and their
families throughout the pandemic has and will
continue to be our priority. We have maintained our
impressive safety performance with no recordable
lost time days during 2021.
In September 2021, I succeeded David Blood to
become Chair of Dialight. I acknowledge with
gratitude David’s significant contribution to the
recovery and development of Dialight during his
time as Chair and thank him for agreeing to remain
on the Board.
I am delighted with how well Dialight has recovered
from the unprecedented challenges and global
disruptions caused by the COVID-19 pandemic and
delivered a strong return to profitability with a good
order book going into 2022. Our results
demonstrate Dialight’s very relevant and sustainable
offering of low-carbon and high-energy efficiency
products. Dialight is a technology company with 50
years of experience in the LED market. We have
been and continue to be a pioneer of innovation,
through continued development of technologies to
help our customers achieve their sustainability
targets.
At Dialight our core strength starts with our people
who are the key to our success and drive everything
we do. I am proud and inspired by what has been
achieved this year through the incredible
determination and courage our team has shown
globally. Dialight has emerged from its historic
operational issues and the current pandemic
challenges as a significantly stronger company and is
now well positioned to secure significant growth over
the coming years, with an exciting future ahead of us.
2021 performance
We continue to assess financial performance across
the Group using a framework of profitability, return
and cash flow measures. This framework underpins
our key performance indicators (pages 17 to 18)
and is central to our remuneration criteria.
The business has returned to profitability in 2021
despite the challenging market conditions and the
well-publicised global supply chain issues. We have
made significant progress in strengthening our sales
platform to deliver strong market share gains
globally and expanded our channels to market.
We have continued to build our operational strength
by focusing on operational excellence initiatives and
continue to streamline our systems and processes.
We are simplifying and building more flexibility into
our supply chain with a strong focus on common
sub-assemblies and local suppliers.
During 2021 we have continued to invest into
developing new and improved products, improving
factory efficiency, and expanding our sales
capabilities through the creation of a strategic
sales team. Combined with a strong balance sheet,
healthy order book and improving levels of customer
quotations, these investments will support Dialight’s
continuing profitable growth.
The 2021 results provide a clear demonstration
that the strategy is on track and delivering for
shareholders. Achieving strong order, revenue
and profit growth in the current business climate
is a credit to the whole Dialight team.
I would also like to take this opportunity to thank
Stephen Bird who retired from the Board in
September 2021 after nine years of strong
contributions.
The Board was delighted to welcome Clive Jennings
as Chief Financial Officer and Executive Director in
January 2022 following his period as our Interim
CFO since May 2021 during which he made a
significant contribution. Prior to joining Dialight,
Clive was CFO at Rank Group PLC for eight years,
Interim CFO at McBride PLC and also held several
PLC senior finance roles.
Dialight plcAnnual Report and Accounts 2021 6
CHAIR’S STATEMENT CONTINUED
Commitment to ESG and Net Zero
We believe in creating a safer, cleaner, healthier
future for everyone. Our products are well
positioned to play a positive role in society,
addressing issues which are fundamental to human
wellbeing, are long term in nature and of global
reach; and ensure safety in industrial environments
while addressing key environmental challenges.
We continue to deliver on our environmental and
social objectives and our commitment to being a net
zero business by 2040 and supporting our customers
to reduce their emissions through advancing the
increased use of industrial LED technology. In 2021
we obtained independent Environmental Product
Declarations for our major products, launched the
most efficient heavy industrial high bay in the market,
published our first ESG report and continued our
research and development in fully recyclable
products. We still have lots to do and 2022 will see
us publish our detailed plan, targets, and milestones
to achieve net zero.
The transition to net zero carbon is both an
opportunity and obligation for Dialight.
Our products help enable our customers to achieve
net zero. We have committed to being a net zero
business by 2040. We are working to drive our
Environmental, Social and Governance (ESG)
initiatives across all aspects of our business.
Outlook
Dialight enters 2022 in a good position with a
healthy order book and continuing strong customer
demand, particularly for new products launched in
the last 12 months. Whilst the near-term global
trading environment remains uncertain particularly in
the first half of 2022, the Group is well positioned to
continue to build on the revenue and profit
improvements seen in FY21.
Our strong operational performance in 2021 and
ongoing initiatives to strengthen our supply chain
and sales platforms and implement operational
efficiency improvements position Dialight for
accelerated revenue and profit growth in the
mid-term. We continue to make good progress in
implementing our refreshed organic growth strategy
and delivering our new products which will underpin
Dialight’s revenue growth over the coming years.
On behalf of the Board, I would like to thank Fariyal
Khanbabi and all our Dialight colleagues throughout
the world for their significant contributions and
commitment, and the way they continued to
respond to the challenges of the pandemic. Lastly, I
would like to thank our customers, suppliers and
shareholders for their confidence and trust in us as
we continue to implement our growth strategy and
secure an exciting future for Dialight.
Karen Oliver
Chair
27 March 2022
INVESTMENT CASE
WHY INVEST?
Dialight is a story of sustainability built on long-term strategic
investment in R&D. We are pioneers in energy efficiency and safety,
trusted globally in the most demanding environments.
1. POSITIONED
FOR GROWTH
2. DIFERENTIATED
3. INTELLIGENT
Our global footprint and diverse
customer base ideally position us
to capture the potential of an
industrial market which is still
largely unpenetrated by LED and
whereby the majority of lighting is
antiquated, and environmentally
damaging. LED lighting
represents the future.
Our best-in-class designs offer
superior performance backed
by a 10-year warranty, low
maintenance, high efficiency
and long life. That’s how we
provide our customers
with faster payback and
a better return on investment.
Controlled lighting solutions
that seamlessly integrate with
existing factory automation
and building management
systems to conveniently
optimise site safety
and productivity.
4. EXPERIENCED
Significant expertise exclusively
in LED and over 50 years of
experience as a lighting partner
to many of the world’s leading
organisations have helped us
achieve the largest installed base
with over 2 million industrial LED
fixtures around the world.
5. SUSTAINABLE
A strategic focus on
environmentally friendly
LED technology and a
commitment to helping all
organisations, including our
own, reach corporate
sustainability goals.
Find out more about our net zero
approach on our website.
6. SCALABLE
Increased manufacturing
capacity with our facilities
in the US, Mexico and
Malaysia providing scalable
production.
Dialight plcAnnual Report and Accounts 2021 7
CASE STUDIES: INNOVATION
INNOVATIVE
BY DESIGN
We continue to invest in innovation
and are pushing boundaries in
pursuit of a fully recyclable fixture –
revolutionising the way industrial
lighting is designed and doing so
with the planet in mind.
MARKET LEADING INNOVATION
In 2021 we leveraged our expertise to push
the boundaries of product performance
while also putting a priority on reducing
carbon and material waste.
ULTRA EFFICIENT
VIGILANT® HIGH BAY
New adjustable range
microwave occupancy sensor
offers superior sensing for
industrial facilities
Skilled manufacturing
REDESIGNED VIGILANT®
HIGH OUTPUT HIGH BAY
– 30% reduction in weight and
60% reduction in height
– At just under 48lbs (22 kilos)
fewer installers are required
– Up to 71,000 lumens of output for
mounting heights of up to 100 ft (30m)
To watch our launch video click here
30%
more efficient
At up to 200 LPW, it is the most
efficient heavy industrial high
bay on the market and nearly
30% more efficient than the
prior model
Offers faster payback:
up to 1 year sooner vs.
legacy model
Advanced optics
ALL NEW
PROSITE®
FLOODLIGHT
Chipscale LEDs and
unique moulded optics
offer powerful output in
a small package
Wiring accessibility
offers future
upgradeability
Modular design scales
to the needs of a facility
Dialight plcAnnual Report and Accounts 2021
8
CASE STUDIES: SCALE
GLOBAL
SCALE
Across the world, our products help
heavy industry to be safer, more
productive, and environmentally
friendly through improved illumination.
CASE STUDIES: HOW OUR PRODUCTS BENEFIT OUR CUSTOMERS
Rubus Terminal, Rotterdam,
The Netherlands
Downstream petroleum
and chemical facilities
When designing its state-of-the-art
Net Zero facility, Rubis’ goals included
reducing total energy consumption,
maximising lighting efficiency,
improving sustainability and safety,
reducing maintenance demand and
lowering total operating cost.
Saved €100,000
per year on
maintenance
Reduced energy
lighting
consumption by
60%
“We’ve been extremely pleased with the
Dialight products. They not only give us
the high efficiency and low emissions we
needed to meet our specifications, but
they also give our facility a modern, safe
and vibrant look, which our staff and
customers both appreciate.”
Arthur Wrana
E/I & A Supervisor
Industrial LED
lighting solutions
1,750
New fixtures across
three facilities ensure
outstanding visibility &
energy savings for years
to come
INCREASING LIGHT QUALITY
Miller Industries
US Global towing and recovery
equipment manufacturer
Facility managers at the plants were frustrated
with the constant maintenance and upkeep
required of the antiquated lighting on the shop
floor and began investigating options for an
upgrade to enhance safety and reduce
maintenance costs.
“We had to make sure our staff
could see the paint finishes
accurately. If you can’t see the
part adequately, you cannot
make a quality product."
Bill Couch
General Manager, Miller Industries
BUILT TO LAST
Nammuldi
Australian Mining
The Nammuldi mine lies within an arid region of
Western Australia where summer temperatures
exceed 32° Celsius and cyclones are common.
Lighting was needed for the iron ore conveyor
belts and much of the rest of the site.
Exposed to the elements year round and
with high vibration from fully loaded conveyor
belts, traditional fixtures were regularly shaken
apart and required frequent replacement.
Dialight replaced the traditional lights with
its Linear, Conveyor and Bulkhead lights.
This improved safety by reducing voltage spikes
and ensured that the site was fully lit at all times.
Maintenance costs were significantly reduced
as the number of fixtures required was reduced
and with the rugged fixture design, they are built
to work in these environments for 10 years.
Dialight plcAnnual Report and Accounts 2021
9
CASE STUDIES: ESG
NET ZERO
BY DESIGN
SUSTAINABLE BY DESIGN
We are rethinking every aspect of our
products from material science and supply
chain to product assembly to end of life.
Part of this analysis includes conducting
Environmental Product Declaration (EPD)
evaluations for each of our major product lines
to identify the carbon footprint of materials
used in our products. This information has
already informed our material choices for
our next generation of products.
Product benefits
Long life
Reduced waste
High efficiency performance
Increased recyclability
Non-toxic materials
Reduced carbon emissions
We continue to push
boundaries by re-evaluating
the materials, form factor
and technology used in
our products to minimise
carbon impact and maximise
efficiency and lifespan.
Net Zero
2040
We have the same goals as our
customers
HOW WE HELP OUR CUSTOMERS
GET TO NET ZERO
Lower impact materials
Reduced fixture size
Localise supply chain
Efficiency enhancements
To watch our Sustainability video click here
1
2
3
4
CARBON IMPACT OF LEGACY
LIGHTING USAGE VS. DIALIGHT LED
Legacy lighting
CO2
2.5m tonnes
Dialight LED lighting
CO2
0.9m tonnes
SUSTAINABLE BY DESIGN
Lighting by its nature, consumes energy
in order to perform its required task.
Therefore, when looking at Net Zero targets,
the usage of the lighting itself poses a
challenge in achieving Net Zero until the
decarbonisation of the electricity grid
progresses; see pages 33 to 35.
If the customers who bought Dialight LED
lighting in 2021 had retained their legacy
lights their carbon emissions would have
been 2.5m tonnes*.
As a comparison, highly efficient, long-lasting
Dialight LED lighting that they have purchased
uses 0.9m tonnes which is a saving of
1.6m tonnes over the 10 year life.
Despite these significant savings, we continue
to push boundaries to maximise energy
efficiency and usable lifespan.
Immediate
financial benefit
Lifetime
benefit of 1.8x
1.6m
tonnes saving
* Based on internal calculations of the impact of lighting products
sold in 2021 and the estimated impact of the fixtures they replaced.
Dialight plcAnnual Report and Accounts 2021
10
CASE STUDIES: SOCIAL
SOCIAL
BY DESIGN
Dialight is fortunate to not only have
a female CEO but also a female Chair
of the Board, both with extensive
knowledge of the industrial space
and a deep desire to make the sector
accessible for all.
CORPORATE
CITIZENSHIP
We recognise that as a business we have
social, cultural, and environmental
responsibilities in our local communities.
In addition to the efforts of the Dialight
Foundation, all Dialight employees
are encouraged to get involved in our local
communities through paid Volunteer Time Off
each year. Through this programme, our
teams have been able to share their time and
talents with numerous meaningful causes
worldwide.
“As a female executive in
the heavy industrial world,
I am committed to ensuring
that opportunities exist
for women to thrive in this
industry as it continues
to evolve.”
Fariyal Khanbabi
Group Chief Executive
DIALIGHT FOUNDATION
Dialight Foundation was formed in June 2020
in the midst of a global pandemic upon seeing
how deeply affected our local communities were
by COVID-19.
Its mission is to transform the lives of people
in need in the local communities near our
facilities, with a focus on supporting children
and women’s causes.
The Dialight Foundation has provided support
for charities in Tijuana and Ensenada, Mexico
as well as near our Roxboro facility in the US.
It has also partnered with the Women’s Earth
Alliance (WEA).
See more details of activities on page 27.
MANUFACTURING INSTITUTE
STEP AHEAD AWARDS
Dialight CEO, Fariyal Khanbabi was honoured
at the Manufacturing Institute’s STEP Ahead
Awards Gala on 4 November 2021 in
Washington, D.C. as one of the esteemed
Honorees across the manufacturing sector
for her leadership during the pandemic and her
efforts with Dialight Foundation. STEP Ahead
Award Honorees and Emerging Leaders have
accomplished success within their companies
and have proven to be leaders in the industry
as a whole.
WOMEN’S EARTH ALLIANCE (WEA)
The WEA is on a mission to protect our environment,
reverse climate change, and ensure a just, thriving
world by empowering women’s leadership.
The WEA model identifies grassroots women
leaders working on the frontlines to reverse climate
change and protect their communities’ natural
resources, livelihoods, and health. They invest in
their long-term leadership through training,
funding, and networks of support.
These women leaders spread their solutions to
many others for years beyond project investments
creating a ripple effect that benefits women’s
communities, regions, our Earth, and future
generations.
This long-term sustainable approach to tackling
environmental issues whilst benefitting the
community is a perfect fit with the ESG ethos
of Dialight, see page 27 for more detail.
https://womensearthalliance.org/
Help at Christmas
Dialight employees and residents celebrate Christmas
at the Casa Hogar El Reino orphanage
Featured Foundation projects
Casa Hogar El Reino
De Los Niños, Ensenada, MX
– Home to 36 children aged 3-23
– Provided new beds and sofas
for facility and a meal plus gifts
for the Christmas holiday
– Provided a new solar powered
water heater
Dialight plcAnnual Report and Accounts 2021
11
GROUP CHIEF EXECUTIVE’S REVIEW
Order Growth
2020: 14% decline
Underlying EBIT
2020: £(6.4)m
24%
£4.5m
WE HAVE AN
IMPORTANT
ROLE
TO PLAY IN
HELPING SOCIETY
Dialight made important financial and operational
progress in 2021, reflecting the benefits of our
growth model, strong culture and leading position
within the industrial markets. The Group returned
to profitability and has taken steps operationally
which should ensure the business can deliver
long-term profitable growth. The strength of our
product portfolio and the agility of our business
model enabled us to respond to changing
conditions in our end markets, disruption in the
supply chains and labour markets.
Overall orders grew by 24% which reflects some
recovery in our end markets and reclaiming of
market share. Orders have run ahead of revenue.
We continue to see a robust MRO market and are
starting to see larger projects come online, despite
a backdrop of escalating construction costs which
have a dampening impact. COVID-19 has also
brought severe supply chain disruption, driving
significant cost inflation. We navigated these
challenges well, adjusting inventory levels,
production and prices proactively. Cost pressures
are expected to continue in the near-term and we
are working hard to offset these pressures. Due to
operating leverage and our operational excellence
initiatives, we expect further operating margin
improvement going forward.
Our primary goal remains to accelerate revenue
growth across our global industrial markets.
We continue to focus on developing new routes to
market as well as leading the market in innovation.
Our next generation of technology is heavily
focused on the sustainability needs of our
customers. Our customers are increasingly seeking
more environmentally friendly products to help meet
their net zero commitments. As market leader we
are at the forefront of providing the solutions.
* Alternative performance measures are defined in note 28 of the
consolidated financial statements
Results
Overall Group revenues in 2021 were 17% higher
than the prior year at constant currency* (11%
higher at reported currency). Revenue growth
reflects some recovery in our end markets but
has been impacted by supply chain disruption.
We are pleased to report an underlying EBIT of
£4.5m for 2021 compared with a loss of £6.4m in
2020. This was driven by increased revenue and
gross margins improving to 36% compared with
2020 where gross margins were 29%.
The improvement in revenue and gross margin
resulted in a profit after tax of £0.3m, compared
with a £(7.8)m loss in the prior year, a £8.1m
turnaround.
Lighting gross margins rose to 37% in 2021,
showing strong year on year progress despite the
cost pressures in the global supply chain.
Lighting order growth was 23% at constant
currency. The majority of Lighting order growth
was generated in our core US market which had
an increase of 27% compared with the prior
period. This region has a very solid foundation,
with a well-established channel strategy and a
strong sales team. We believe the US-market
remains a significant growth opportunity
for Dialight.
Orders in our EMEA business were 2% ahead on
a constant currency basis compared with the prior
period. This region continued to be impacted by
the lockdowns and travel restrictions imposed by
COVID-19. Our APAC region was 17% ahead
on a constant currency basis, driven by a strong
performance in Australia from the buoyant
mining sector.
Included within the Lighting segment is
Obstruction which provides marker lights for
communication towers, mainly in North America.
This business grew revenue by 44% in 2021,
moved back into profit and saw customer orders
up 53% in a very concentrated end-user market.
Dialight plcAnnual Report and Accounts 2021 12
GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
Signals & Components is a high-volume business
operating within highly competitive markets.
The resurgence of this division that we saw in 2020
continued in 2021 with order growth of 27% at
constant currency. Within this division, opto-
electronic component sales were fuelled by
increased demand in the electronics market
related to home-working. In addition, demand
for Traffic Lighting continued to be strong.
Raw material shortages impacted conversion of
orders to revenue, but the division enters 2022
with a strong order book.
We entered 2022 with an order book higher than
usual due to the supply constraints, but we have
been able to achieve Group on-time delivery at
71%, above current industry standard. The supply
constraints are not expected to significantly
improve this year, but we are expecting an
improvement in on-time delivery based on targeted
production improvements.
To mitigate the impact of on-going challenges
of the availability of raw materials coupled with
extended lead times, we increased our inventory
of critical components by £9.6m at constant
currency during 2021. We have actions underway
to reduce underlying stock levels, however, we will
continue to maintain above average raw material
and finished good safety stocks until shipping and
lead times for raw materials return to more
normal levels.
We remain focused on further improving our
operation performance. We accelerated our
manufacturing transformation initiative, improved
efficiency and added capacity for the future.
We have continued to invest in our supply chain
development, implementing dual sourcing
strategies, localising some key components and
implementing more efficient working practices.
The Group operates with a high level of focus on
safety at all sites. The extensive range of measures
to support and ensure our teams’ safety continue
to be applied despite many regions lifting
COVID-19 restrictions.
Our commitment to product development remains
unchanged. We launched two new major products
in 2021. We added the 200 LPW High Bay to our
best-selling High Bay portfolio. This fixture is the
ultimate solution for sustainable lighting for industrial
environments, offering a faster return on investment
up to a full year sooner than previous Dialight High
Bay models. This best-in-class fixture will help
companies achieve carbon-neutral operation goals
faster while saving money on lighting related energy
costs. This product is available with an adjustable-
range microwave occupancy sensor option to
activate the lights only when necessary.
Microwave sensors are uniquely suited for industrial
applications, since they can detect movement over
and around obstructions such as boxes, shelving
and other barriers that commonly hamper other
sensors. Design improvements helped reduce
fixture weight of the wireless model by up to 57%.
We also launched our new ProSite Flood Light for
mounting heights of up to 100 feet. This product
provides superior visibility to worksites with crisp,
near daylight illumination. The ProSite Flood
features Dialight’s hallmark dependability and
efficiency in an innovative, compact new design
that provides a brighter, safer and more secure
work environment.
We made significant progress in strengthening
our sales platform and expanding multi-channel
access to markets. As part of this initiative, we
recognised our current product portfolio covers
approximately 80% of a typical customer lighting
schedule. The remaining 20% of the schedule is
for products that are not highly specified but are
required to fulfil the customer’s applications.
To address this 20% we are taking a “Source &
Sell” approach. We are exploring options to
purchase these products or partner with
companies that can provide them. This initiative
protects our market leading position within key
strategic accounts, and increases our relevancy
to the large accounts we are targeting.
Strategy
Dialight’s core strengths centre around our
products and a long history of innovation within
the industrial lighting markets. Our fixtures meet
the needs of our customers to enhance safety,
reduce energy and maintenance costs and
critically, help them achieve the objective of net
zero carbon. Our products also provide the
best cost of ownership to industrial customers,
with paybacks based on energy savings and
maintenance cost avoidance. Our in-house
custom designed power supply is the key to
our market leading 10- year warranty and field
reliability. Our optimised optics ensure
improved light illumination, providing uniformity
and quality whilst enabling our customers to
use fewer lights to illuminate the target area.
Their integrated design significantly reduces
the burden of installation and maintenance.
Our products have the ability to withstand
extreme environmental conditions such as
very high or low temperatures, humidity,
high vibration and corrosive environments.
The addition of sensors and controls brings an
additional element to the value proposition for
our customers.
Dialight was very proud to be awarded Impact
Partner of the Year recently at the Supply Force
awards, in the face of peer group competition.
Supply Force is a large US based buying group
created by members of Affiliated Distributors to
supply MRO products (see page 14) to major
electrical distributors from across the US.
Our overall strategy is focused on organic
growth supported by product innovation.
We have three key objectives:
Convert our core heavy and
harsh industrial markets – which
have low levels of LED conversion.
We believe that sustainability will be
a major driver in the conversion to
LED and this has accelerated post
COVID-19. Dialight has a leading
position within this space to
continue to grow through market
share gains in MRO together with
capex project recovery.
Expand our market reach – by
leveraging corporate sustainability
goals and our differentiated
products. We have made progress
in identifying and engaging key
accounts in addition to developing
new routes to market. This consists
of targeting the EPC/engineering
firms and electrical contractors.
We are continuing to work on
strengthening our branding and
focusing on vertical market
applications.
Product innovation – we continue
to lead the market in innovation.
Our next generation of technology
is heavily focused on building on
the sustainability needs of our
customers, with the goal to have
the first fully recyclable industrial
LED lighting fixture. Our source
and sell initiative will further protect
our market leading position.
Dialight plcAnnual Report and Accounts 2021 13
GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED
Purpose and sustainability
We are actively working to accelerate the industrial
evolution to greener solutions through our
cutting-edge technology. As a company we are
committed to being net zero by 2040. Creating a
safer, cleaner, healthier future for everyone is the
cornerstone of our approach to sustainability.
We are focused on ensuring we can continue to
serve our markets in a sustainable way over the
long-term. Our products are well positioned to
play a positive role in society, addressing issues
which are fundamental to human wellbeing, are
long-term in nature, and of global reach: ensuring
safety in industrial environments while addressing
key environmental challenges. We believe that
lighting has a critical role to play in helping
businesses’ journey to become net zero.
Our sustainability strategy has dovetailed into our
operational ethos and therefore has not caused a
fundamental change of direction. This, coupled with
a business purpose that has always been centred
on climate change, means that it is a natural
extension of our existing strategy. Over the past
year we engaged with SBTi, CDP and ISS ESG.
In November 2021, we launched our first ESG
Report which outlines some of the key areas
underscoring our approach to Environmental,
Social and Governance issues. This will be
prepared annually going forward.
We are rethinking every aspect of our products
from material science and supply chain to product
assembly to end of life. Part of this analysis
includes conducting Environmental Product
Declaration (EPD) evaluations for each of our
major product lines to identify the carbon footprint
of materials used in our products. This information
has already informed our material choices for our
next generation of products. To date we have had
nine EPDs issued covering seven product lines.
We are also concentrating on the end of life of
our products and how we recycle them. This is in
two parts: firstly, partnering with companies that
can recycle the product, and secondly using
recyclable materials. The level of recycling that
can be achieved varies across recycling
processes, but our UK partner can recycle up to
96% of the components of the fixture. There are
no similar schemes in the Americas or Australia
currently, but nonetheless, we have recycling
partners that can process the aluminium in these
locations. Given the long life of our products we
expect that this ability will be enhanced over the
coming years and programmes like Waste from
Electrical and Electronic Equipment (“WEEE”) will
be introduced globally by the time many of our
long life fixtures reach end of life.
We performed a full Green House Gas (GHG)
inventory for 2021 in addition to our baseline in
2020. Dialight processes are not very resource
hungry therefore Scope 1 and 2 usage is low
compared with Scope 3 customer usage,
upstream materials and logistics. We have a target
to reduce Scope 1 & 2 by 3% per annum (per £m
of revenue) in the short term but this will be
superseded by the Net Zero targets that will be
agreed with SBTi.
People are at the heart of our business.
We recognise that the skill and commitment of our
employees plays a large part in the success of our
company, and we recognise that each person has
their own individual contribution to make. It is
through our people that we will progress our
strategy and ensure that we realise the potential
for growth. Developing a high performing and
inclusive culture is a key enabler in our ability to
deliver strategic growth. Engaged, motivated,
empowered and appropriately skilled employees
are integral to our success. We support all our
people by creating a safe, inclusive environment,
where every individual can work and contribute
to the development of the business.
We are very proud of our Dialight Foundation,
which was started in June 2020, a non-profit
arm of our Company dedicated to helping the
communities we operate within, with a focus on
supporting children and women’s causes. It is
governed by the Dialight Foundation Board,
comprised of employees from around the globe.
This group was carefully selected to bring diverse
perspectives based on a variety of job functions,
cultural backgrounds and charitable expertise.
The overwhelming support from our employees
around the world has made a meaningful
difference in the lives of so many and we look
forward to continuing to build on this initiative.
In celebration of Dialight’s 50th year of LED-only
innovation, the Dialight Foundation provided a
$25,000 donation to the Women’s Earth Alliance as
the sole sponsor of its COVID-19 and Climate
Relief Programme in Tijuana, Mexico. This area has
been hit hard by COVID-19 as well as an influx of
vulnerable asylum seekers looking to cross the
border. We were able to provide food and
information to thousands of vulnerable asylum
seekers. Additionally, our donation provided
comprehensive support for 67 people so far
consisting of food, shelter, and legal services.
Full year guidance for 2022 and longer term
We have made a good start to the year, with order
intake ahead of the same period last year and a
strong order pipeline. Our expectation for 2022,
despite current headwinds including supply chain
constraints and inflation, is for further strong
progress driven by revenue growth and
improved margins.
Our products meet the needs of our customers to
enhance safety, reduce energy and maintenance
costs and critically will help them achieve net zero
carbon. The market opportunity is substantial
and Dialight is well positioned to deliver its
growth strategy.
Fariyal Khanbabi
Group Chief Executive
27 March 2022
Dialight plcAnnual Report and Accounts 2021 14
THE MARKET
Dialight serves the industrial LED
lighting market, dominated by
legacy technology, which requires
fixtures that are designed to
withstand harsh working
environments 24/7. As a result,
despite the obvious environmental
and financial benefits, the market
still has low conversion to LED.
MARKET SIZE
The global LED lighting market is estimated to be
worth £50bn on an annual basis. Dialight serves
the LED industrial portion of this market which is
sized at 7%, giving a target market of c. £3.5bn
annually with a 20-year retrofit cycle.
THE ADOPTION CURVE
Pre-COVID-19, the drivers for adoption were
mainly based on financial benefits with the
environmental upside not being a primary driver.
This resulted in a very flat adoption curve.
The steepness of the adoption curve is not yet
known. We have clearly seen an inflection point
resulting from COVID-19 but the larger subsequent
inflection will be driven by other items, such as
– companies taking action to meet Science Based
targets to achieve net zero using LED lighting as
a quick win
See DS Smith on pages 31 and 32
– legislation that bans older mercury based lighting
in the industrial sector
– increased awareness of the significant financial,
environmental and social benefits from LED
THE CUSTOMER PROPOSITION
The challenge facing many businesses today
is to demonstrate their commitment to ESG
and also show a science-based approach to
reducing their carbon footprint.
This should also make financial sense and act
as a business efficiency initiative rather than a
burden. It is possible to achieve benefits in all
three of the categories.
Environmental benefits
LED lighting products significantly reduce CO2
emissions, have much longer operating lives so
reduce landfill and our R&D is continually driving
enhancements with a goal of producing the first
net zero industrial lighting fixture.
Financial benefits
– The reduction in energy usage and Scope 2
emissions provides a direct and immediate
reduction in operating costs.
– The reduction in maintenance by having
more reliable, longer-life fixtures are:
a) reduced production disruption as lamp
replacement is infrequent resulting in fewer
production stoppages due to staff work
over production areas on cherry-pickers
b) reduced number of maintenance staff
needed to constantly change fixtures
c) staff spend more time on preventative
maintenance that would reduce repair bills
d) no need to stock large number of
replacement fixtures and ballasts
e) less frequent capital expenditure on
replacement fixtures as LED lights last up
to 5x longer than traditional lighting
f) reduce accident rates thereby lower
insurance premiums and reduction in
compensation claims
The potential opportunities and risks to the business from a
very steep adoption curve are discussed in the TCFD section
on pages 36 to 39.
– Overall better working conditions assist
productivity and reduce downtime
There remain factors impeding adoption such as
high initial investment and the fact that lighting is
often considered as a lower priority item for
many businesses. The investment requirement is
likely to be a greater hurdle to overcome in the
short term as a result of COVID-19.
I
R O NMENTAL
E N V
F
I
N
A
N
C
I
AL
L
A
SOCI
Social benefits
– By reducing the number of cherry-picker
rollouts for lamp replacement, the risk of injury
from working at heights is greatly reduced.
– Changing from old legacy technology that can
contain mercury to LED technology that does
not contain hazardous substances reduces
health risks from handling products and dealing
with faults.
– The superior quality of LED lighting increases
the visibility all the way to the shop floor and
makes the working environment much safer.
– The range of lights available helps to ensure
that the amount of light in specific work areas is
sufficient to meet requirements.
MARKET SEGMENTS
Within the industrial lighting market, we operate
across a broad range of verticals. Our core
product heritage was based on the harsh
industrial requirements of Oil & Gas, Mining
and Petrochemical which had the added
requirement for high safety standard compliance.
See product safety on page 30
The major vertical markets that we serve are
as follows:
Mining
Pulp and Paper
Heavy Industry
Petrochemical
Oil and Gas
Power Generation
In addition, we also have products aimed at less
hazardous segments such as Pulp and Paper and
Power Generation.
The markets we serve are diverse and they value
different aspects of our products.
There are two main ways in which customers
approach the conversion to LED
1) Conversion is funded from the maintenance
budget and therefore orders are low volume
over a longer period; these are known as
Maintenance, Repair and Operations (MRO)
orders. The customer lead time is short for these
orders and generally these are satisfied by made
to stock (MTS) inventory. We lost some of this
market share during 2017-2018 due to production
delays at our former manufacturing partner but
we have seen this recover during 2020 and 2021.
2) Conversion is funded by a capital expenditure
programme. These are higher value and less
frequent orders that generally will upgrade a
complete facility or building on a multi-site facility.
We saw significant reduction in these orders
during 2020 and early 2021 as customers
restricted their capital commitments in response
to uncertainty resulting from COVID-19. In the
latter part of 2021 we have seen recovery in
these orders.
Dialight plcAnnual Report and Accounts 2021
15
OUR BUSINESS MODEL
Our purpose
Our inputs
What we do
Our outputs
The value we share
To improve the world
we live in through
intelligent LED lighting
technologies. We
enable industrial
customers operating
in demanding
environments to
reduce their costs
and carbon footprint
while maximising the
safety and productivity
of their facilities.
Reduction in energy
costs for customers
up to 70%
Sustainability
Developing recyclable
products that reduce carbon
emissions and provide a
safer working environment.
Product innovation
Developing market leading
products at the forefront
of LED technology within
industrial markets.
Intellectual assets
Protecting our product
innovation with patents,
trademarks and intellectual
property licences.
Human capital
We hire innovative engineers
together with supporting
teams and senior
management that can
develop Dialight’s
sustainable, energy efficient
LED lighting solutions.
Relationships
Dialight has multiple routes
to market through
established global
distribution networks and
strong supplier relationships.
Financial
Strong balance sheet to
support innovation.
Product innovation
Using our industry leading
power supply technology, our
engineering teams develop
sustainable LED lighting,
sourcing innovative materials to
improve thermal management
and ensuring high efficiency
through optimum optical design.
Manufacturing and supply chain
Our facilities in Mexico, Malaysia
and the US carry out production
for the Group, operating lean
processes that are supported
by our robust supply chain and
relationships with key suppliers.
Revenue
Our revenue is mainly derived
from the sale of lighting fixtures.
We sell via distribution channels
and direct to the end customer
using our highly technical sales
force. Installation is carried out
by the customer.
Cash flow
Revenue is turned into cash
and used to fund operating
costs and working capital
requirements. Surplus cash
is re-invested in the business.
Multi-channel distribution
Leveraging strong relationships
with our distributor network and
our global distribution centres, we
provide market leading lead times.
Re-investment
Cash generated from
operations is re-invested in R&D
and operational improvements.
Shareholders
Our goal is to deliver long-term value
for our shareholders. We do this by
developing market-leading sustainable
products in a market with very low
penetration. We use our capital
allocation discipline to balance between
investment, balance sheet management
and shareholder returns.
Employees
We provide ongoing personal and
professional development at all levels
of the business, and competitive
rewards linked to performance.
We believe in a creative working
environment with scope for individual
responsibility and personal achievement.
Customers
We work closely with our customers
to understand and meet their objectives.
We meet our customers’ needs for
reducing their carbon footprint by
reducing their energy and
maintenance costs.
Communities
Our operations create jobs for local
communities around the world.
We support local supplier development
to deliver economic benefits for local
communities.
Government
We support local economies by creating
employment and paying local taxes.
We stimulate local economic prosperity
which contributes to the maintenance
of public infrastructure and services.
Dialight plcAnnual Report and Accounts 2021 16
STRATEGY AT A GLANCE
Dialight’s strategy is to grow the business in global
industrial markets. We believe that the combination
of our products, strong ESG credentials, people and
culture differentiates us from our peers, and we expect
to deliver sustainable value for our shareholders.
INVEST IN OUR
CORE MARKETS
EXPAND OUR
MARKET REACH
CONTINUED
INNOVATION
Increasing conversion to LED
in our core markets
Expanding our market reach by
developing new routes to market
Maintaining our market leading
position and filling portfolio gaps
Our overall strategy is focused on organic growth, supported by product innovation and an agile supply chain
Dialight plcAnnual Report and Accounts 2021 17
KEY PERFORMANCE INDICATORS
Financial
Revenue (£m)
151
131.6
119
Underlying EBIT (£m)
Cash generated by operations (£m)
Net debt (£m)
10.5
(16.5)
(11.4)
(15.7)
4.5
(5.0)
(6.4)
6.0
3.5
Link to strategy
Invest in our
core markets
Continued
innovation
Expand our
market reach
Non-Financial (Future KPI)
ESG
Environmental
Social
Governance
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
Description
Revenue from sales.
Description
The underlying EBIT related to the performance of
the underlying business.
Description
The ability to turn profits into cash.
Description
To manage the Group’s borrowings within the
available facilities.
Definition
Revenue from continuing operations and organic
growth.
Definition
Operating profit of the business excluding items that
are considered as not reflective of the underlying
performance of the business (see note 6).
Definition
Cash generated by operations is defined as the
operating cashflow after working capital
movements.
Definition
Long- and short-term borrowings less cash in bank.
Link to strategy
Revenue growth is essential to long-term success.
Link to strategy
The key measure of the success of our near-term
strategic goals is underlying EBIT.
Link to strategy
Cash generation is critical to support our growth
ambitions.
Link to strategy
Net debt is a critical measure to ensure the business
has sufficient liquidity to support growth ambitions.
Description and definition
Over the past 12 months the Group has
expanded its ESG profile and data collection to
encompass more granularity on environmental
impact as well as engaging with ESG rating
agencies in relation to establishing a baseline
of overall ESG performance (see page 19
for details).
Link to strategy
Ensuring that the ESG credentials of the business
are maintained and enhanced is fundamental to
achieving growth.
Remuneration linkage
Revenue growth is a key element in achieving
short-term and long-term incentive targets.
Due to revenue growth, a management bonus has
been earned.
Remuneration linkage
Underlying EBIT is one of the main measures used
in short-term and long-term incentive targets.
The target for 2021 was achieved due to increased
revenue and improved margins, and a management
bonus has been earned.
Remuneration linkage
Cash generation does not directly link
to remuneration but impacts net debt which is
directly linked. In 2021 it was a vital measure
of the ability to ensure liquidity in the business.
Remuneration linkage
Net debt is directly linked to remuneration to ensure
the business maintains adequate headroom against
its bank facilities.
Remuneration linkage
The Remuneration Committee intends to use this
detailed work to form the basis for robust and
challenging quantitative targets for the 2023
Executive Director and management bonus plans.
Target
Year on year revenue growth. We met this target with
revenue growth of 11% to £131.6m (17% at constant
currency) driven by strong customer demand across
both business segments.
Target
For 2021 the target was consensus underlying
EBIT at the start of the year, which was £4.0m.
Target
Year on year growth. This was not achieved due
to the ramp up of inventory as a result of supply
chain disruptions and an increase in trade
receivables resulting from the growth in revenue
that is traditionally weighted towards the end of
the quarter.
Target
For 2021 the target was consensus net debt at
the start of the year, which was £10.0m. This target
was not achieved due to management’s decision to
invest into inventory due to supply chain disruptions.
Target
These will be based on the short-term
science-based targets to meet Net Zero that will
be prepared during 2022. These targets will be
based on the reductions that are controllable by
management (see page 35).
Dialight plcAnnual Report and Accounts 2021
18
KEY PERFORMANCE INDICATORS CONTINUED
Link to strategy
Invest in our
core markets
Continued
innovation
Expand our
market reach
Non-financial
Operational
Health and safety (number)
Retention (%)
Lighting orders (£m)
Lighting on-time delivery (%)
Lighting gross profit (£m)
2
1
2019
2020
0
2021
93
83
76
112
100
87
80
80
67
31.3
33.7
23.7
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
Description
A measure of how many serious accidents have
occurred within the Group.
Description
A measure of how well the Group can retain its staff.
Description
Orders received for Lighting products.
Description
The percentage of orders delivered on time
(year-end numbers are shown).
Description
The gross profit related to the performance of the
underlying Lighting business.
Definition
A recordable incident is a work-related incident
that results in a member of staff being incapacitated
for more than three days.
Definition
The number of staff at the end of the year divided
by the total of the number of staff at the start of
the year and joiners. This calculation excludes
direct manufacturing staff.
Definition
Total orders received for Lighting products in
the year.
Definition
The value of orders shipped in the year meeting the
customer request date over the total value of the
orders shipped in the year.
Definition
Gross profit of the Lighting business excluding items
that are considered not reflective of the underlying
performance of the business (see note 6).
Link to strategy
Ensuring a safe working environment for employees
is fundamental to attracting and retaining
good-calibre staff which will enable us to
achieve our strategic goals.
Link to strategy
Retaining high-calibre staff is part of creating and
capturing value.
Link to strategy
Order growth is a lead indicator of the
financial strength of our end markets.
Link to strategy
On-time delivery is a lead indicator of
the operational issues being resolved.
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.
Remuneration linkage
Health and safety does not directly link to
remuneration but is an enabler to achieving
revenue and underlying EBIT targets.
Remuneration linkage
Business growth will come from the intellectual
property generated by our engineers and our
knowledgeable sales teams.
Remuneration linkage
Order growth drives revenue which in turn drives
EBIT and EPS, both forming part of the remuneration
targets.
Remuneration linkage
A low level of on-time delivery will impact revenue
and hence EBIT and EPS. Our on-time delivery was
impacted in 2021 due to severe supply chain
disruption brought about by global commodity
shortages.
Remuneration linkage
Lighting gross profit expansion is a key part in
achieving short-term and long-term incentive
targets. Lighting gross profit is a key contributor
to EBIT.
Target
Zero recordable incidents is the moral imperative.
We have met this target recording no serious
accidents demonstrating Dialight’s importance
of staff welfare.
Target
We have generally targeted 90% retention. We have
seen an improvement on prior year but lower than
target due to increased employee turnover post
pandemic.
Target
We target year on year order growth. We exceeded
target with order growth of 23% at constant
currency which reflects some recovery in our end
markets and reclaiming of market share.
Target
Our target was to maintain or exceed our prior year
on-time delivery. We did not meet this target due to
supply chain disruptions.
Target
We target year on year expansion of the Lighting
gross margin. This year’s gross margin has
exceeded target due to two factors: revenue was
higher than last year and margin improved despite
cost pressure in the global supply chain.
Dialight plcAnnual Report and Accounts 2021 19
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
LEADING
WITH PURPOSE
Fariyal Khanbabi
Group
Chief Executive
We believe that lighting
has a critical role to play in
helping businesses' journey
to become Net Zero."
INTRODUCTION
For 50 years Dialight has been solely focused
on environmentally friendly LED technology,
introducing market-leading innovations to ensure
the safety and well-being of people working in
harsh and hazardous industrial applications.
We are actively working to accelerate the industrial
evolution to greener solutions through our
cutting-edge technology and bringing the first
fully recyclable product to the market. We as a
company are committed to being Net Zero by 2040.
People are at the heart of our business. It is
through our remarkable people that we created
the Dialight Foundation in 2020, a non-profit arm
of our company dedicated to helping the
communities we operate within. The overwhelming
support from our employees around the world
has made a meaningful difference in the lives of
so many and we look forward to continuing
to build on this initiative.
Creating a safer, cleaner, healthier future for
everyone is the cornerstone of our approach to
ESG. We are focused on ensuring that we can
continue to serve our markets in a sustainable
way over the long term.
Our products are well positioned to play a
positive role in society, addressing issues which
- are fundamental to human wellbeing
- are long term in nature
- have a global reach
- ensure safety in industrial environments
while addressing key environmental challenges.
Our unwavering focus continues to be on the
increasing needs of our industrial customers for
solutions that reduce their carbon impact (see
case studies on pages 9, 31 and 32) whilst also
protecting human lives, (see Safety section on
page 25) and are produced using ethically
sourced materials (see page 28).
ESG Strategy
Other ESG Highlights
The ESG strategy has been dovetailed into
Dialight’s operational ethos and therefore has
not caused a fundamental change of direction.
This coupled with a business purpose that has
always been centred on climate change means
that it forms a natural extension of the existing
strategy.
For more detail on our approach to ESG, see
page 20.
ESG profile
Over the past year we have improved the ESG
profile of the Group by engaging more fully with
selected rating agencies.
Investor focused rating agencies
In July we completed the CDP Climate Change,
Water Security and Supplier Engagement
questionnaires.
We engaged with ISS ESG who issued a rating
in November 2021 showing a transparency level
of Very High.
Supply chain rating agency
We completed the EcoVadis questionnaire
in September which saw us improve to a
silver rating.
Our rating can be summarised as follows:
Climate change
Water security
Supplier Engagement
Corporate Rating
C
C
B-
C
Rating increased from a
Bronze in the prior year
In addition, during 2021 we have engaged with a
number of other organisations in the ESG arena:
We have committed to achieving
Net Zero with SBTi by 2050.
Our internal target is to achieve this
by 2040, see pages 33 to 35.
We have prepared Environmental
Product Declarations (EPDs) for
9 products, and these have
been verified by BRE Group,
see page 23.
We have joined the Clean Lighting
Coalition which is a global coalition
to eliminate toxic lighting through
the Minamata Convention on
Mercury, see page 24.
We continued our sponsorship of
the Women’s Earth Alliance who
are empowering women’s
leadership to solve climate-related
issues, see pages 10 and 27.
Our first ESG Report
In November 2021, we launched our first
ESG Report (click here) which outlines some
of the key areas underscoring our approach to
Environmental, Social and Governance issues.
This will be prepared annually going forward
and will contain updates on ESG part-way
through the year.
Dialight plcAnnual Report and Accounts 2021 20
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Our Purpose
To improve the world we live in through intelligent LED lighting
technologies. We enable industrial customers operating in
demanding environments to reduce their costs and carbon footprint
while maximising the safety and productivity of their facilities.
Our Approach to ESG
Our key areas:
ENVIRONMENTAL
We push the boundaries of technology to produce
LED lights that reduce carbon footprints and
promote their use as a cleaner and more
sustainable technology
Our products help our customers achieve their
environmental target
Sustainability
strategy
– Innovate and educate to reduce carbon footprint
– Deliver customer sustainability targets
– Responsible production
Link to business
strategy
Product innovation is key to growth by stimulating
new demand and accelerating the rate of adoption
of LED.
SOCIAL
Safe working environment
Support local communities
We continue to localise supply chains in order to
reduce the Greenhouse Gas (“GHG”) impact of
sourcing and support
local suppliers
– Promote a culture of bio and physical
security
– Dialight Foundation supports local
communities
A sustainable supply chain ensures that our
factories can satisfy current and future demand.
200 LPW
Lumens Per Watt (LPW) is an efficiency measure
in 2021, Dialight released the most efficient High Bay light in the
industrial market
Zero
Reportable accidents
Safety is a key focus area in our facilities
Contributing
to SDGs:
GOVERNANCE
We operate our production facilities using
recognised Environmental Management Systems
We promote ethical business practices through our
codes of conduct on bribery, corruption, material
sources and human rights
– Ethical sourcing
– Business integrity
Operating with ethics and integrity ensures that
we do not suffer adverse business reputational
damage which would restrict our ability to grow.
ESG Committee
Enhanced governance through ESG Committee formed in 2021
Read more on pages 21 to 24
Read more on pages 24 to 27
Read more on pages 28 to 30
Dialight plcAnnual Report and Accounts 2021
21
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
ENVIRONMENTAL
End Of Life (EOL) considerations
The industrial LED lighting market is in its infancy
with conversion rates from legacy lighting of less
than 10%. This adoption has mainly happened over
the past decade and with most fixtures expected
to last in excess of 10 years and Dialight offering
a 10-year warranty on most fixtures, EOL
considerations have not been a major focus
before now.
There are four main aspects to EOL
1) design a fixture that will last significantly
longer than conventional lighting
2) extend the working life by designing field
replaceable parts
3) retrofittable upgrades
4) Use materials that are easier to recycle
at the end of life
Design Life
The market in industrial LED lighting is about
12 years old and Dialight have been pushing the
R&D envelope since inception. In 2009, the
signature High Bay product had an efficiency of 53
lumens of light output per watt of electricity (LPW).
Fast forward to 2021 where Dialight introduced
the industry-leading 200 LPW High Bay, a 4-fold
improvement over a 12-year period.
This is a developing market, which is constantly
evolving, and major product lines are upgraded/
replaced every 3 years. There are no defined
efficiency targets but rather R&D is focused
on every new product being as efficient as the
technology at that time will permit.
There are two aspects to R&D
– Technology driven – this is where the new
generation of power supplies and materials
are conceived
– Fixture driven – this is where the products
identified for upgrade are re-designed and
incorporate the latest technology
Key consideration of design
– Efficiency
– Durability
– Reliability
– Longevity
– No hazardous materials
– No banned materials
– Safe manufacture
– Safe operation
– Minimise carbon footprint
WE AIM TO PRODUCE THE FIRST NET
ZERO (NOT CARBON NEUTRAL) FIXTURE
FOR THE INDUSTRIAL WORLD. THE TIME
FRAME IS NOT YET CLEAR BUT THIS IS
OUR GOAL.
SENSORS
The external slot on the new 200
LPW High Bay houses a
proximity sensor which
enhances the efficiency of the
fixture. Other products can
have sensors fitted in the field
and have field replaceable
parts.
Fixtures are designed for rugged industrial
environments which can also include hazardous
locations, areas of high vibration and areas with
extreme heat or extreme cold. They are designed
by an in-house R&D team
Most Dialight fixtures are warranted to last for
10 years and in reality, may last much longer even
though used in harsh environments, due to their
design. Those with an L70 rating mean that the
LED’s themselves must maintain at least 70%
of their original brightness over their life which
is expected to be between 100,000 and
150,000 hours i.e., equivalent of running for 12
to 17 years continuously.
Replaceable parts
If a failure occurs in the field, it is likely to relate to
the power supply as that is the most complex
aspect of the fixture. Newer fixtures such as the
Reliant High Bay have field replaceable power
supplies that will prolong the fixture life beyond the
original 10 year life.
Retrofittable Upgrades
The ability to upgrade in the field is being
incorporated into newer fixtures with a dedicated
external slot for plug and play sensors to be
added. This allows new safety features/efficiency
features to be subsequently added.
Recycling at EOL
The ability to recycle is dependent on several
factors
a) The type of materials used in the fixture
b) The geographic location of the end user
c) Types of electrical recycling schemes in
operation
Currently we see a range of recycling options,
as follows:
In Europe, all lighting sales are covered by the
Waste Electrical and Electronic Equipment (WEEE)
legislation and by paying a levy at the point of sale,
this allows any of our fixtures to be disposed of
through a WEEE partner. The level of recycling that
can be achieved varies but our UK partner can
recycle up to 96% of components of the fixture.
Dialight plcAnnual Report and Accounts 2021 22
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
There are no similar schemes in the Americas or
Australia currently, but nonetheless, we have
recycling partners that can process the Aluminium
in these locations. Given the long life of our
products we expect that this ability will be
enhanced over the coming years and programs
similar to WEEE will be introduced globally by the
time many of our longlife fixtures reach end of life.
The level of recycled fixtures is very low at the
moment due to the extended product life cycle, it
is mainly product failures/older model fixtures that
are recycled from the field. Field failures returned
to the factories are passed to local certified
recycling facilities and other failures can be
disposed via WEEE partners in Europe or other
recycling partners such as Veolia in North America.
Waste Management
Three of the four operational sites use
Environmental Management Systems certified to
ISO 14001. All sites have well established recycling
programs that ensure that as much waste as
possible does not go to landfill. The in-house
processes are light industrial and do not generate
significant waste. The major waste items relate to
inbound packaging for materials and some metal
off-cuts from machining. The recycling for 2021
was as follows:
Product Type
Cardboard
Plastic
Metals
Wood
Other
Total
2021
2020
Tonnes
Tonnes
273
70
137
7
4
491
256
149
121
12
2
540
Environmental Reporting
We have performed a full Green House Gas (GHG)
inventory for 2021 in additional to our baseline in
2020. The 2020 baseline was externally verified
under ISO 14064 and the 2021 GHG inventory will
be verified in the coming months.
Scope 1 and 2 data was mainly extracted from
utility bills. Scope 3 emissions are calculated using
upstream materials impacts taken from the EPD
analysis and logistics impacts based on 3rd party
carrier data. Where no 3rd party data is available,
internal calculations are used. The calculation of
Scope 3 customer usage impact is very subjective
(see page 33 for estimated impact) and this has
not been verified. Dialight processes are not very
resource hungry therefore Scope 1 and 2 usage is
comparatively low with a combined 44 tonnes of
CO2 used for every £m of revenue generated.
We have a target to reduce Scope 1 & 2 by 3% per
annum (per £m of revenue) in the short-term but
this will be superseded by the Net Zero targets
that will be agreed with SBTi. For more details see
the Road to Net Zero section on pages 33 to 35.
Emissions calculated using GHG Protocol were:
USAGE DISCLOSURES
Scope 1
Scope 2
Scope 3
Emissions from combustion of fuel
Emissions from purchased electricity
CO2
Tonnes
Tonnes
2021
1,190
4,832
1,168
4,464
Emissions from all other activities (except customer usage)
Tonnes
103,907
123,218
(22)
(368)
19,311
Absolute increase but intensity reduction
Absolute increase but intensity reduction
Change of materials mix reduced impact
2020**
2021 Vs 2020 Commentary
Total (excluding customer usage – see page33 and 34)
Tonnes
109,929
128,850
18,921
**Scope 1 & 2 numbers per 2020 Annual Report were revised slightly during verification process later in 2021
Electricity**
Water
Consumption 2021
2020**
2021 Vs 2020 Commentary
Kwh
Litre
m’s
11.0
14.6
m’s
10.2
14.6
m’s
(0.8)
0
Absolute increase but intensity reduction
Intensity reduction
**Electricity usage was revised slightly during verification process later in 2021
INTENSITY RATIOS
Revenue
£m’s
131.6
119.0
11%
Consumption per £m of turnover
2021
Scope 1
Scope 2
Tonnes/£m revenue
9.0
Tonnes/£m revenue
36.7
2020
9.8
37.5
Scope 3 (excluding customer usage)
Tonnes/£m revenue
789.6
1,035.4
Electricity**
Water
MWh/£m revenue
83.3
Kilo litre/£m revenue 110.8
85.7
122.7
Variance
8%
2%
24%
3%
10%
Dialight plcAnnual Report and Accounts 2021
23
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Water Stewardship
As a responsible business, we need to ensure
that our water usage is minimised as much as
possible so that there is an equitable distribution
of freshwater. Access to clean water and sanitation
is a basic human right and aligns with the United
Nations Sustainable Development Goal (UN SDG)
6 “Clean water and sanitation”.
Water usage in the production processes is
not extensive and accounts for c. 30% of water
usage. Where there is any contamination from
these processes, water is treated before release
to public sewers. The majority of water usage
relates to WASH (Water, Sanitation & Hygiene)
services for staff and is therefore discharged
to public sewers.
Nonetheless, our facilities in Mexico which
account for 57% of water usage are in high water
stress areas and we are therefore looks at ways to
reduce usage. We have set a target of reducing
water consumption by 5% per annum per £m of
revenue. This target was exceeded in 2021 with a
reduction of 10%.
Reduction in water usage
per £m of revenue
10%
Sustainable product design
Our highly efficient products have a lifespan
double that of many other LED competitor
products and up to 5x longer than legacy
lighting technologies, reducing landfill waste
through longer product replacement cycles.
Additionally, our products do not contain any
mercury or other toxic materials requiring
hazardous disposal. As we continue to evolve,
our focus is on designing for sustainability.
LONG
LIFE
HIGH EFFICIENCY
PERFORMANCE
REDUCED
WASTE
INCREASED
RECYCLABILITY
NON-TOXIC
MATERIALS
REDUCED CARBON
EMISSIONS
WE AIM TO
PRODUCE THE FIRST
FULLY RECYCLABLE
FIXTURE
We are rethinking every aspect of our products
from material science and supply chain through to
product assembly and end of life. Part of this
analysis includes conducting Environmental
Product Declaration (EPD) evaluations for each of
our major product lines to identify the carbon
footprint of materials used in our products.
This information has already informed our material
choices for our next generation of products.
To date we have had 9 EPD’s issued covering
7 product lines. These are published on the
internet at https://www.greenbooklive.com/
search/scheme.jsp?id=372
We are using the data from this to understand the
impact of three major factors
– Material choice – aluminium has a higher carbon
impact than Glass Reinforced Plastic (GRP) but
we need to do more work to understand the EOL
implications
– Material source – the aluminium impact can be
greatly reduced depending on whether renewable
energy is used in the smelting process
– Weight of the fixture – regardless of the material
choice and source, using less of it reduces the
carbon footprint
The volume of materials used across all products in
2021 was as follows:
Tonnes of materials used – 2021
We are currently one of the
only industrial LED lighting
companies certifying our
products using EN 15804
with independently verified
Environmental Product
Declarations (EPDs).
Aluminium – 1,711
Electronics – 622
Packaging – 655
Wiring – 138
Molded parts – 693
Dialight plcAnnual Report and Accounts 2021 24
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Hazardous materials
One major advantage of LED lighting over legacy
solution is they do not contain hazardous
substances. Most fluorescent tubes and High
Intensity Discharge (HID) lighting contains mercury
which is dangerous at the manufacturing stage,
dangerous during use due to escape from a failed
unit and dangerous during de-commissioning.
The LED lighting manufacturing process is mainly
light engineering and assembly and therefore there
is no need for heavy chemical use. Some of our
processes generate waste that is classified as
hazardous such as soldering residue and industrial
alcohol used to clean finished products. The level of
waste generated is low and for 2020 and 2019
averaged 9 tonnes. We have used the Resource
Conservation and Recovery Act (RCRA)
compliance monitoring guidelines of the
Environmental Protection Agency (EPA) in the
USA to classify this waste.
This waste is handled using protocols for
hazardous waste, including use of protective
clothing and is stored in secure areas before
collection by registered waste contractors in
the relevant country.
We comply with REACH standards and California proposition 65 in relation to chemicals, RoHS and
conflict mineral standards in relation to restrictions on the use of certain materials.
SOCIAL
There are three main groups
of people that we consider
in our operations
11. Our
people
22. The
communities
in which we
operate
33. People in the
supply chain
We are proud to be part of the Clean Lighting
Coalition. For over 50 years we have been
focused exclusively on developing LED lighting
technology for industrial applications. In addition
to being the most efficient white light available,
LEDs also do not contain any harmful mercury
which can be highly toxic in the event of bulb
and ballast breakage. The Clean Lighting
Coalition (CLC) aims to leverage expert
knowledge and clean lighting stakeholders to
transition global markets to safe, cost-effective,
and energy-saving LED lighting by removing the
exemption for fluorescents in the Minamata
Convention on Mercury.
1. OUR PEOPLE
People are at the heart of our business.
We recognize that the skill and commitment of
our employees plays a large part in the success
of our Company and we recognize that each
person has their own individual contribution to
make. It is through our people that we will
progress our strategy and ensure that we realise
the potential for growth. Developing a high
performing and inclusive culture is a key enabler
in our ability to deliver strategic growth.
Engaged, motivated, empowered and
appropriately skilled employees are integral to
our success. 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.
Global footprint, local focus
Dialight supports a global customer
base with offices around the world.
We have had a long-term presence
in many of our operating locations
which creates socio-economic
value and we are proud to be a
longstanding employer in the
communities in which we operate.
As an example, our primary
manufacturing location for the
Americas has been in Ensenada,
Mexico since 2001. Likewise, our
Roxboro, NC facility is one of the
largest employers in the area and
has been in existence since 1985.
Dialight plcAnnual Report and Accounts 2021 SAFE WORKING ENVIRONMENT
Accident rate trends
Accident rates per SASB TC-ES-320a.1
UOM
2021
2020
2019
Total Recordable Incident Rate (TRIR) – Direct Employees (per 200,000 hours worked)
Near Miss Frequency Rate (NMFR) – Direct Employees (per 200,000 hours worked)
Rate
Rate
0
17.3
0.1
17.5
0.1
25.7
25
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
The COVID-19 crisis has meant that it is more
important than ever to keep our people, their
families and the wider community safe and the
business running in support of our customers
and other external stakeholders. Our approach
to developing a high performing and inclusive
culture is focused on four key areas, all within
an overall environment focused on safety:
Safe working environment
– Understanding our people
– Engaging with our people
– Developing our people
– Diversity and inclusion
Our goal is zero harm.
Not as a statistical target,
but as a moral imperative
which will be achieved
by establishing a strong,
proactive safety culture
As the world leader in heavy industrial and
hazardous LED lighting, safety is always on our
minds. Not only for the customers that we serve,
but also for our own employees. We have a strong
track record of safety at all of our global sites.
Our main sites are certified under ISO 45001 for
H&S Management. Safety is a high priority and
near misses are reviewed weekly to prevent injury
to our workforce.
All new factory staff are trained in Health &
Safety using local language presentations to
ensure that they understand the briefing.
Examples from these are:
Safety footwear is
compulsory at all
operational sites
We continue to prioritise all
forms of Health & Safety at
operational sites. We are
pleased to say that there
have been Zero recordable
incidents during 2021.
We have also seen the level
of near-misses reduce
as well.
DIA L I
G H T SAFETY
0Year-to-date
lost time work
accidents in 2021
Understanding our people
Our business is diverse across both skillsets
and geographies. Our products are designed by
engineers in our R&D function in New Jersey, they
are manufactured in the three main production
centres, North Carolina US, Tijuana and Ensenada
Mexico and Penang Malaysia by technicians and
operators. The safe operation is overseen by
functional experts in areas such as health and
safety, people and technology. Products are sold
using our highly skilled in-house sales staff in
conjunction with distributors and other partners.
Our success depends on our people and
understanding our global population is core
to that.
Average No Employees
Eye protection is
mandatory on the
production floor in
addition to face masks/
distancing for Covid
protection
Hi-vis clothing is
obligatory in warehouses
and any locations where
moving vehicles are
present
MEXIC O
AME RIC AS
EUROPE
APAC
MAL AYSIA
1,241
218
28
33
159
Dialight plcAnnual Report and Accounts 2021
26
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Engaging with our people
Communication both within and across the Group
is key to engagement. The pandemic again
provided some challenges to communication during
2021 with scheduled meetings and visits having to
be postponed, fewer face to face meetings and
reduced opportunities to converse in person.
Each region uses a range of formal and informal
channels including all-hands meetings, smaller
team briefings, employee forums, direct email
addresses and the CEO’s global monthly video
calls, with an active Q&A encouraging anyone
from across the business to ask questions.
In addition, the factory sites also use notice
boards and TV screens in communal areas that
play corporate updates in local languages.
During the year, Gaëlle Hotellier who has been a
Non-Executive Director since 2016, took over the
role of Workforce Engagement NED, however, she
had limited opportunities to meet with groups of
colleagues from different business areas and at
different levels in the organisation due to
scheduled operational visits being cancelled due
to COVID-19 restrictions.
Development and creating networks are key
themes at all levels in the organisation. Constant,
regular updates and virtual meetings of the global
leadership teams have ensured that this key Group
remains well connected and up to date on the
challenges around the business and have provided
the opportunity for discussion and debate.
COVID-19 put extraordinary pressure on our
teams and ensuring we were able to monitor how
they were coping and provide support as it was
required was very important.
Development & Training
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.
A development program on ESG is being rolled out
across the business starting at a VP and Strategic
Accounts level as this links to the overall business
strategy. It will be cascaded to lower levels during
2022.
Training is encouraged at all levels of the
organisation and includes
- all new starters receive Health & Safety training
- first aid training
- technical training in chosen discipline
- diversity and inclusion training
Diversity
Making sure that we have an appropriately diverse
pool of talent within the organisation is a
fundamental metric. Ensuring that our employee
gender diversity is reflected in our Board make up
has been a key focus over the past two years and
we are delighted that this has now been achieved.
The Board currently complies with the requirements
of the Hampton Alexander report and the Parker
Review, see page 53 for diversity graphs.
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
contributes to a broader and better basis for
decision making.
Dialight strives for diversity on a broad basis
including gender, age, background, education,
disability and nationality (within the constraints of
our regulatory requirements). As a business, we
are committed to meeting, at a minimum, the
labour rights and legislation requirements in each
country in which we operate. In practice, we often
exceed these requirements.
We have a number of formal and informal groups
around the business which support and connect
people with shared characteristics or interests.
The Group makes no distinction between disabled
and able-bodied persons in recruitment,
employment and training, career development and
promotion, provided that any disability does not
make the particular employment impractical or
impossible under the stringent regulatory
requirements under which Dialight operates.
Future focus is on ensuring all our recruitment
procedures incorporate our commitment to
diversity. We ensure that any external bodies we
work with for the provision of support have diverse
candidate pools and attraction approaches that
are open to all suitably qualified individuals.
At operational sites, the labour pools vary
depending on the characteristics of the region.
Blazing the trail for gender equality
in the industrial sector
The Lighting industry has traditionally been
heavily male dominated, but we are attempting
to break the mould and Dialight is fortunate to
not only have a female CEO but also a female
chair of the board, both with extensive
knowledge of the industrial space and a deep
desire to make the sector accessible for all.
“ As chair of Dialight’s board,
we pride ourselves on
setting the example with
gender parity starting with
the board level and instilling
the values of diversity and
representation throughout
the group.”
Karen Oliver
Board Chair
Our operations in Mexico are staffed 100% by local
staff. Our operations in Malaysia predominantly
comprise local labour but we 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 home-based thereby
allowing access to a much broader labour pool.
The Lighting industry has traditionally been heavily
male dominated but we are attempting to break the
mould by having the top two roles in the business
held by females.
“ As a female executive in the
heavy industrial world, I am
committed to ensuring that
opportunities exist for
women to thrive in this
industry as it continues
to evolve.”
Fariyal Khanbabi
Group Chief Executive
In addition, the CEO has received various
awards over the past 18 months that recognise
the changing face of the industry:
Manufacturing Institute STEP Ahead Awards
The CEO received an award from the
Manufacturing Institute in the US for her
leadership during the pandemic and her efforts
with the Dialight Foundation, see page 10.
Dialight plcAnnual Report and Accounts 2021 27
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
SUPPLY CHAIN
Supply Chain & 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. Our Code of Conduct, which
sits alongside our Operational Framework,
embraces our fundamental values of Safety,
Excellence and Innovation. It provides direction
to all employees on legal, ethical and risk issues
that they may encounter in their day-to-day
activities. All employees and all third parties who
act on the Group’s behalf are required to comply
with our standards of behaviour and business
conduct, as set out within the Code, and
applicable laws and regulations in all of the
countries in which we operate.
We expect our employees and suppliers:
– To behave professionally, honestly and with
integrity at all times
– To avoid situations that involve a conflict
between personal interests and those of Dialight
– To avoid deceptive, dishonest or fraudulent
acts or omissions
– To ensure that they do not instigate or
participate in bribery or corruption
– To avoid instigation or receipt of gifts and
hospitality designed to make the recipient feel
obligated in a certain way
– To ensure they do not engage with suppliers in
countries that are subject to sanctions and
embargoes
– To ensure that they do not engage with
suppliers that do not adhere to the Anti-
Slavery and Human Trafficking legislation
– To ensure that all staff have a safe and secure
working environment free from discrimination
– To ensure all staff are paid a fair wage and do
not have to work beyond legal requirements
We do not buy materials that have been
produced by suppliers using forced labour,
child labour or other forms of oppressive
tactics to exploit workers.
Community Involvement
It is not just about Dialight being a good employer
but about giving back to the communities in which
we operate. In order to facilitate this, the Dialight
Foundation was formed in June 2020. Our mission is
to transform the lives of people in need in our local
communities, with a focus on supporting children
and women’s causes. It is governed by the Dialight
Foundation Board, comprised of employees from
around the globe. This group was carefully selected
to bring diverse perspectives based on a variety of
job functions, cultural backgrounds and charitable
expertise. This group serves as the representatives
for each of the locations where we conduct
business and their surrounding communities.
The Foundation is funded by employee contributions
and Dialight funding. In December 2021, it raised
$50k to further the work of the foundation.
Partnership with Women’s Earth Alliance (WEA)
Dialight chose to partner with the WEA, an
organisation with long-term goals for climate
improvement through empowerment of women.
The Dialight Foundation provided a $25k donation as
the sole sponsor of their COVID-19 and Climate
Relief Program in Tijuana, Mexico.
The Tijuana area, in proximity to our facility, has been
hit hard by the impacts of COVID-19 as well as an
influx of vulnerable asylum seekers looking to cross
the border.
It was important for us to support our local
community during this particularly challenging time.
The WEA worked with local grassroots organization,
Espacio Migrante, to directly provide food and
information to thousands of vulnerable asylum
seekers.
Women’s Earth Alliance (WEA) is a
15-year global initiative that trains,
resources and catalyses grassroots
women-led efforts to protect our
environment and build healthy, safe and
just communities now and into the future.
DIALIGHT FOUNDATION
The Foundation is funded by a combination of employee and company
donations. Investment decisions are governed by a Board comprising
staff from all the major operating sites and is chaired by the CEO.
Featured foundation projects:
Casa hogar el reino
de los niños
Casa Gabriel
Person County
elementary schools
– Ensenada, MX
– Home to 36 children ages
– Ensenada, MX
– Home to 19 children with
– Roxboro, NC
– 2 lower income elementary
3-23
special needs
schools
– Provided new beds and sofas
for facility and a meal + gifts
for the Christmas holiday
– Providing new solar powered
water heater
– Provided new commercial
refrigerator for their kitchen
– In preparation for return to
in-person learning, Dialight
Foundation provided 70
backpacks filled with schools
supplies for the students.
In 2022 the Foundation is focused on expanding its impact in 3 key areas:
Continued support
of local causes
Continued support to the local
communities in the US and Mexico
mentioned above.
Expanding
geographic impact
Expanding projects to help
charitable projects near our factory
in Penang, Malaysia and we are in
the process of conducting due
diligence on a number of charities.
Transforming the
industrial world
The Foundation is considering
sponsoring WEA’s Accelerator
program which develops and
empowers women leaders to help
establish critical environmental and
climate initiatives, including
upcycling plastic pollution,
developing clean energy solutions,
removing toxins from our
environment, planting trees,
growing sustainable food and
providing education about
women’s health, and more.
Dialight plcAnnual Report and Accounts 2021 28
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
GOVERNANCE
The main Corporate Governance section is on
pages 49 to 82. The section deals with
Governance in relation to ESG but also applies the
same principles in relation to ethical behaviour,
transparency and accountability. The Board are
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.
To assist with this, the ESG Committee was
established in 2021, which is comprised of
Dialight’s CEO and functional area VPs, who meet
on a monthly basis to address ESG in all facets
of our business including our ESG roadmap,
monitoring of supply chain risks and transition
to Net Zero. In addition, a new role of Director
of ESG has been created to act as a co-ordinator
of all ESG deliverables.
We comply with externally verified ISO standards
(14001, 45001, 9001 and 14064) to ensure good
operational management.
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. We require all employees and third parties
who act on our behalf to conduct business
honestly and with integrity, and to take personal
responsibility for ensuring that our commitment to
sound and ethical business conduct is delivered.
GAN checks on new
suppliers and customers
100%
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.
Operational
assurance
process
Continuous
improvements to
the Operational
Framework
Identification of
risks and areas
for improvement
Internal review
and consideration
of findings
Implementation
of new
procedures
and training
programmes
The leaders within our business are required to ensure that:
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.
The 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.
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
We use third party platforms to
monitor compliance as follows:
Supply chain & customer due
diligence
All our new customers and suppliers
must comply with the Dialight Code
of Business Conduct.
Due diligence is currently in two
parts:
1. Screening prior to on-boarding
2. On-going surveillance using
external assurance platforms
We are expanding our on-going
due diligence program based on
supplier size and risk analysis.
The external platforms currently
used are:
Checks for any
negative ESG issues
in the public domain
on an on-going basis
Used for materials
compliance
1. To check whether they
contain any harmful
substances like heavy
metals
2. Compliance with
REACH/RoHS,
California Prop 65
3. Human Trafficking
4. Conflict Minerals
Dialight plcAnnual Report and Accounts 2021 29
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Code of conduct
Our Code of Conduct, which sits alongside
our Operational Framework, embraces our
fundamental values of Safety, Excellence and
Innovation. It provides direction to all employees
on legal, ethical and risk issues that they may
encounter in their day-to-day activities.
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.
All employees, current and new, are provided with
a copy of the Code of Conduct and asked to
confirm that they will adhere to its standards.
Our aim is to ensure that all employees complete
mandatory training on the Code of Conduct on
an annual basis in future.
Whistleblowing
Our culture embraces transparency and openness,
and we encourage all employees to speak up if
they have any concerns. We have a whistleblowing
policy and associated procedures in place which
enable all employees to raise concerns, in
confidence, about possible improprieties or
wrongdoing within the business, without fear of
reprisal or retaliation. Employees are able to raise
issues by contacting our 24-hour ethics reporting
service (independent third-party service) by phone,
email or an external website.
All issues reported by employees are taken
seriously and investigated appropriately in a
confidential manner. We encourage openness
and will support those who raise concerns in
good faith, even if they turn out to be mistaken.
Nobody will suffer any detrimental treatment as
a result of their actions taken in good faith.
A whistleblower can remain anonymous, but it
aids the investigation and feedback process if
the person identifies themselves.
Anti-bribery and corruption
Dialight has a zero-tolerance policy in respect of
bribery and corruption. This extends to all business
dealings and transactions and includes a
prohibition on offering or receiving inappropriate
gifts or making undue payments to influence the
outcome of business dealings. Compliance with
the policy is checked as part of the half year and
year-end process. All employees have been trained
on antibribery and corruption policies.
Group policy prohibits making political donations
or making payments to lobbyists.
Human rights
The Group is committed to respecting human rights
in the countries in which we do business. Our Code
of Conduct and other applicable policies under the
Operational Framework support our commitment
to ensuring, as far as we are able, that there is no
slavery or human trafficking in any part of our
business or in our supply chain. We see compliance
with local legislation as a minimum requirement and
generally strive to operate at a higher level.
Tax strategy
We are committed to being a responsible business,
and core to this is our commitment to comply with
tax legislation in each country in which we operate.
Dialight Plc believes its obligation is to pay the
amount of tax legally due in any territory, in
accordance with rules set by governments.
Compliance for us means providing the relevant
tax returns and tax payments within statutory
timescales. In addition, we will promptly
disclosure to the tax authorities if errors arise in
relation to our tax liabilities.
The core of all of our transfer pricing is
compliance both with the OECD Transfer Pricing
Guidelines for Multinational Enterprises and with
local domestic tax legislation. Compliance is
supported through a global transfer pricing policy
and framework, which apply across the business.
Our approach is to use the ‘arm’s-length principle’,
which is endorsed by most countries.
This assumes that prices are based on an
equitable and willing arrangement between two
independent parties. Transactions are priced
within an appropriate arm’s-length range, which
meets the stringent local compliance requirements
in territories at both ends of each transaction.
Governance structure for ESG
BOARD OF DIRECTORS
Strategic
direction
Audit Committee
TCFD and
risk updates
Operational
updates
GOVERNANCE BY ESG COMMITTEE
CEO
General Counsel
CFO
VP of ESG
Operational
execution
of strategic direction
External compliance
and risk
management
Operational
execution of
strategic direction
External
reporting
Local language versions of the whistleblower notice
are posted in all sites and the 3rd party service has
local language staff available to deal with calls
and emails.
A report of any complaint is passed to the
Group’s Company Secretary for investigation
and for appropriate action to be taken.
The outcome of all reports and their subsequent
investigation is provided to the Audit Committee.
Dialight plcAnnual Report and Accounts 2021 30
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONTINUED
Product safety
The safety of our own workforce and that of our
customers is paramount in the design and
manufacture of products. All products have to
be certified for compliance by local regulatory
authorities in order to be sold. The certifications
are regional rather than global and are
summarised below.
The major safety standards are:
Safety standard
North America
South America
Europe
Middle East South East Asia
Australia/New
Zealand
Geographic applicability
CB
ENEC
RCM
UL
ATEX/IECEx
ABS
DNV-GL
INMETRO
Some standards can have categories that deal
with both hazardous and non-hazardous variants.
Hazardous lighting standards (for example, ATEX/
IECEx) are much more stringent as these cover
lights that are used in explosive atmospheres and
therefore the risk to life and property is much
higher in the event of failure.
In addition to certification at product inception, our
Lighting products undergo a series of tests before
leaving the factory. These involve checking correct
operation by illuminating each unit for a defined test
period, using electrical test equipment to identify
hidden faults and carrying out ingress and egress
tests for air and water on selected models.
Our 10 year warranty was
approved by the National
Lighting Bureau (NLB) Trusted
Warranty Program in the US.
DIALI G
H
T WARRAN
T
Y
10
YEARS
WE PROVIDE A
10 YEAR WARRANTY
ON MOST LIGHTING
PRODUCTS AND
THAT GUARANTEES
THE WORKMANSHIP
OF THE PRODUCT
We provide a 10 year warranty on most Lighting
products and that guarantees the workmanship
of the product provided that it has been installed
correctly and is used in an environment for which
it was designed. All fixtures come with installation
instructions that advise that only suitably qualified
personnel are used for installation. Due to the
weight of the fixtures and the height at which they
are mounted, we recommend the use of secondary
retention lanyards in certain installations to prevent
danger of injury.
In April 2021, Dialight’s 10 year warranty was
approved by the National Lighting Bureau (NLB)
Trusted Warranty Program in the US.
This recognizes excellence in lighting companies
that meet objective quality standards and practices
regarding their warranty administration. The program
empowers Customers, Lighting Designers, Electrical
Distributors, Electrical Contractors and other Industry
Stakeholders to feel comfortable specifying, buying,
and installing luminaires from companies that have
had their warranty department audited and approved
by the NLB. Acceptance in this program validates
companies that reliably stand behind their warranty.
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 authorized 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 as such 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.
Dialight plcAnnual Report and Accounts 2021 31
CASE STUDIES:
CORPORATE ROLLOUT PROGRAM
THE ENVIRONMENTAL CHALLENGE
THE ENVIRONMENTAL SOLUTION
By 2014, DS Smith had set out their targets for
emissions reduction which included
– Reducing CO2 emissions from fossil fuels
by 20% by 2020
– Reduce waste to landfill by 20% by 2020
Looking for a more efficient, dependable
solution, DS Smith discovered Dialight, the
world leader in LED industrial lighting technology
with had more than 1 million fixtures installed
worldwide at the time.
In order to achieve the reduction in fossil fuels
impact, they had a two-pronged approach
1) Better energy efficiency – Reduce their
Scope 2 emissions
2) Switching to renewable energy – Reduce
their Scope 2 emissions
The benefits were not only reduced energy
consumption, which translated to a
direct reduction in carbon emissions but the
longest maintenance-free performance of any
other industrial LED lighting supplier.
THE OPERATIONAL CHALLENGE
OPERATIONAL SOLUTION
Not only was the high energy consumption a
concern for DS Smith but also the maintenance
required by existing fixtures was time-consuming
and expensive. At many locations, high ceilings
and difficult access over the top of machinery
added to the cost and time required for a simple
lamp change, which was often only possible
during planned maintenance.
Dialight’s DuroSite® and Vigilant® LED
products also offered a much lower operating
temperature, an important safety factor in the
packaging environment. The deployment of
polycarbonate lenses coupled with the
elimination of ultra-violet radiation contributes
to the attainment of compliance with lighting
quality standards for relevant sites.
“ Dialight demonstrated a
robust, long-life solution
to meet the needs of DS
Smith across our many
business operations.
They also offered the
sophisticated support for a
large commercial project of
this kind, with outstanding
technical expertise and
account management”
Martin Mead
Head of Energy Efficiency at DS Smith
DS SMITH
DS Smith is a leading provider of
sustainable packaging solutions,
paper products and recycling
services worldwide.
DS Smith employs 30,000
people across 30
countries and has a
turnover of c. £6.5 bn per
annum
Turnover
c. £6.5bn
per annum
Dialight 4ft low
profile linear
fixtures mounted
under paper
machine winders
Dialight plcAnnual Report and Accounts 2021 32
CASE STUDIES:
CORPORATE ROLLOUT PROGRAM
THE ROLLOUT PROGRAM
THE EXTENT AND BENEFITS
At the end of the rollout, the number of lighting
fixtures replaced was 40,000 across 100 sites in 16
countries over a 7 year period.
100
sites converted to
energy saving LED
DS Smith were one of
the early adopters of LED
lighting to reduce their
emissions.
As other corporates look at options for setting their
Science Based Targets in pursuit of Net Zero,
energy usage will be a key target. One of the easier
ways to achieve substantial reductions quickly is to
switch to LED lighting. This can be combined with
sourcing renewable energy, but the latter may not
be available in all locations.
In addition, it means DS Smith now
achieves annual savings as follows,
compared to using legacy lighting
65%
reduction in energy
consumption for
converted sites
14,000
tonnes of Scope 2
emissions saved per
annum
Having achieved these major
milestones, DS Smith is now focused
on switching to renewable energy in
order to continue reducing its Scope 2
emissions. This will in turn reduce the
Scope 3 emissions for Dialight.
Read more about Net Zero on pages 33 to 35
Read more about Net
Zero on page 33 to 35
Dialight plcAnnual Report and Accounts 2021
33
ROAD TO NET ZERO
NET ZERO
ROADMAP
INTRODUCTION
As part of Dialight’s environmental responsibility,
it has committed with the Science Based Targets
initiative (SBTi) to be Net Zero by 2050 but has
set an internal target to achieve this by 2040.
The SBTi is a global body enabling businesses to
set ambitious emissions reductions targets in line
with the latest climate science. It is focused on
accelerating company actions across the world to
halve emissions before 2030 and achieve net-zero
emissions before 2050.
Net Zero scope
This applies to all of the business across four major aspects.
IN SCOPE
Upstream
activities
Internal
Operations
Downstream
activities
Impact of
lights in use
Materials extraction
and processing
Material
transformation
Transportation
Energy usage at
operational and
administrative
facilities
Transportation to the
end customer
Installation
End of Life
The estimated impact
of emission from
usage of lights over
their life, whilst not
using green energy.
NOT IN SCOPE
The emissions
savings of 1.6m
tonnes of CO2 by
customers
switching from
harmful legacy
lighting to LED.
This benefit is c.1.8x
the full impact that
is in scope.
SCOPE 3
1
2
3
SCOPE 3
SCOPE 3
We believe that lighting
has a critical role to play in
helping businesses' journey
to become Net Zero."
Fariyal Khanbabi
Group Chief Executive
Net Zero is very different
to carbon neutrality.
To achieve Net Zero a business has to reduce
its total carbon impact to zero by changes in its
business practices.
Typically, those claiming carbon neutrality are
only referring to internal operations (Scope
1 & 2), thereby ignoring Scope 3 emissions
which are typically >80% of the total impact.
In addition, we often see these internal impacts
balanced with purchased carbon offsets rather
than changes in business practices.
Read more on page 35
Measuring existing carbon footprint
(Greenhouse Gas Inventory GHG)
In order to be able to apply a science-based
target, Dialight carried out its base year
assessment of its GHG inventory for 2020,
calculated using ISO 14064 which was
independently verified by a 3rd party (BSI Group).
The 2021 GHG will be verified in the coming
months. The scope that we used for both of these
assessments was Upstream Activities, Internal
Operations and Downstream Activities. The results
are summarised in the table to the right:
Overall Summary (Tonnes)
Scope 1
Scope 2
Scope 3 (excluding customer usage)
Total (excluding customer usage)
Scope 3 customer usage
Total
Fy-21
000’s
1.2
4.8
103.9
109.9
%
0.1%
0.5%
10.5%
11.1%
882.0
991.9
88.9%
100%
The items included in each Scope are shown
on page 34.
Dialight plcAnnual Report and Accounts 2021
34
ROAD TO NET ZERO CONTINUED
Usage by customer
Items included in each Scope
Scope:
1
2
3
– Natural gas used for heating
– Propane used in the paint
curing process and by forklifts
– Company vehicle emissions
– Refrigerant gases
Emissions from purchased
electricity at operational
and administrative sites
All other emissions related to
purchased materials, upstream
& downstream logistics,
commuting & business travel,
waste & recycling and end of
life impacts.
The calculation of customer
usage impact is very subjective
and relies heavily on a set of
high level assumptions.
Over 10 Years
88.9%
1
Materials: 8.5%
Logistics: 1.8%
Internal processes:
0.2%
0.5%
0.1%
Due to the fundamental purpose of the products,
they must consume electricity. The customer
accounts for the CO2 usage impact of this as part of
their Scope 2 emissions and Dialight also includes
this as part of its Scope 3 emissions. In effect, these
are counted twice in the overall GHG inventory.
The calculation of the usage by the customer is
subject to one very significant assumption – the
number of hours that lights are in use in the year.
Dialight sells to industrial customers across a broad
range of markets. Some customers have facilities
that are run 24/7 such as oil & gas refining; others
such as power generation may run 18/7 and food &
beverage could run 12/6. Because of this we have
taken an average of the outcomes based on usage
24/7 and 12/6 as an approximation.
This cannot be calculated definitively but it
represents c. 90% of the emissions. This impact will
be reduced as we push the boundaries of product
efficiency further and customers use more sensors
to reduce usage. It is currently not possible to know
which customers have access to green energy so
this will be an additional assumption until such time
as there is a fully decarbonised grid that eliminates
emissions related to energy usage.
The relative impact of each scope is very different.
The impact of Scope 1, Scope 2 and Scope 3
(excluding usage) is the one-time impact related to
production in one year. The Scope 3 customer usage
is an estimate of the product impact in use over a
10-year life (estimated product life) which results in
this being such a high proportion of the overall
impact.
On the other hand, the savings by a customer
switching from older technology to LED cannot
be counted in the current definition of net zero.
Therefore, increasing the adoption of LED and
extending product life both increase the challenge
for Dialight.
Dialight plcAnnual Report and Accounts 2021 35
ROAD TO NET ZERO CONTINUED
DIALIGHT
ROADMAP
There are two key recommendations
from the Net Zero Standard:
1 Set short-term targets of
5-10 years that will reduce
CO2 emissions by 50%
2 Set longer term goals to
reduce to Net Zero by 2040
We have applied the principles
of the SBTi Corporate Net
Zero Standard issued on
28 October 2021.
The Standard provides guidance,
criteria, and recommendations to
support corporates in setting Net Zero
targets through the SBTi. The main
objective is to provide a standardised
and robust approach for corporates to
set Net Zero targets that are aligned
with climate science on this topic.
Action plan to be drawn up in 2022
During 2022, we will be drawing up a detailed
action plan that will form the Science Based
Targets that we will use to agree with SBTi.
We have not formulated these in detail but they
are likely to be in line with the following outline:
They are likely to include a combination of two key factors:
Actions that we can take and directly control
Dependencies on other third parties in order to be
able to achieve reduction
2030
SHORT TERM
TO 2030
LONGER TERM
2031 TO 2040
2040
Review of material choice and source
Review of material choice and source
Reduction in fixture size
Localisation of supply chain
Reduction in fixture size
Localisation of supply chain
Availability of decarbonised freight transport
Availability of decarbonised freight transport
Reduce energy usage
Generate renewable energy internally
Reduce business travel
Availability of renewable energy at all sites
Availability of renewable energy at all sites
Availability of low carbon business transport
Availability of low carbon business transport
Upstream
activities
Internal
operations
Downstream
activities
Reassess location of manufacturing sites
Proximity of manufacturing sites to end markets
Availability of decarbonised freight transport
Availability of decarbonised freight transport
Customer
usage
Increased energy efficiency from design
improvements
Further energy efficiency from design
improvements
Availability of renewable energy
Availability of renewable energy to all customers
Dialight plcAnnual Report and Accounts 2021 36
TCFD
REPORT
We are pleased to confirm that we have included
all of the recommended disclosures in relation to
the Task Force on Climate-related Financial
Disclosures (TCFD) which was announced in
October 2021 (2021 TCFD Annex All Sector
Guide), in line with the current Listing Rules
requirements (as referred to in Listing Rule
9.8.6R(8)).
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. The Board monitors and oversees progress
of the Group’s GHG emissions (Scope 1, 2 & 3),
which are measured and verified under ISO 14064;
see page 22 for further details.
The Group’s Audit Committee supports the Board
in this function and is responsible for reviewing the
climate-related risk and opportunity register every
six months at meetings scheduled to approve the
Group’s overall risk management. 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 ESG
Committee, which consists of VPs from all the
major departments. The Committee convenes
on all aspects of ESG including sustainability
and climate change at least quarterly and is
responsible for
– determining the sustainability goals & objectives
– setting best practice for the Group
– assigning responsibility for delivery
– monitoring progress against the action plan and
– reporting to the Audit Committee.
As the Chair of the ESG Committee, the CEO
has overall responsibility for climate change and
environmental matters; certain environmental
aspects are allocated to specified VPs for example
– the VP of Operations is responsible for
operational emissions and assessing climate-
related risks linked to the supply chain
– the VP of Engineering is responsible for carbon
impact in product design, material choices, end
of life and product efficiency.
The ESG Committee is in turn supported by
other functions and project teams who have
responsibility for implementing the underlying
sustainability framework actions, including the
day-to-day management of climate-related issues,
and reporting any relevant data, progress or issues
to the ESG Committee.
Strategy
Through our process, the following key risks and
opportunities that could have a material financial
impact on the organisation have been identified.
Whilst we outline both risks and opportunities in
the same detail, the Group believes that, because
of our business model, strategy and exposure, our
climate-related opportunities are more significant
and the majority of the risks relate to the ability to
cope with accelerated product demand.
Scenario analysis requires analysis of specific
factors and modelling them with fixed
assumptions. A number of assumptions were
made in this analysis:
– We assume that in the future Dialight will have
the same business activities that are in place
today. That means impacts should be considered
in the context of the current financial performance
and prices.
– Impacts are assumed to occur without the
company or governments responding with any
mitigation actions, which would reduce the
impact of risks.
– The analysis considered each risk and scenario
in isolation, when in practice they may occur in
parallel as part of a wider set of potential global
impacts.
These scenarios were supplemented with
additional sources specific to each risk to inform
any assumptions included in projections. Much
of our scenario analysis remains qualitative at this
stage, but against certain risks, we have begun to
develop quantified impacts internally where the
underlying data is available and where the current
understanding of the risks is robust. There will be
opportunities in future years to increase the
sophistication of modelling as new data is made
available both internally and externally to support
a meaningful quantitative assessment.
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, or upstream and
downstream of the Group and whether they occur
within the short- (1 to 3 year), medium- (3 to10 years)
or long-term (10+ years) time horizons. Risks and
opportunities relevant to Dialight were identified
with the help of external consultants and refined
through consultation with the Risk Committee and
senior management.
The Risk Committee evaluates climate-related
risks and opportunities quarterly on the Company’s
risk management five-point scales for likelihood
(Remote to Likely) and impact (Minor to Critical).
A substantive 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 completed climate-related risk and opportunity
register was reviewed and approved by the Audit
Committee during the financial year such that the
significance of climate-related risks is considered
in relation to risks identified in the standard risk
management process. This ensures the
management of climate-related risks is integrated
into Dialight’s overall enterprise risk management
framework. The climate-related register is reviewed
every six months to incorporate ongoing refinement
and quantification of risks and to ensure the register
reflects any material changes in the operating
environment and business strategy.
Our analysis of climate-change impacts
includes looking forward to 2050 but we have
an internal Net Zero target as a Group by 2040.
We have used climate-related scenario analysis
to improve or understanding of the behaviour
of certain risks to different climate outcomes.
We employed three public climate-related
scenarios which help us better understand the
resilience of the business to climate change.
– Sustainable Development (“SDS”)* outlining
a global low carbon transition which limits the
global temperatures rise to 1.65 °C by 2100,
with 50% probability.
– Stated Policies (“STEPS”)* outlining a
combination of physical and transitions risk
impacts as temperatures rise by 2.6°C by
2100, with 50% probability.
– RCP 8.5** an extreme physical risk scenario,
where global temperatures rise between 4.1
and 4.8°C by 2100.
* IEA (2021), World Energy Model, IEA, Paris www.iea.org/
reports/world-energy-model
** IPCC, 2014: Climate Change 2014: Synthesis Report.
Contribution of working groups I, II and 3.
Dialight plcAnnual Report and Accounts 2021 37
TCFD REPORT CONTINUED
A summary of the overall risks and opportunities is as follows:
TRANSITIONAL
OPPORTUNITIES
TRANSITIONAL RISK
PHYSICAL RISK
MARKET
TECHNOLOGICAL
CHANGE OF
CUSTOMER TYPE
SUPPLY CHAIN
OPERATIONAL
CAPACITY
CHANGING
WEATHER
PATTERNS
EXTREME WEATHER
EVENT
DROUGHT
Scale and
speed of
increases in
market
adoption of
LED
Product
redesigns to
meet carbon
footprint
reduction
targets
Changes to
existing
customer
working
environments
resulting in
change of
customer type
Disruption
from climate
related issues
leading to
shortage of
materials
Sufficiency of
capacity to
deal with
large-scale
increase in
demand
Impact of
disruption to
upstream and
downstream
logistics
Impact of
one-off events
at operational
sites that have
discrete risks
Impact of
water
shortages in
high water
stress areas
Once identified, further details related to each key
risk and opportunity, such as a quantification of
the financial impact, the appropriate strategic
response and cost of response and the variance
of key risks in relation to climate-related scenarios
were developed where possible. These details
help to determine the materiality of each risk
and alongside the magnitude and likelihood
assessment outlined above, this allows Dialight to
prioritise resources in managing the most material
climate-related impacts, determine the best
management response or highlight areas requiring
further investigation.
Metrics and targets
Dialight monitors Scope 1, 2 & 3 greenhouse
gas (GHG) emissions, measured and verified
under ISO14064 as reported on page 22.
Dialight recognises the need to outline targets
for emissions, energy use, water and waste, to
provide a more structured response to the
management of our climate-related risks and
opportunities. Targets are based on a full GHG
inventory using 2020 as a baseline and we
have now updated this for 2021; see page 22.
We will be using the 2021 figures to develop
detailed associated emissions targets. We aim
to put targets in place soon and during 2021 we
made the public commitment to set a science
based target for Net Zero by 2040, aligned with
the Science Based Targets initiative’s (SBTi)
target-setting criteria. This is discussed in more
detail in the Net Zero section on pages 33 to 35.
Dialight plcAnnual Report and Accounts 2021 38
TCFD REPORT CONTINUED
CLIMATE-RELATED OPPORTUNITIES
Opportunity
Type
Area
Primary potential
financial impact
Time horizon
Likelihood
Markets
Downstream
Increased sales
Medium term
Very likely
Magnitude of impact
High
Impact on the
business and
strategy
Legislation on the efficiency requirements for
lighting is expected to become more stringent
in the transition to a low carbon economy. The
industrial lighting market is less than 10% converted
to LED.
With governments, banks and institutional investors
putting pressure on companies to reduce GHG
emissions, the adoption curve for LED is likely
to hasten. Dialight’s largest markets, the US
has announced Net Zero targets. Decarbonising
industry, and the promotion of products that
increase industrial energy efficiency are key
to achieving all these targets.
On a 20-year retrofit cycle, the LED industrial market
is estimated to be worth c£50bn (based on internal
calculations and a survey carried out for Dialight
in 2016 by HIS). This means that the annual market
is worth c. £3.5bn so there is considerable runway
on the adoption curve. This represents a potential
acceleration of the existing business plans rather
than any fundamental shift.
Dialight’s existing manufacturing capacity can
cope with a doubling of demand. Assuming an
accelerated adoption of LED by the market, there
would be additional capacity requirements via step
changes (new factories) but these are not hugely
capital intensive and would cost c. £10m capital
expenditure per additional factory.
Regulatory pressure to reduce emissions
and ban older lighting technologies
Reduction of aluminium content/unit
Greener aluminium & transport
Solar self-generation
Resource efficiency
Own operations
Higher margin per unit
Medium term
Very likely
Medium
The carbon in purchased goods and services
accounts for c. 10% of Dialight’s total Scope 1, 2 &
3 emissions. Aluminium is 50-60% by volume of the
lighting product. Reducing the weight of aluminium
per fixture would reduce overall cost of goods per
unit as well as our Scope 3 emissions.
Our R&D is constantly reviewing the use of other
materials to replace aluminium; for example we
launched a Glass Reinforced Plastic (“GRP”) fixture
in 2020. As part of our ambition to produce the first
Net Zero fixture, this could lead to a significant
reduction in the quantity of aluminium used over
the medium term.
The timing of this is dependent on the successful
testing of alternative materials as this R&D is
pushing the boundaries of material usage for
industrial lighting.
Resource efficiency
Upstream
Higher margin per unit
Medium term
Likely
Medium-Low
Energy source
Own operations
Lower operating costs/variability
Medium term
Likely
Medium
If 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 electric vehicles for
transportation from source to factory would also
have a positive impact. Transportation accounts
for 2% of Group total emissions.
Solar installations will reduce our reliance on local
grid and reduce our emissions. The Group is looking
to install solar self-generation where practically
possible and economically viable and targets 25%
of energy required to be supplied by solar energy
at operational sites with a pilot being put in place
at our Roxboro facility.
Further analysis is required to investigate the
production method of aluminium suppliers and/or
identify potential alternative suppliers utilising low-
or zero-carbon approaches. The use of recycled
aluminium would also be an important contributor to
decarbonisation for Dialight as primary production is
approximately 10 times more energy intensive than
secondary production.
Mexico and Malaysia operations would be next on
the list. We estimate a direct annual operating cost
saving of c. £0.5-0.7m to annual operating expenses
(based on assumed production levels), with the
additional associated reduction in avoided carbon
taxes, as related to carbon prices.
Dialight plcAnnual Report and Accounts 2021 39
TCFD REPORT CONTINUED
CLIMATE-RELATED RISKS
Risk
Type
Area
Primary potential
financial impact
Time horizon
Likelihood
Magnitude of impact
Impact on the
business and
strategy
Wildfires/Extreme weather
Physical
Own operations
Disruption, asset base
Medium term
Likely
High
Carbon prices
Transition (emerging regulation)
Upstream/Own operations
Higher cost of inputs
Medium term
Very likely
Medium
Upstream issues
Physical
Upstream
Higher cost of inputs
Medium term
Very likely
Medium
The wildfire risk in Tijuana and Ensenada is classified as high, meaning
that there is a greater than 50% chance of encountering weather that
could support a significant wildfire, leading to loss of life, damage to
property and impact on local services and employees. The financial
impact to Dialight (estimated at a maximum of £80m for complete loss
of production over 12 months) would be dependent on the scale of any
damage, the timescale of any fire-related disruption and the offset by
any insurance monies recouped under the business interruption policy.
Studies indicate climate change will increase the prevalence
of wildfires, their intensity and the length of the wildfire season.
For instance, climate change projections using Representative
Concentration Pathway 8.5 suggest an increase in days conducive
to extreme wildfire events of between 20% and 50%, but it should
be noted that in all three scenarios studied, global temperatures rise
until 2050.
Our operational sites have specific weather related risks that we
monitor as part of normal business operations. Climate changes may
increase this volatility and increase risk.
We are unable to accurately quantify this increase for our specific
locations in Mexico, and to date, our operations in Mexico have not
been impacted by wildfires and the specific locations of our sites
provide some mitigation against wildfire risk.
Carbon pricing (applied directly or indirectly) is expected to expand
in scope and the price of carbon is expected to rise. The International
Energy Agency forecasts that carbon prices ($/tCO2e) relevant to
Dialight under SDS and STEPS are projected to increase as below:
Carbon price estimates (US$/t)
Scenario – SDS
Advanced economies with
Net Zero pledges
Emerging economies with
Net Zero pledges
Other selected
EM economies
Scenario – STEPS
UK
US, Australia, Mexico & Malaysia
2030
120
40
–
2040
170
2050
200
110
160
35
95
2030
2040
2050
65
–
75
-
90
–
Carbon pricing could increase the cost of electricity, albeit the Group
is not energy intensive. Using SDS carbon prices on the Group’s 2020
emissions, the additional costs related to our Scope 1 & 2 emissions,
if passed through fully, would be under £0.5m annually through to 2040.
The Group’s larger carbon exposures are in our Scope 3, in the
embedded carbon of purchased goods and services and the cost
of transportation.
The cost implications to Dialight of carbon prices on Scope 3
emissions would be dependent on where in the value chain the
responsibility for the cost increase lies and whether price increases
can be passed on.
Issues such as COVID-19 and Brexit have exposed general supply
chain risks over the last two years. Whilst these are derived from
non-climate related drivers, similar impacts could occur if the supply
chain is subject to physical risks resulting from climate change. This
would result in an inability to source inputs or higher cost to Dialight.
Climate impacts are largest in the STEPS and RCP 8.5 scenarios,
where there are higher chances of high magnitude extreme heat events,
ecological droughts, extreme rainfall, wildfires and flooding. Dialight is
reviewing supply chain resilience and its suppliers, including analysis of
where the critical component supplier relationships are, whether key
suppliers have site-specific climate-related risks and what options there
are for flexibility in supply.
Dialight plcAnnual Report and Accounts 2021 40
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 will continually strive for
improvement. This is not a static process with an
end-point, but a continually 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 summary
1. FUNCTIONAL AND FRONT LINE CONTROLS
2. ASSURANCE ACTIVITIES
3. MONITORING AND OVERSIGHT CONTROLS
4. ETHICAL AND CULTURAL ENVIRONMENT
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 55 to 58. Whilst the governance structure provides the framework for the Group’s approach to, and
management of, risk, visibility of current and emerging risks is provided:
– strategically, through periodic reviews by the Risk Committee; and
– tactically, through the Group’s internal controls system and routine reporting to the senior executives and
the Board.
The key areas of the Group’s system of internal controls are as follows:
Group risk control and visibility cascade
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 who 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, 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
CEO and CFO. Cash forecasting has been enhanced to be at a more granular level and rolling
13-week forecasts are updated weekly. 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.
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 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 report 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.
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.
Re-forecasting scenarios are prepared quarterly (or as otherwise required) for Board review and
the annual budget paper and three-year strategic plan papers are also submitted to the Board
on an annual basis.
The Board reports annually to shareholders on its risk management framework, providing
shareholders with an opportunity to challenge Group Strategy, including in respect of the
Group’s risk mitigation.
Dialight plcAnnual Report and Accounts 2021 41
RISK MANAGEMENT FRAMEWORK
The diagram below summarises our complementary
approach 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
Bottom up
– Business risk appetite policy
– Assessment and mitigation of specific risks
– Upward reporting of key residual risks
GROUP FINANCE STAFF
Dialight plcAnnual Report and Accounts 2021 42
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
Link to strategy
Invest in our
core markets
Continued
innovation
Expand our
market reach
Gross risk – change
Increased/
Reduced
No change
Organic growth
Gross risk
High
Impact on strategy
– Revenue
– Underlying
operating profit
Description
The risk of stagnation of growth where the product portfolio is not
renewed, where there is any failure to identify customer requirements
(including pricing sensitivity and economic models), and the risk of
concentration of certain verticals and/or geographical markets.
Impact on viability,
reputation, and health
and safety
– Loss of reputation
– Loss of market value
Mitigation
During the 2021 reporting period there was significant growth across the Group with
sustained on-time delivery rates and improved gross margin – driven by continued
improvement in our in-house manufacturing operations. 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.
Environmental and geological
Gross risk
High
Impact on strategy
– Revenue
– Underlying
operating profit
Description
The Group’s main manufacturing centre is in Mexico and its main market
is North America. Any impediment to raw materials getting into Mexico or
restrictions on finished goods entering North America related to natural
disasters could have a large impact on profitability. Disruption to global
markets and transport systems arising from geological, biological, or
environmental events may impact the Group’s ability to operate
and the demand for its products.
Impact on viability,
reputation, and health
and safety
– Reduced financial performance
– Loss of market share
– Unforeseen liabilities
Mitigation
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.
Funding
Gross risk
Medium
Impact on strategy
– Revenue
– Underlying
operating profit
Description
The Group has a net debt position and there is a risk related to liquidity.
The Group has not paid a dividend since 2015.
The Group reports in Sterling; however, the majority of its revenues and
its cost base are in US Dollars. Fluctuations in exchange rates between
Sterling and US Dollar could cause profit and balance sheet volatility.
Impact on viability,
reputation, and health
and safety
– Covenant compliance
– Volatile financial performance
arising from translation of profit
from overseas operations
– Most of the Group’s
profit earned is not in
the reporting currency
Mitigation
The Group has sufficient headroom against its borrowing covenants and has significant
borrowing capacity. The financial sensitivities run for the Viability Statement show that
the Group remains compliant with its financial covenants.
Capital allocation policy is used to determine re-investment or distribution of cash.
The Group uses natural hedging to cover operational exposure as the majority of
revenue and costs are in US Dollars. The business uses forward contracts to limit
currency exposure on a selected currency basis.
Dialight plcAnnual Report and Accounts 2021
43
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES CONTINUED
Link to strategy
Invest in our
core markets
Continued
innovation
Expand our
market reach
Gross risk – change
Increased/
Reduced
No change
Production capacity and supply chain
Gross risk
High
Impact on strategy
– Revenue
– Underlying operating profit
– On-time delivery
– Order growth
Description
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.
Impact on viability,
reputation and health
and safety,
– Inability to fulfil demand
– Loss of market share
– Higher costs to expedite
materials
Cyber and data systems
Gross risk
High
Impact on strategy
– Revenue
– Underlying operating profit
– On-time delivery
– Order growth
Description
Disruption to business systems would have an adverse impact on the
Group. The Group also needs to ensure the protection and integrity of its
data. With the Group’s dispersed international footprint and increased
homeworking following COVID-19 there is greater risk of impact on IT
infrastructure/communications between employees.
Product development strategy
Gross risk
Medium
Impact on strategy
– Revenue
– Underlying gross profit
– Order growth
Description
Inability to translate market requirements into profitable products.
Failure to deliver technologically advanced products and to react to
disruptive technologies.
– Loss of revenue and operating
profit
Impact on viability,
reputation, and health
and safety
– Inability to supply customers
– Loss of revenue and significant
business disruption
– Loss of commercially sensitive
information
Impact on viability,
reputation, and health
and safety
– Loss of revenue
– Loss of market share
– Lack of order growth
Mitigation
During COVID-19 our strong focus on health and safety across all our operations
helped secure essential business status and keep our operations largely open
throughout the pandemic. This strong focus will be maintained.
Improvements in supply chain and inventory management and upskilling in our
management process have resulted in an improved operational environment.
We continue to focus on product and manufacturing process re-engineering,
streamlining production processes.
Mitigation
The Group continually reviews its IT systems to ensure that they are robust and scalable
in line with the expansion of the business. Back-ups are integrated to all Group systems
and the diversity of systems offers protection from individual events.
The use of third parties who have robust security to host certain applications.
Home workers can only connect to Group servers via secure VPN functionality.
Mitigation
Our product development cycle includes direct input from customers and distributors,
and we benefit from a highly-experienced multi-disciplinary in-house engineering teams.
Core R&D across our technology types can be leveraged across multiple product lines
based on customer requirements. The successful roll-out of the new product
development pipeline in 2021 has demonstrated our ability to enhance existing
products in a way that meets evolving customer needs, addresses structural changes
in the market (for example utilising less carbon-dense manufacturing materials) and
filling portfolio gaps.
Dialight plcAnnual Report and Accounts 2021
44
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES CONTINUED
Link to strategy
Invest in our
core markets
Continued
innovation
Expand our
market reach
Gross risk – change
Increased/
Reduced
No change
Product risk
Gross risk
Low
Impact on strategy
– Revenue
– Underlying operating profit
Description
The Group gives a 10-year warranty on Lighting products which are
installed in a variety of high-risk environments. Risks could arise in relation
to product failure and harm to individuals and damage to property.
Impact on viability,
reputation, and health
and safety
– Unforeseen liabilities
– Covenant compliance
Mitigation
We maintain a reserve against potential claims; product quality is a key focus in the
design stage and during the manufacturing process.
The Group manages post-sale risk exposure through the distribution of product
specification, safety installation and maintenance information and through appropriate
insurance protections.
Talent and diversity
Gross risk
Medium
Impact on strategy
– Revenue
– Retention
Description
The Group performance is dependent on attracting and retaining
high-quality staff across all functions.
Intellectual property
Gross risk
Medium
Impact on strategy
– Revenue
– Underlying operating profit
Description
Theft or violation of intellectual property (“IPR”) by third parties or third
parties taking legal action for IPR infringement.
Geo-political / macro-economic impacts
Gross risk
High
Impact on strategy
– Revenue
– Underlying operating profit
Description
The Group faces a range of external geo-political, socio-political and
macro-economic risks which, after a period of relative calm in global
markets, have recently emerged as significant potential disruptors.
Impact on viability,
reputation, and health
and safety
– Without good-calibre staff,
the Group will find it difficult
to expand and achieve its
strategic goals
Impact on viability,
reputation, and health
and safety
– Proprietary technology used by
competitors leading to loss of
market share and revenue
– Unforeseen liabilities
Impact on viability,
reputation, and health
and safety
– Reduced financial performance
– Lack of growth
Mitigation
A comprehensive recruitment process and ongoing evaluation assist high-quality hiring
and development.
Our ESG focus will assist the recruitment and retention of good calibre staff.
Considerable time is spent assessing middle and senior management in order
to identify succession plans.
Mitigation
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.
Mitigation
The Group has no exposure to the Russian Federation, with its end markets focused
primarily in Australia, Canada, the EU, USA and UK. 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 areas. The performance of the Group throughout the
COVID-19 pandemic demonstrates the ability of its agile management structure to
react to events and implement effective tactical mitigations.
Dialight plcAnnual Report and Accounts 2021
45
CHIEF FINANCIAL OFFICER'S REVIEW
FINANCIAL
REVIEW
Clive Jennings
Chief Financial
Officer
“ Strong revenue growth
and return to profitability.”
2021 saw the Group return to profitability with
revenue growth of 11% to £131.6m (17% at
constant currency), driven by strong customer
demand across both business segments. The gross
profit margin grew by 710bps to 36% and with
strong cost control, the Group delivered a profit
from operating activities of £2.1m, an improvement
of £10.9m on the 2020 loss of £(8.8)m. On an
underlying basis the Group delivered £4.5m in EBIT
(see note 6 for items regarded as non-underlying).
The underlying EBIT bridge for the year on year
movement is:
Underlying EBIT bridge (ccy)
Underlying EBIT loss 2020
Revenue increase impact
Gross margin improvement
Change in SG&A costs
Underlying EBIT 2021
£m
(6.4)
5.5
9.3
(3.9)
4.5
Increased revenue delivered a £5.5m increase
in underlying EBIT. Gross margin improvements
delivered a £9.3m uplift in EBIT driven by cost
reduction programmes in key Lighting products,
continuing benefits from 2020 cost reductions and
operational leverage due to increased production
volumes. These were partly offset by increased
freight costs and increases in Mexican employment
costs linked to minimum wage rate rises. Selling,
General and Administrative costs increased as
temporary salary reductions in 2020 were reversed,
revenue generating activity increased and bonuses
were accrued.
This strong growth and return to profitability
were delivered against a challenging operating
environment, with industry-wide component
shortages impacting production and lead times
to customers. Customer demand continued to
improve through the year, and our order book at
31 December was double the 2020 year-end level.
Lighting revenue grew by 11% (16% at constant
currency), with our core US market seeing increased
levels of project and MRO business. Australia saw
continued strong sales and demand, but EMEA and
Asia were particularly impacted by COVID-19 travel
restrictions and customers delaying projects.
Net debt increased by £4.3m to £15.7m following
the increase in raw material inventory, with the
Group having access to a further £14.1m in undrawn
facilities and £1.2m in cash at 31 December.
Currency impact
Our major trading currency is the US Dollar (77%
of revenue) due to the size of our US business and
the use of USD as a contract currency elsewhere in
the world. The Group reports its results in Sterling,
and this gives rise to translational exposures on the
consolidation of overseas results.
Transactional exposure is where the currency of
sales or purchases differs from the local functional
currency. We use natural hedging on revenue and
purchases to mitigate the majority of the currency
risk and forward contracts on a currency specific
basis. The average US Dollar rate against Sterling
fell to 1.38 from 1.28, an adverse impact of 7%
whereas the year-end spot rate with the US Dollar
weakened by only 1%.
In constant currency, Group revenue grew by 17%
with gross profit up 46% (versus 11% and 38%
at actual rates) but there was no impact on
underlying EBIT which grew by £10.9m.
The Lighting segment saw good growth in 2021
with revenue up 11%, despite the impacts from
COVID-19 continuing to be felt across most of our
geographies. It represents 69% of Group revenue,
consistent with 2020.
The Lighting business consists of two main
revenue streams: large retrofit projects and ongoing
maintenance (MRO) spend. Overall revenue in
the US was up by 23% over the prior year as we
continued to gain market share in the MRO market
by demonstrating that our operational issues are
behind us. In the US, H2 saw an increasing number
of project orders and customer enquiries but we are
also seeing escalating costs of construction leading
to projects being re-bid, temporarily slowing order
intake for us.
The EMEA business remained significantly impacted
by lockdowns in Europe but managed to grow
revenue by 2% over the previous year and delivered
an improvement in performance through tight
cost control.
Signals & Components performed positively
with revenue up 10% (18% at constant currency)
despite disruptions in the supply chain, driven by
strong demand for opto-electronic product.
Lighting
Supply chains were challenging in 2021; despite this
the Group performed well operationally. In addition
to the continuing disruption from COVID-19 and
government restrictions, global industry-wide
shortages of key components severely impacted
our supply chain along with significant increases
in shipping times and availability. In order to
safeguard production, the Group decided to
temporarily increase stocks of raw material which
contributed the majority of the £9.6m increase in
inventory. As availability improves and lead times
reduce, inventory levels will be reduced to more
normal levels.
Lighting
Revenue
Gross profit
Gross profit %
Overheads
Underlying EBIT
2021
£m
90.5
33.7
2020
£m
81.7
23.7
Variance %
+11%
+42%
2020 at
constant
currency
£m
77.7
22.7
Constant
currency
variance %
+16%
+48%
37.2%
29.0%
+820bps
29.2%
+800bps
(28.4)
5.3
(26.8)
(3.1)
(6%)
+271%
(25.4)
(2.7)
(12%)
+296%
Dialight plcAnnual Report and Accounts 2021 46
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Australia has a good combination of MRO and
project business and had a positive year with
revenue up 11% over 2020. Whilst it has suffered
from fairly stringent lockdowns for most of 2021,
strong relationships with customers and demand
for bulkhead products in the key mining vertical
delivered the revenue growth. Asia, our smallest
market, saw revenue decline by 46% with
COVID-19 restrictions making travel very
challenging, limiting access to customers.
There was an 820bps improvement in gross margin
year on year to 37%. The material cost reduction
programmes on key product lines, improved factory
efficiency and a full year benefit from 2020 actions
were the main drivers, partially offset by higher
freight costs.
Overheads were £1.6m higher than the prior year
due to a combination of revenue related costs,
increased travel costs for our large field-based
sales force, bonuses and the reversal of salary
reductions and furloughs made in 2020 during
the peak of the pandemic.
Signals & Components
Signals & Components
Revenue
Gross profit
Gross profit %
Overheads
Underlying EBIT
2021
£m
41.1
13.3
2020
£m
37.3
10.3
Variance %
+10%
+29%
2020
at constant
currency
£m
34.8
9.5
32.4%
27.6%
+480bps
27.3%
+510bps
(7.8)
5.5
(7.7)
2.6
(1%)
+112%
(7.3)
2.2
(7%)
+150%
Constant currency
variance %
Release of warranty provision post
sale
+18%
+40%
Release of litigation provision
Total
Cash impact
Signals & Components is a high-volume business
operating within highly competitive markets.
There are three main elements to this business:
traffic lights, opto-electronic (“OE”) components
and vehicle lights.
This division performed well during 2021 with
revenue up 10%. High customer demand drove OE
revenue up 26%, helped by increased sales of new
products and expansion of our distributor footprint.
Traffic improved by 13% despite significant material
shortages, especially LEDs and power supplies.
Vehicle grew by only 5%, with a weak bus market
suffering from low ridership levels. With revenue
more heavily weighted to the higher margin OE
products we saw gross margin improve by 480bps.
With only a marginal increase in overheads,
underlying EBIT profit of £5.5m for the year
was over double 2020 and we enter 2022
with a strong order book.
Central overheads
Central overheads comprise costs that are not
directly attributable to a segment and are shown
separately. In the year, they were £6.3m, an increase
of £0.4m as COVID-19 related salary reductions
by the Board and senior managers were reversed
and a bonus accrual made following the Group’s
return to profitability.
Non-underlying costs
Non-underlying costs
Redundancy costs
Costs relating to manufacturing
partner
Loss on disposal of subsidiary
2021
£m
–
2.9
–
(0.3)
(0.2)
2.4
2.4
2020
£m
0.9
0.3
0.8
–
0.4
2.4
1.3
In order to give a full understanding of the Group’s
performance and aid comparability between
periods, the Group reports certain items as
non-underlying. These are summarised above,
and further details are in note 6.
The Group has continued to progress its legal
claim against its former manufacturing partner,
Sanmina Corporation, following the termination
in September 2018 of the manufacturing services
agreement. During the year, costs of £2.9m have
been expensed, comprising £2.4m of legal costs
in preparing for litigation and a £0.5m provision
against slow-moving inventory. This inventory was
acquired at transition and was expected to be used
within two years. This has not proved to be the case
and with the cost having been added to the legal
counterclaim against Sanmina during 2021, the
Directors have determined that provision is now
appropriate. Further details on the litigation and
contingent liability are provided in note 27.
Release of warranty provision of £0.3m relates to
unclaimed warranty related to the disposal of the
Group’s Wind business in 2019. The Group has
already received and paid all claims related to this
disposal and the remaining balance of the provision
was therefore released.
Other litigation credit related to employment litigation
cases: a provision of £0.4m (see note 27) was released
as it was not probable that Group would have to pay
for the claims which was netted off with £0.2m legal
cost incurred in the year relating to the cases.
Prior year redundancy costs of £0.9m related to
severance payments for the various initiatives during
the year to right-size the cost base. Costs of £0.7m
relate to legal fees for defending against employment
litigation (£0.4m)and legal costs relating to the legal
claim with the former manufacturing partner (£0.3m).
The loss on disposal of subsidiary related to the sale
of the Group’s Brazil business in November 2020.
Inventory
Inventory levels grew £9.9m over 2020 (£9.6m at
constant currency), driven by an increased holding
of raw materials.
Inventory
Raw materials and sub-assemblies
Finished goods
Spare parts
2021
£m
30.9
11.2
0.3
42.4
2020
£m
19.6
12.6
0.3
32.5
Dialight, in common with many companies, has been
impacted by the global industry-wide commodity
shortages as well as increased shipping times for
inbound raw materials and outbound finished goods.
Supplier lead times have increased, and market
availability reduced for a number of key components,
including semiconductors, LEDs and metals.
Availability and lead time uncertainty, compounded
by supplier de-commits, led to the decision to
increase the level of raw material holdings in order
to safeguard future production and fulfil the high
levels of customer orders being placed.
Dialight plcAnnual Report and Accounts 2021 47
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
As commodity availability improves and shipping
times normalise, the level of raw material holdings
will be reduced. This is not anticipated to occur for
some time, with further reductions delivered in later
years through increased product and sub-assembly
standardisation.
Capital expenditure
During 2021, the Group invested £5.6m in capital
expenditure (2020: £4.5m) with the majority
committed to new product development.
New product development expenditure included
the new 200LPW Vigilant High Bay, a new mid- and
high-output floodlight, a new power supply and
other enhancements to our existing product range.
Maintenance and improvement expenditure focused
on increasing the production capacity in our
factories, replacing end of life machines, new and
upgraded IT hardware and software as well as
carrying out essential health and safety works.
In 2022 the Group is planning to increase the
level of maintenance and expansionary capital
expenditure to c. £10m as we complete a number
of improvement projects that are currently
underway, continue to increase our production
capacity, replace end of life equipment and digitise
the business. We expect the increased spend will
help to facilitate our multi-year growth.
Cash and borrowings
The Group ended the year with net debt of £15.7m,
an increase £4.3m from December 2020. Net debt
excludes lease liabilities related to the adoption of
IFRS 16 “Leases”, which is consistent with the basis
of covenant testing.
The roll forward of net debt was as follows:
Net debt
Opening balance
1 January 2021
Inflows
Underlying EBITDA
Net working capital excluding
inventory
Outflows
Increase in inventory
Investment in new products
Maintenance capex/other
Non underlying costs
Provisions & other movements
Interest paid
FX
Closing balance at
31 December 2021
£m
£m
(11.4)
11.1
5.4
16.5
(9.6)
(3.5)
(2.3)
(2.4)
(1.2)
(1.4)
(0.4)
(20.8)
(15.7)
The main factors behind the increase in net debt were:
– increased inventory to mitigate the impact of
global industry-wide commodity shortages and
increased shipping times
– increased capital investment into new product
development, improving factory capacity and
maintenance (see earlier capital expenditure
section)
– payment of warranty claims, previously provided
on the sale of our Wind business
– an increase in trade receivables resulting from the
growth in revenue that is traditionally weighted
towards the end of quarter four
The interest expense of £1.4m is analysed in note 8
and is expected to be at a similar level in 2022.
Banking
The Group has its banking relationships with
HSBC Bank plc and Wells Fargo. The Group’s
multi-currency revolving credit facility with HSBC of
£25m was due to expire in February 2023 but has
been re-negotiated until March 2025. The new £25m
multi-currency three year loan has been fully
approved and contains normal covenants, covering
maximum net leverage and minimum interest cover
levels. Documentation is ongoing and formal signing
is expected in April. In accordance with the Group’s
strong ESG commitment, the new facility is a
sustainability linked loan.
The Group increased its banking facility with HSBC
on 15 June 2020 by adding a further £10m facility
on a three year basis, utilising a combination of £8m
under the COVID-19 Large Business Interruption
Scheme (“CLBILS”) and a £2m commercial loan.
The £10m additional facilities are repayable over
30 months, in equal instalments, from January 2021.
£4m was repaid in the year, with a further £4m
payable in 2022 and the facilities fully repaid by June
2023 at the latest. At 31 December the Group
had £31m of available funds across both facilities
and £1.2m of cash on hand.
Covenants
As part of the additional £10m funding arrangement,
the Group’s banking covenants based on leverage
and interest cover were replaced by a 12-month
rolling minimum EBITDA test for the periods June
2020 to June 2021 inclusive.
The covenants have now reverted to a maximum
leverage and minimum interest cover level for all
facilities, with the £10m facility having an additional
test based on the ratio of adjusted cash flow
to debt service. The Group was fully compliant with
all its banking covenants at 31 December 2021
and throughout 2021.
Tax
Based on a profit before tax of £0.7m in the year, the
Group had an effective tax rate of 57.1% resulting
in a tax charge of £0.4m. This was higher than our
normalised rate of 28.6% due to UK trading losses
for which we are not recognising a deferred tax
asset and other non-deductible costs, partially
offset by a continued benefit from the Cares Act in
the US which allows us to reclaim £0.4m. The 2022
effective tax rate is expected to be c. 25%.
In the year we paid £0.6m in corporation tax on
operations in Australia and Malaysia.
Pension costs
The Group has two defined benefit schemes that
are closed to new entrants. The aggregate surplus
on both schemes is £3.9m, an increase of £2.7m
from 31 December 2020. The increase is the result
of actuarial gains from changes in demographic and
financial assumptions, as well as investment returns
being higher than expected and cash contributions.
The cash cost of the scheme in 2021 was £0.4m
(2020: £0.4m) as agreed with the Trustees following
the 2019 valuation. The next valuation is due in
April 2022 and, once this is completed, cash
contribution levels will be re-negotiated.
Capital management and dividend
The Board’s policy is to have a strong capital base
in order to maintain customer, investor and creditor
confidence and to sustain future development of the
business. The Board considers consolidated total
equity as capital. At 31 December 2021 this equated
to £60.2m (2020: £57.3m).
The emphasis in 2021 was on profitably growing
revenue and maintaining availability of component
supplies during a period of global industry-wide
commodity shortages, which has led to the
higher-than-normal level of inventory. Distributions
are not permitted under the terms of the CLBILS
facility whilst there is debt outstanding, with the last
repayment due in June 2023. Therefore, the Board
is not proposing a final dividend payment for 2021
(2020: nil). The Group has a clear capital
allocation discipline and is committed to returning
excess funds to shareholders via future
dividend or share repurchase.
Dialight plcAnnual Report and Accounts 2021 48
GOING CONCERN STATEMENT
In accordance with provisions of the UK Corporate
Governance Code and considering the Group’s
current position and its principal risks for a period
longer than the 12 months required by the going
concern statement, the Board has also considered
the Company’s longer-term viability.
Going concern
The Directors have performed a robust going
concern assessment including a detailed review
of the base case financial forecast and considered
potential downside scenarios alongside the
principal risks faced by the Group.
In assessing the going concern assumptions,
the Directors have prepared various scenarios
that reflect the continuing impact of COVID-19,
worldwide commodity shortages, extended logistics
delays, government enforced restrictions in the
countries we operate in, the extent to which
performance is recovering as these restrictions
lift, the associated forecast outturns alongside
identified downside risks and mitigating actions.
The Group has modelled two main scenarios in its
assessment of going concern, being the base case
and a downside scenario.
Base case
The base case is derived from the Board approved
2022 budget and strategic plan, which assume,
consistent with current trading patterns, that our
factories continue to have “essential business”
status and operate as normal. In this scenario, the
Directors consider that the Group will continue to
operate within its available committed facilities of
£31m (see note 23) with sufficient headroom and
meet its financial covenant obligations.
The key assumptions in the base case include:
– Lighting growth consistent with 2021 driven
by a strong level of project-based activity
– gross margin reflects levels consistent with the
final quarter of 2021
– operating costs flexed in line with the incremental
revenue
Downside case
In a severe but plausible downside scenario, the
Directors have assumed continuing adverse impacts
from a prolonged global pandemic with severe
impact to our customers, suppliers and operations.
The associated forecast has considered the
following identified downside risks:
– Significantly lower revenue growth in 2022 as
compared with 2021, with lower growth in 2023
and 2024 growth reverting to normal levels but
from a lower base
– Gross margin reductions ranging from 1.9% to
2.9% over the three years
– Only 75% of the targeted inventory unwind is
achieved in 2022
– Litigation by the former manufacturing partner is
settled at the maximum liability of their claim and
the Dialight claim for damages in excess of
£190m is unsuccessful
In all these scenarios, the Group assumes a series
of mitigating actions can be put in place swiftly,
including various temporary and permanent cost
and cash reductions.
In the severe but plausible downside scenario,
the Group continues to retain sufficient committed
headroom on liquidity and is able to meet its
financial covenant obligations within the going
concern assessment period. The scenario shows
the Group maintains a strong balance sheet, with
net debt headroom of at least £10m. Consequently,
the Directors are confident that the Group will have
sufficient funds to continue to meet their liabilities
as they fall due for at least 12 months from the date
of approval of the financial statements and therefore
have prepared the financial statements on a going
concern basis.
VIABILITY STATEMENT
The Directors have assessed the Group’s longer-
term prospects, primarily with reference to the
Board approved 2022 budget and strategic plan.
In reviewing the Company’s viability, the Board has
identified the following factors which they believe
support its assessment:
This is driven by the Group’s business model and
strategy as detailed on pages 17 to 18, which are
fundamental to understanding the future direction of
the business, while factoring in the Group’s principal
risks detailed on pages 42 to 44.
– continued strong market drivers for LED adoption
due to the increasing focus on sustainability;
– the Group operates in diverse end markets, with
no material individual customer concentration;
– positive customer and distributor feedback and
invitations to bid on large projects;
– current order book levels, improved sales
performance in 2021 and pipeline expectations;
– new product development to close portfolio gaps;
– the Group’s resilience in addressing the
operational, materials and supply chain
challenges over the last 12 months;
– continued strengthening of balance sheet and
strong cash generation during the assessment
period; and
– the Group’s long-term, strong relationship with
HSBC and its ability to secure approval for the
renewal of the Group’s three year £25m revolving
credit facility with HSBC until March 2025, as set
out in note 23.
Based on this robust assessment, the Board
confirms that it has a reasonable expectation that
the Group will be able to continue in operation and
meet its liabilities as they fall due over the three-year
period to 31 December 2024.
The Board has assessed the viability of the Group
over a three-year period, taking into account the
Group’s current position and the potential impact
of the principal risks and uncertainties. Whilst the
Board has no reason to believe that the Group will
not be viable over a longer period, it has determined
that three years is an appropriate period.
In drawing its conclusion, the Board has aligned
the period of viability assessment with the Group’s
three-year strategic plan which increases the
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 its 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 as for
the going concern statement. These scenarios
included a delay in the recovery from the effects of
COVID-19, lower gross margins, lower reductions
in inventory levels 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
borrowing covenants was considered, along
with any mitigating factors.
Dialight plcAnnual Report and Accounts 2021 49
CHAIR'S INTRODUCTION TO GOVERNANCE
LEADING WITH
PURPOSE
Karen Oliver
Board Chair
Dear shareholders
On behalf of the Board, I am pleased to report on
Dialight’s corporate governance during the past
financial year. This part of our Annual Report explains
Dialight’s governance framework and outlines how
it was applied, on a practical basis, in the year
under review.
Overview
The Board’s role in setting the Group’s culture and core values is a significant
one and the Executive Directors and Non-Executive Directors (“NEDs”) work as a
team to ensure the success of the Group. Fariyal Khanbabi and I speak frequently
with each other, and I am very grateful to all the Board members who have given
their time to support the management team, in various capacities, across another
challenging year. 2021 has demonstrated that the Board’s diversity and
cohesiveness continue to enable a culture across the Group of agile decision
making and speed of reaction to events, whilst maintaining the innovative drive
that has been the hallmark of Dialight’s successes in the past.
Stakeholder engagement
As a Board, we are accountable to all our shareholders and must have regard to
other stakeholders such as employees, customers, suppliers and the environment.
We maintain an active dialogue with shareholders throughout the year on a
number of different levels and believe that ongoing engagement and listening
to the views of all our stakeholders is key to the long-term success of Dialight.
Fariyal Khanbabi and I lead on shareholder engagement generally, whilst Gaëlle
Hotellier leads on remuneration matters. We have strengthened Board
engagement with our employees with Gaëlle also taking on the role of Workforce
Engagement NED.
Leadership and Board changes
There have been significant changes across the Board over the past 12 months,
but I am confident that succession planning has operated well, and we have
maintained a balance of core knowledge of the business with fresh ideas and
approaches. In April 2020 Gotthard Haug (with an extensive manufacturing
background) joined the Board – and this allowed Stephen Bird to step down
from the Board in September 2021, without any loss of core manufacturing
expertise. Stephen was approaching the end of his nine years’ service on the
Board, and we are all hugely grateful for his contribution over his term of service
and wish him the very best in the future.
In September 2021 David Blood stepped down as Chair. David has provided
invaluable continuity and strong leadership during his time as Chair and intends
to stand for re-election as a NED at the 2022 Annual General Meeting (“AGM”).
Lastly, we are very pleased to welcome Clive Jennings to the Board as CFO.
Although he was formally appointed to the Board as a Director in January 2022,
Clive has served as Interim CFO and has attended Board meetings since
May 2021. He has extensive experience as a FTSE 250 CFO and gained
manufacturing experience in a CFO role at McBride plc. Clive will be standing
for election to the Board at the forthcoming AGM. Further details on Board
composition and leadership can be found on pages 53 to 59.
We also welcome the opportunity to answer shareholders’ questions at our 2022
AGM. Further details of stakeholder engagement are on pages 50 to 52, and
page 59.
Diversity
As a Board we continue to prioritise cognitive and experiential diversity
as a key indicator of independence 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 a natural balance in
terms of gender, nationality and ethnic background. Further details of Board
composition are on pages 53 to 55.
Board priorities
Our priorities for 2022 are very much focused on building on the operational
improvements made in 2021, achieving further sustainable growth in the Group
and delivering on our strategic plan with a strong governance underpin.
Karen Oliver
Board Chair
27 March 2022
Board focus areas in 2021
– Strategic overview of improvements in financial and operational performance.
– Continued investment in people, products and delivering our ESG strategy.
– Strengthening stakeholder engagement.
– Delivery on Board succession planning.
– Risk management of employee health and welfare and of supply
chain challenges.
Dialight plcAnnual Report and Accounts 2021 50
COMPLIANCE STATEMENTS
UK Corporate Governance Code 2018
Throughout the year ended 31 December 2021, the
Company has complied with the provisions as set
out in the UK Corporate Governance Code 2018
(the “2018 Code”) (a copy of which is available on
the Financial Reporting Council’s website at
www.frc.org.uk) in all respects except that David
Blood (who stepped down as Chair on 10 September
2021) was not deemed to be independent upon
appointment to the Chair role (Provision 9).
An explanation of the Board’s view on this matter is
set out on page 60. A summary of compliance against
the 2018 Code is included opposite.
Risk management and internal control
The Group’s approach to risk management and
internal control is set out on pages 40, 41 and 63.
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 50 to 52.
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
S172 statement
Section 1:
Board leadership and Company purpose
Opportunities and risks/sustainability of business model/governance delivering strategy
1.
2. Board activities/investment in workforce
3. Communication with shareholders
5. s172 statement
6. Mechanism for workforce concerns
7. Management of conflicts of interest
Section 2:
Board division of responsibilities
Chair independence on appointment (current Chair)
9.
10. Statement on non-executive independence
11. 50% of Board to be independent
12. Identification of Senior Independent NED
13. Board review process and independence
14. Division of responsibilities
Section 3:
Board composition, succession and evaluation
18. Annual re-election of directors
20. Use of external search agency
21. Formal and rigorous annual evaluation
23. Report on work of the Nominations Committee
Section 4:
Audit, risk and internal controls
26. Report on work of the Audit Committee
28. Emerging and principal risks
30. Going concern statement
31. Viability statement
Section 5:
Remuneration
35. External remuneration consultant
36. Post-employment shareholding requirements
37. Use of discretion to override formulaic outcomes
38. Executive director pension alignment with workforce
41. Description of work of the Remuneration Committee
Engagement with shareholders
Alignment of executive director remuneration with wider pay policy
Application of discretion on outcomes
Compliant
Yes
Yes
Yes
Yes
Yes
Yes
Compliant
Yes
Yes
Yes
Yes
Yes
Yes
Compliant
Yes
Yes
Yes
Yes
Compliant
Yes
Yes
Yes
Yes
Compliant
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
The Board has a duty to promote the long-term,
sustainable success of the Company and of the wider
Group. The baseline duty is set out in s172 of the
Companies Act 2006, but in reality, the breadth of factors
considered by the Board in its decision-making process is
far wider – including a range of statutory and other factors.
Board decision making will always encompass:
– the likely consequences of any decision in the long term
and the risks to the Group and its stakeholders;
– the interests and wellbeing of our people and of the
communities where we have a presence;
– the impact of our products and businesses on the
environment and the need to “decarbonise” our inbound
and outbound supply chains and our manufacturing and
other operations;
– the Group’s relationships with its customers and
suppliers; and
– the importance of our reputation for integrity and high
standards of business conduct.
Dialight believes that a key mechanism in ensuring
that it makes good long-term and sustainable decisions
is open, two-way dialogue with all our key stakeholders.
We believe that understanding the perspective and needs
of our stakeholders is vital to the Group’s success.
Good governance and our business ethics and integrity
are essential for Dialight to continue to be an attractive
company for our investors, employer for our employees,
partner for our suppliers and distributors, and
manufacturer of our long-life products for our customers.
This s172 statement sign-posts some of the main ways in
which we have engaged with stakeholders across 2021
and built confidence in the sustainability of their
relationship with the Group. It should be read in
conjunction with:
– the Chair’s Statement on pages 5 to 6;
– the Group Chief Executive’s Review on pages 11 to 13;
– the ESG Report on pages 19 to 39;
– Risk Management on pages 40 to 44;
– the Chief Finance Officer’s Review on pages 45 to 47;
and
– the Governance and related reports on pages 49 to 82.
See
page
11-44, 53-57
24-27, 52, 58
59
50-52
29
60
See
page
60
53, 57, 60
53, 57
54
60
55
See
page
60
60
60
61
See
page
62-64
42-44
48
48
See
page
66
71
66, 71
67, 69
65-79
66, 73
67-73
66, 71
Dialight plcAnnual Report and Accounts 2021
51
COMPLIANCE STATEMENTS
CONTINUED
Stakeholder
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 differently in 2021
Dialight has a long-standing presence through our manufacturing plants in
Mexico; Roxboro, US; 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
– Dialight Foundation has continued fund-raising within our employee
and partner communities.
– Dispersal of funds to local community charities by the
from factory locations and food vouchers.
Dialight Foundation.
– Establishment 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.
– Dedicated “volunteering day” across the whole Group to
encourage employee involvement in local communities.
– Enhanced benefits for workers and paid leave for “at risk” workers
where minimum local government support during COVID-19
pandemic (helping to reduce community infection rates).
CUSTOMERS
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
– Incremental improvements in existing best-practice, new product
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.
development management and review process.
– Maintenance of on-site task-focused team-working throughout
COVID-19 lockdowns (in compliance with local regulations) on
a rotational basis.
– Specific focus on maintaining development review gates despite
remote working through new collaborative tools.
– Detailed new product development management and review
– Extension of post-launch product and commercial review cycle.
process integrated with sales and commercial reviews.
ENVIRONMENT
On a wider perspective, we believe that Dialight and its product offering can
be at the forefront of efforts to “decarbonise”, promote the success of
sustainable GHG-neutral products and services, and reverse environmental
damage historically caused by the sectors we operate in. We see an absolute
confluence of interest in promoting GHG-neutral products and the interests of
all our key stakeholders (not least our shareholders) – as we believe that
knowledge of the low GHG density of our products, the inherent power
efficiency of our technology (including LED light generation generally) and our
extended product life-cycle will be key drivers of the future success of the
Group. We view engagement with all our stakeholders on environmental
matters to be a central element of our future strategy.
– Dialight products already benefit from high power efficiency
– Roll out of Environmental Product Declarations that comply with
(through design and utilisation of LED technology) and
extended life-cycles (typically 10-year warranties on solid state
logic (“SSL”) products). This inherently positive impact on the
environment is recognised with our FTSE Green Economy Mark
certification.
– Supply chain codes of conduct and screening in respect of raw
material tracing and impacts (e.g. conflict minerals).
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 CO2 equivalent per
unit of product).
– Implementation 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.
– Commitment to Net Zero with SBTi and setting outline plans for
scientific targets which will be further developed during 2022 to
achieve this.
Dialight plcAnnual Report and Accounts 2021 52
COMPLIANCE STATEMENTS
CONTINUED
Stakeholder
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 differently in 2021
Dialight has a diverse mix of employees across four continents ranging from
manufacturing production operatives to highly skilled design engineers.
We are entirely reliant upon our workforce for our differentiating innovation,
efficient and high-quality manufacturing production, and for sales of our
product in our end markets. We need to retain our skilled staff as well as
attract highly skilled talent to new roles. By understanding the motivations,
talents, ambitions, needs and concerns of our employees we can best secure
an innovative, adaptable and highly productive workforce that will operate as a
team and, in turn, secure the future success of the Group.
– Ongoing focus on communications with, and policies for,
– Monthly all-employee calls with the CEO and executive team to
employees relating to employee health, safety, and welfare.
– Employee surveys.
– Training and development.
– One-on-one and skip-level meetings with the designated
Workforce Engagement Non-Executive Director.
– Site visits by members of the Board (conducted physically
and online).
– Update newsletters from the Group Chief Executive.
– Whistleblowing hotline.
keep all our employees updated on progress in COVID-19
precautions across the Group and focusing on employee health
and welfare.
– Specific welfare precautions for employees at our manufacturing
plants including additional food supplies, paid leave (for high-risk
individuals), and in-house medical care.
– Implementation across the Group of additional health and safety
COVID-19 precautions including personal protective equipment
and protocols.
– Enhanced internal audit by senior management (or third parties
where travel restrictions require) to ensure COVID-19 precaution
compliance and employee health and welfare.
INVESTORS
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.
– Increased depth and frequency of reporting by senior management
to the Board to provide assurance to the Board on adequacy of
communications with investors during COVID-19 pandemic.
– More frequent discussions with existing shareholders and lenders.
– Revised 2021 Remuneration Policy brought Dialight into line with
best practice and aligned Executive Director and employee
incentive structures.
– High level of shareholder satisfaction with governance standards
evidenced by AGM voting levels.
PARTNERS
Our key commercial partner relationships are spread across the inbound
supply chain and our outbound distribution networks. With our high-SKU
product range, we are highly reliant upon the integrity and efficiency of our
supply chain. We were a first-mover in the introduction of long-warranty
products (typically 10 years for SSL), but this in turn requires high levels of
assurance over the consistency and reliability of component parts for our
manufacturing operations. Our sales model is a hybrid of active direct selling,
active indirect selling and indirect product supply. We are therefore highly
reliant upon the strength and depth of our relationships with our distributors
(across all our product ranges).
– Supplier and distributor on-boarding due diligence (financial,
– Rationalisation and localisation (where possible) of our supply chain
quality, business integrity and compliance, component supply,
Modern Slavery etc)
to strengthen product quality, production efficiency, inventory
management and supplier relationships generally.
– Supplier Code of Conduct
– Audits and inspections of suppliers
– Ongoing management of supplier relationships
– CEO and senior management team focus on supply chain
challenges arising from COVID-19 pandemic.
– Further strengthening of supply chain team and processes.
Dialight plcAnnual Report and Accounts 2021 53
BOARD: GOVERNANCE AT A GLANCE
A HIGHLY SKILLED AND BALANCED BOARD
Governance overview
This report aims to provide shareholders and other stakeholders with an understanding of how our Group is
managed and the governance and control framework within which we operate. Dialight, as a smaller company
with a focused product portfolio, benefits from having a lean and agile management structure. Our governance
and controls are integral to the organisation’s operating culture and provide good visibility of the performance of
the business. The Board is focused on getting the right balance between robustness and pragmatism in its
oversight of governance, controls and risk management as the best means of delivering the Group’s strategic
aims of growth, customer relevance and differentiation.
Board
Composition
of the Board
Board NED
independence
Board
tenure
Director
nationalities
Executives 2 (29%)
Non-executives 5
(71%)
Chair (independent
on appointment) 1
Non-independent
NED 1
Independent
NEDs 3 (50%)*
* Calculated excluding Chair
Gender diversity
1-3 years 3 (43%)
4-6 years 2 (29%)
7+ years 2 (29%)
British 3 (43%)
French 1 (14%)
German 1 (14%)
South African 1 (14%)
USA 1 (14%)
Senior Board
roles
Board
Executive
Committee
Group
wide
Female 2 (66%)
Male 1 (34%)
Female 3 (43%)
Male 4 (57%)
Female 2 (15%)
Male 11 (85%)
Female 835 (49.7%)
Male 844 (50.3%)
How the Board supported strategy
Strategy
Implementation
Examples of what we have done
Drive growth in
core markets
Read more on
pages 11-18
Continued
product
innovation
Read more on
pages 11-18
Expand our
market reach
Read more on
pages 11-18
ESG
Read more on
pages 19-39
Sustainable profit growth is at the heart of Board
oversight and forms the basis for both routine
monthly reporting and function-specific reporting
to the Board.
The Board ensures that the right balance is
achieved between short-term operational and
financial performance and investment in the
future products, technology, markets and
product types that will drive long-term
sustainable growth.
The Board reviews and approves the new product
development roadmap and the technology
roadmap – elements of the overarching product
strategy – annually and through ad hoc reviews.
It also periodically reviews the route-to-market
strategy. It then monitors the tactical
implementation of these strategies throughout
the financial year through routine monthly
reporting and function-specific briefings.
The Board reviews and approves the long-term
elements of the overarching product and sales
strategies annually and through ad hoc reviews.
It then monitors the tactical implementation of
these strategies throughout the financial year
through function-specific briefings and
ad hoc consideration of markets and
commercial structures.
– Operations: continuity of manufacturing during COVID-19
pandemic.
– Supply chain: on-shoring and shortening of supply lines.
– Finance: focus on working capital management through
improved inventory management.
– Markets: strong performance in Signals & Components
division and rejuvenation of Obstruction sector.
– Operations: manufacture process improvement (process
and controls).
– Product: maintenance of R&D innovation programmes
during year.
– Product: momentum on new product development and
launches maintained.
– Product: strategic focus on product differentiation through
performance and extended life-cycle.
– Operations: materials innovation to strengthen recyclability
and reduce product carbon density.
– Sales: considerable progress on restructuring the
route-to-market and sales configurations.
– Sales: sales stability and recapturing MRO market share
– Product: designing in product sustainability.
– Product: broadening product families based on common
design platforms.
The Board reviews and approves the Group ESG
strategy (as set out on pages 19 to 35) and
reviews and approves the TCFD report
(pages 36 to 39).
– People: strongly promoting health, safety and welfare
priorities for our workforce (upon whom we rely for future
growth).
– ESG: Environmental Product Declarations certification for key
product lines.
– ESG: embedding corporate carbon/ESG systems and controls.
NED skills and experience matrix
Skills/experience
Industry/sector:
– Manufacturing (general)
– Manufacturing (high-mix, low volume)
– Lighting
– Heavy industrial
CEO role
Strategy
UK plc
Accountancy
Sustainability
Finance/private equity
People / social
Territories:
– Non-US markets
– US markets
Direct
experience
Indirect
experience
–
–
–
–
–
–
–
–
Dialight plcAnnual Report and Accounts 2021
54
BOARD: LEADERSHIP AND COMPANY PURPOSE
Karen Oliver
Board Chair
(Independent upon
appointment as Chair)
R
N
Appointed
1 April 2020. Appointed
as Chair of the Board
on 10 September 2021.
Background and career
Karen was, until April 2021,
Chair of the Arvos Group,
which is a world-leading
manufacturer of industrial
equipment headquartered in
Luxembourg. She was formerly
Managing Director
of Johnson Matthey plc’s
Chemicals business; Head of
Strategy & Business Planning
at Foster Wheeler AG; and
Head of Global Business
Development, Tonnage at the
Linde Group. Karen was also
a non-executive director of
African Oxygen Ltd, which is
listed on the Johannesburg
Stock Exchange and the
Namibian Stock Exchange.
Karen holds a BSc in Chemical
Engineering from the University
of Cape Town.
Fariyal Khanbabi
Group Chief Executive
(Executive, non-independent)
Clive Jennings
Chief Financial Officer
(Executive, non-independent)
David Thomas
Senior Independent Director
(Independent)
Gaëlle Hotellier
Workforce Engagement
Non-Executive Director
(Independent)
David Blood
Non-Executive Director
(Non-independent)
Gotthard Haug
Non-Executive Director
(Independent)
A
N
R
S
R
A
N
WE
N
A
N
Appointed
Appointed Group Chief
Executive on 5 March 2020.
Formerly interim CEO since
10 August 2019, and prior
to that CFO.
Background and career
From 2009 until September
2014, Fariyal was Chief
Financial Officer at Blue
Ocean Group, an independent
privately-owned £4bn revenue
fuel trading and distribution
business. She has over 10
years’ experience in senior
financial positions, including
roles at NYSE and Nasdaq-
listed companies. Fariyal joined
Dialight as CFO on
8 September 2014.
Appointed
Joined Dialight as Interim CFO
on 4 May 2021. Appointed as
Executive Director and CFO
on 18 January 2022.
Appointed
26 April 2016. Appointed as
Senior Independent Director
on 10 September 2021.
Appointed
3 October 2016.
Appointed Workforce
Engagement Non-Executive
Director from 1 September 2021.
Appointed
1 July 2015. Appointed Chair
of the Board on 5 August 2019.
Resigned as Chair effective
10 September 2021.
Appointed
1 April 2020. Appointed to
the Nominations Committee
on 30 July 2020.
Background and career
David was Chief Financial
Officer at Invensys plc from
2011 until his retirement in
2014, having held senior roles
across the business since
2002. Prior to joining Invensys,
he was a Senior Partner in Ernst
& Young LLP, specialising in
long-term industrial contracting
businesses. He is also a former
member of the Auditing
Practices Board.
Background and career
Clive has over 25 years of
finance experience in large
listed multinationals in the
gaming, entertainment,
hospitality and consumer
goods manufacturing sectors,
most recently as CFO of The
Rank Group plc and as Interim
CFO at McBride plc. Over his
19 years in the Rank Group, he
held a number of senior global
and divisional finance roles,
becoming CFO in July 2011.
Prior to the Rank Group, Clive’s
career has included senior
finance roles, working for Lex
Service plc and Forte plc.
Clive has a BSc in Business
Economics from Southampton
University and is a qualified
chartered accountant.
Background and career
Gaëlle is Executive Vice
President, Operations at
Krohne Group. She worked for
the Siemens Group from 2002 to
2021, during which time she held
various senior management
roles, most recently in charge of
Global Operations for the
Generation Service unit within
Siemens Energy AG.
Between 2013 and 2015, Gaëlle
was an Executive Board member
of the EU’s Fuel Cell Hydrogen
Joint Undertaking, a
public-private partnership with
the European Commission.
She is also a former Chair of the
Supervisory Board of Siemens
Industriegetriebe GmbH in Penig
and was a Member of the
Advisory Board of Berthold
Vollers GmbH.
Background and career
David is a Founding Partner
and Senior Partner of
Generation Investment
Management. Previously,
David spent 18 years at
Goldman Sachs including
serving as CEO of Goldman
Sachs Asset Management.
Background and career
Among his many senior roles
in the manufacturing industry,
Gotthard was previously
CEO and CFO of Teleplan
International and a Non-
Executive Director of Psion.
He was also the Chairman of
Ultratec Ltd.
David received a BA from
Hamilton College and an MBA
from Harvard Business School.
Gotthard holds an MBA and a
BA from Ludwig-Maximilians
Universität München.
Current external appointments
Independent consultant.
Current external appointments
None.
Current external appointments
None.
Current external appointments
David is a Non-Executive
Director and Audit Committee
Chair of Victrex plc.
Current external appointments
Gaëlle is Executive Vice
President, Operations at
Krohne Group.
Current external appointments
David is the Senior Partner of
Generation Investment
Management. He is Chair of
Social Finance UK and
co-Chair of the World
Resources Institute, and on
the board of On the Edge
Conservation. He also serves
as Chairperson of Just
Climate. David is a life Trustee
of Hamilton College.
Current external appointments
Gotthard is the Executive Chair
of Ivy Technology, a leading
global electronics repair and
service provider to many of the
world’s largest tech, med-tech
and telecommunications
companies. He is also a Partner
of “taskforce – Management
on Demand GmbH”, an
Advisory Board Member
of iGlobe Partners and an
Independent Consultant and
Interim Executive of Minerva
Management Partners.
Key
Appointments
and Committee
membership
N
A
R
D
WE
S
Nominations Committee
Audit Committee
Remuneration Committee
Disclosure Committee
Workforce
Engagement NED
Senior Independent
Director
Committee Chair
Board departures
in the year
1. Stephen Bird
2. Wai Kuen Chiang
Dialight plcAnnual Report and Accounts 2021 55
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES
The Board of Directors is the principal decision making body of the Company. The Company’s governance framework is structured to maintain good oversight and control over: finance and management reporting; compliance/regulatory matters; risk
management; and approval of material decisions. Except for those Matters Reserved to the Board, it operates through delegating much of its detailed review work to sub-committees and other committees incorporating a wide spectrum of senior Dialight
management. The schematic on the next page summarises the Company’s governance structure and division of delegated responsibilities. Within the operations of the Board itself, responsibilities are allocated to individual roles as shown below.
NON-EXECUTIVE
Chair
Governance
– Promoting high standards of corporate governance
– Leading, chairing and managing the Board
– Ensuring all Board Committees are properly structured and operate with appropriate terms of reference
– Regularly considering the composition and succession planning of the Board and its Committees
– Ensuring that the Board’s and its Committees’ performance 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 (“WENED”)
– 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, and encouraging diversity and inclusion
Company Secretary
– Acting as a sounding board for the Chair and other Directors
– Ensuring clear and timely information flow to the Board and its Committees
– Providing advice and support to the Board on matters of corporate governance and risk
Dialight plcAnnual Report and Accounts 2021 56
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES
The role of the Board and its
Committees during the year
The Board retains control over all matters formally
reserved to the Board (see page 57), 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.
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 activities - see pages 57 to 58, Director biographies – see page 54
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
BOARD COMMITTEES
AUDIT COMMITTEE
– Monitors the integrity of financial
statements, formal announcements
relating to the Company’s financial
performance and the Company’s
narrative reporting
– Oversees risk management and
internal controls
– Considers the requirement
for an internal audit function
– Reviews external auditor
independence and leads the audit
tender process
NOMINATIONS COMMITTEE
– Reviews the structure, size and
composition of the Board
– Oversees the Board’s succession
planning
– Keeps under review the leadership
needs of, and succession planning for,
the Company
REMUNERATION COMMITTEE
– Sets and keeps under review the
framework and policy on Executive
Director and senior management
remuneration (including pension
arrangements)
– Evaluates the advice of external
remuneration consultants when
reviewing remuneration structures for
Executive Directors and senior
management
– Approves the design and targets
framework for share incentive plans
Audit Committee report on page 62
Nominations Committee report on page 61
Remuneration Committee report on pages 65 to 79
DISCLOSURE COMMITTEE
– Manages compliance with public
reporting and announcement
requirements
RISK COMMITTEE
– Management committee chaired
by the Group General Counsel
– Manages the periodic review of
Group risks
– Maintains the Group risk register
MANAGEMENT COMMITTEES
EXECUTIVE COMMITTEE
– Management committee (with
senior functional heads from across
the Group), chaired by the CEO,
which meets weekly and reviews
operational matters and business
performance
– Reinforces the operational and
governance structures in place across
the Group
– Acts as a forum for management
decision making
DIALIGHT FOUNDATION
– Chaired by the CEO, with the
remainder of the Board comprised
of employee representatives from
across the Group
– Dispenses central funds, and engages
in fund raising, for charitable purposes
in the communities where we are
based
– Maintains an employee hardship fund.
ESG COMMITTEE
– Chaired by CEO
– Acts as a cross-functional forum
for ESG matters
See Risk Management on pages 40 to 44
See page 27
See pages 28 and 29
Dialight plcAnnual Report and Accounts 2021
57
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES CONTINUED
The Board currently comprises seven Directors, who bring a wide variety of skills and experience to the Boardroom. With two Executive Directors and five Non-Executive Directors (including the Chair) of whom three (excluding the Chair) have been judged by the Board under
Provision 10 of the 2018 Code to be independent, there is 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 planned further independent Non-Executive Director recruitment is provided on page 61.
STANDING BOARD AGENDA ITEMS
MATTERS RESERVED TO THE BOARD
INDEPENDENCE
– Review and approval of the
previous minutes
and commercial strategy
– Setting the Group’s long-term objectives
– The 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 and 10
of the 2018 Code), is considered to be
independent in character and judgement
in performing his duties as a Director
– Status update on any matters outstanding
– Approving annual operating and
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
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 meeting attendance
Board member
Karen Oliver
David Blood
David Thomas
Fariyal Khanbabi
Gaëlle Hotellier
Gotthard Haug
Stephen Bird1
Wai Kuen Chiang2
Clive Jennings3
Scheduled
meeting
Ad hoc
meeting
8/8
8/8
8/8
8/8
8/8
8/8
5/5
2/2
6/6
3/3
3/3
3/3
3/3
3/3
3/3
2/2
1/1
1/1
Total
11/11
11/11
11/11
11/11
11/11
11/11
7/7
3/3
7/7
1. Stephen Bird retired from the Board as a Director on
10 September 2021.
2. Wai Kuen Chiang stepped down from the Board as a
Director prior to the 2021 AGM on 18 May 2021.
3. Clive Jennings attended Board meetings from his
appointment as interim CFO on 4 May 2021 but was not
appointed as a Director until 18 January 2022.
Dialight plcAnnual Report and Accounts 2021 58
GOVERNANCE STRUCTURE AND DIVISION OF RESPONSIBILITIES CONTINUED
Board activities during 2021
STRATEGIC REVIEWS
– Strategy, investor relations and
communications
– Review of IT and digitisation strategy
– Strategic reviews including the three-year
strategic plan
– Review of organisational structure
– Strategic growth opportunities
– Communications strategy
– Review of regional sales strategy
ALIGNMENT OF GROUP OBJECTIVES WITH
SHAREHOLDERS
– Review of feedback from, and engagement
with, shareholders
– Annual review of Group strategy
– Review of capital allocation decisions
– Annual Board evaluation
EMPLOYEE HEALTH, SAFETY AND WELFARE
FINANCIAL AND OPERATIONAL
– COVID-19 reporting and responses
– Reviewing accident frequency rates
– Reviewing any reports of near misses
– General employee wellness in light of the
pandemic
– 2022 Group budget
– Half year results, full year results and
trading updates
– Review of Group cash position and
forecasting
– Ensuring safe and comfortable working
environments
– Review of global taxation landscape
– Monthly performance reporting and review
PEOPLE, TALENT AND CULTURE
GOVERNANCE, COMPLIANCE AND ETHICS
RISK MANAGEMENT AND ASSURANCE
ENVIRONMENT AND SOCIAL
– Succession planning and talent
development for all senior roles
– Review and discussion of the external Board
– Ensuring adequacy of the risk management
and committee evaluations
framework
– Review of strengthening operations and
– Review of Chair and Non-Executive Director
– Overseeing the findings of the Risk
– Review of Dialight Foundation activities
– ESG strategy approval and overview
– ESG reporting approvals
sales teams
fees
– WENED reports direct to Board on people
– AGM business, review of Annual Report, and
issues
review of compliance reports
– Review of cyber security
– Modern Slavery Act 2015 Statement
approval
Committee
– Reviewing the output of internal audit
– Reviewing any whistleblowing instances
Dialight plcAnnual Report and Accounts 2021 59
BOARD: LEADERSHIP AND ENGAGEMENT
How the Board engages
Commercial engagement (customers, suppliers and partners)
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 (subject to the restrictions imposed by the COVID-19 pandemic) 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.
Fariyal Khanbabi
CEO
Clive Jennings
CFO
Shareholder engagement
Fariyal Khanbabi
CEO
Clive Jennings
CFO
Karen Oliver
Board Chair
David Thomas
SID
General engagement with investors
– Engagement with investors is led by the CEO but is a collective responsibility of the Board.
– Board is committed to strengthening communications with investors.
– Primary contact with shareholders, on a day-to-day basis, is through the Executive Directors.
– Overall responsibility for ensuring the effectiveness of communication with shareholders lies with the Chair.
Company announcements and website
– The Company releases announcements via the Regulatory News Service – all of which are publicly available and
can be accessed through the Company’s website (www.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 (www.dialight.com).
– Shareholders can register on the website to receive email alerts.
Executive Directors
Commercial engagement is an Executive Director responsibility and led by the CEO. Whist direct in-person
and on-site visits with customers, distributors and other partners has necessarily been restricted during the
COVID-19 pandemic, the Executive Directors have in the past prioritised proximity with customers and
distributors for themselves and product development teams, facilitated by the direct sales force.
Commercial engagement
– Customers. The Executive Directors engage with customers directly through site visits and assisting strategic
sales activity, and indirectly through monthly reporting by the direct sales teams (both territorially-based and with
the strategic accounts team).
– Distributors. Our indirect sales model (using distributors) places great importance on maintaining good relations
with our distribution networks: attending distributor conferences; attending meetings of purchasing groups and
other distributor bodies; and pursuing other opportunities to support our indirect sales team.
– Suppliers. Relations with key suppliers are generally managed indirectly through Executive Committee level
direct reports of the Executive Directors with operational and supply chain responsibilities – i.e. through weekly
and monthly review meetings and formal reporting.
– Other commercial partners. The Group has a range of other partners who are managed, on a case-by-case
basis, by the Executive Directors or other members of the Executive Committee team.
Reporting to Board.
The executive team reports monthly to the Board on a range of corporate, financial and commercial issues
including feedback from customers, suppliers and other partners.
Engagement with employees and our local communities
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 (www.dialight.com).
– The COVID-19 pandemic has meant the suspension of the previous standard practice of face-to-face briefings
for large investors and research analysts and other interested parties in relation to half year and full year results.
This practice has been replaced with pre-recorded video presentations (which can be accessed through the
Company’s website – www.dialight.com) followed by one-on-one meetings with investors and others wishing
to meet the management team.
Fariyal Khanbabi
CEO
Gaëlle Hotellier
Workforce
Engagement NED
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
– Our AGMs for Dialight shareholders in 2020 and 2021 were impacted by COVID-19 pandemic.
– We hope that in 2022 we can revert to the more open format of a public meeting, with increased accessibility
with a remote video facility alongside. The shareholders approved an amendment to the Company Articles of
Association in 2020 permitting hybrid meetings and we hope that this will result in a wider range of investors
participating. The hybrid meetings arrangements will enable remote voting/participation during the meeting.
– 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 despatched in April 2022). The 2022 AGM will take place on
19 May 2022.
Workforce Engagement NED
– Direct engagement with workforce through site visits, one-on-one discussions with managers and other
employees selected by the WENED.
– Larger engagements with selected groups of employees from different Company locations without management
present.
Executive Directors
– Engagement with the Dialight workforce is an Executive Director responsibility and led by the CEO – but viewed
as a fundamental task of the entire executive team.
– Board-level engagement is facilitated by monthly Group all-employee calls, frequent visits to manufacturing and
other Group sites by the Executive Directors (COVID-19 permitting) and through reporting by Executive
Committee members and the HR function.
Dialight Foundation
– The Dialight Foundation is the primary conduit for engagement with local communities. Its membership is drawn
from all levels and localities of the Group – ensuring a direct voice for all employees in decision making.
– The Foundation is chaired by the CEO, enabling the CEO to directly represent the voice and needs of our local
communities in Board discussions.
Whistleblower helpline
– The Group operates a confidential whistleblower helpline, facilitated by an independent third party.
– Reports are reviewed confidentially by the Group General Counsel and reported to the Chair of the Audit
Committee (for control/ethics and 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 and 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.
Dialight plcAnnual Report and Accounts 2021 60
BOARD: COMPOSITION, SUCCESSION AND EVALUATION
2021 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 2020 review, (concluded in March 2021)
fed directly into the Board agenda for the reporting year and in the execution of the 2021 succession planning.
The outcomes of the 2021 review will similarly inform Board administration, agenda planning, strategy and succession
planning. The Board was facilitated by Lintstock, an independent external adviser (i.e. a third-party adviser with no
connection to the Company or any Director other than in respect of these Board evaluation services).
STAGE 1
Questionnaire
(November)
– Detailed
questionnaire
circulated to each
member of the Board
using themes
provided by Board
members.
– Covered all key
Board, Committee
and support
responsibilities/
functions.
– Facilitated by
independent
third-party adviser.
– Responses all
confidential/
anonymised.
– Report collated by
third-party adviser.
STAGE 2
Board review
(December)
– Each Committee met
to review the
circulated report and
discussed key issues/
themes
– Board considered
feedback from
Committees and
reviews, circulated
report and discussed
key issues/themes
– Board considered
any necessary
changes to
Committee/Board
structure and/or
operations
STAGE 3
Director reviews
(January)
– One-on-one
confidential
discussions between
Chair and each
Director on: other
Board members;
individual Director
performance;
Committee issues;
Board issues
– Chair compiled
report for the Board
– One-on-one
confidential
discussions between
SID and each
Director on the
performance of the
Chair
– SID compiled report
for the Board
STAGE 4
Final Board reviews
(March)
– Nominations
Committee discussed
Board review and
individual Director
reviews
– Board considered
Board review and
individual Director
reviews and feedback
from the Nominations
Committee
– Each Director
reviewed in turn for
independence,
performance and
potential re-election
– Board’s final
recommendation on
Director
independence and
re-election
Directors: independence and conflicts of interests
– The Chair, Karen Oliver, was independent on
appointment (10 September 2021) and the Board has
reviewed and agreed that each of David Thomas, Gaëlle
Hotellier and Gotthard Haug remain independent.
– David Blood is not, on a strict interpretation of the
examples that could potentially impair independence set
out in Provision 10 of the 2018 Code, considered to be
independent as a consequence of his connection with
Generation Management LLP (currently the Company’s
second largest shareholder). This was the position on the
date on which he was appointed Chair of the Board on
5 August 2019. However, the Board has always
considered, and continues to consider, David to be
independent in character and judgement in performing his
duties as a Director, and is fully confident that David
would absent himself from any Board discussions at which
any conflict might arise (and would ensure that he did so).
– As David served as Chair until 10 September 2021,
it should be noted that, notwithstanding the non-
independent status of David on appointment (as deemed
under Provisions 9 and 10 of the 2018 Code), the Board,
when considering his potential appointment as Chair,
came to the view that on balance the very considerable
corporate experience and specific knowledge of the
Group that David brought to the role outweighed any
technical non-compliance and was in the best interests
of the Group and of its shareholders generally.
– The Board remains particularly conscious of its duties
under Provision 7 of the 2018 Code to actively manage
general potential conflicts of interest arising from
significant shareholdings and accordingly, David’s letter
of appointment contains additional clauses covering
confidentiality, insider dealings and conflicts of interest
and the Board considers potential conflicts arising at
each and every meeting.
Directors: time allocation
– The Board benefits from the wide variety of skills,
experience and knowledge that each of the Directors
brings to their role. However, being available and
committing sufficient time to the Company is essential.
Therefore, the number of external directorships that a
Non-Executive Director holds is an important
consideration when recruiting and when performing the
annual evaluation of Non-Executive Director effectiveness.
– Executive Directors are permitted to accept one external
appointment, subject to the prior approval of the Chair.
Approval will only be given where the appointment does
not create a conflict of interest with the Group’s activities
and where the role is considered to be beneficial to the
development of the individual (which will, in turn, benefit
the Company).
– In addition to the scheduled Board meetings, Non-
Executive Directors are expected to attend the AGM,
the annual strategy meeting and certain other Company
events and site visits throughout the year. A time
commitment of at least 20 days per annum is the
anticipated requirement for each Non-Executive Director
and this was exceeded in 2021 (taking into account
Committee and other responsibilities). Confirmation is
obtained on appointment from each Non-Executive
Director that they can allocate sufficient time to the role.
– The Chair and Non-Executive Directors also meet twice a
year without Executive Directors present to ensure there is
an opportunity to discuss potentially sensitive matters.
The Senior Independent Director meets with the
Non-Executive Directors, without the Chair present, at
least once per year, to evaluate the Chair’s performance.e.
Directors: re-election
– In compliance with the 2018 Code, all of the Directors in
place at the end of the 2021 financial year will stand for
re-election at the forthcoming AGM. In addition, Clive
Jennings will stand for first election at the AGM.
Following the annual evaluation of the Board and its
Committees, and the recruitment process for Clive
Jennings, 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 and recruitment
– In addition to having responsibility for succession
planning of senior executive roles below Board level, the
Nominations Committee (and the Board generally) are
responsible for succession planning of Board Directors
and the key Board roles. Board succession plans have
been in place across 2021 and resulted in the smooth
transition of Board roles in September 2021.
– The SID (at the time, Stephen Bird) was responsible for
the process of selection of the Chair to replace David
Blood and sought advice and assistance from an external
agency (Hedley May). Similarly, an external search agency
(Egon Zehnder) was engaged in respect of the CFO role.
Egon Zehnder is an independent third-party adviser with
no connection to the Company or any Director other than
in respect of these recruitment services.
– As outlined on page 53, 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.
Dialight plcAnnual Report and Accounts 2021 61
NOMINATIONS COMMITTEE REPORT
disclosable connections with any Board Directors
or with the Group).
Committee activities
Karen Oliver
Chair of the
Nominations Committee
FY2021 highlights
– Implementation of Board Chair/NED succession
planning
– Stabilisation of CFO role
– Diversity – Board composition greater than 40%
female
– Enhanced workforce engagement NED role
FY2022 priorities
– Strengthen senior executive succession planning
– Review of recruitment of additional NED
Main responsibilities of the Committee
– Review size, balance and composition of the Board
and Committees
– Lead process for Board appointments
– Oversee senior executive succession planning
(including diversity)
– Review senior executive leadership requirements for
the Group
– Make recommendations to the Board on the above
Composition of the Committee
Committee member Member from/until
Attendance
Karen Oliver
David Blood
Member from 30
July 2020 – Chair
from 10 September
2021
Member from 23
July 2015 – Chair to
10 September 2021
David Thomas
From 26 April 2016
Gaëlle Hotellier
From 3 October
2016
Gotthard Haug
From 30 July 2020
Stephen Bird
From 10 January
2013 to 10
September 2021
3/3
3/3
3/3
3/3
3/3
3/3
Dear shareholders
Both the Nominations Committee and the Board
as a whole recognise their crucial roles in nurturing
talent and diversity at management and executive
levels at Dialight; and whilst 2021 saw further
changes at Board level; this was driven by the
previous planning work of the Committee with
regards to Board succession.
Board changes
In particular, I would like to thank Stephen Bird who
stepped down from the Board in September 2021,
following over eight years with the Board, and to
David Blood who stepped down as Chair of the
Board on 10 September 2021, but remains on the
Board as a Non-Executive Director.
Stephen provided invaluable experience as the Board
transitioned during a challenging time, and we are all
sorry to see him go and wish him all the very best
with his future appointments. David stepped into the
Chair role at a challenging time for the Company and
his wise counsel and strong leadership have helped
guide the Group as it re-established its in-house
manufacturing capacity and to navigate the
challenges of COVID-19. David will stand for
re-election at the 2022 AGM.
At the same time as the changes to the Chair role
and Stephen’s retirement from the Board, the
Committee reviewed a number of Board roles within
the wider context of its succession planning: David
Thomas became the Senior Independent Director;
Gaëlle Hotellier assumed the Workforce
Engagement NED role; and, Gotthard Haug was
appointed as a member of the Audit Committee.
Following the departure of Wai Kuen Chiang, the
Board received advice from independent external
search firms in 2021 on the search for the CFO and
the appointment of the Chair from Egon Zehnder
and Hedley May (neither of which had any
Diversity
The Board recognises the benefits of Board
cognitive diversity (and we report elsewhere in
this Annual Report on pages 25 to 26 and on
page 53 on workforce diversity) so I am particularly
pleased to see the level of diversity maintained on
the Board (and indeed across the Group) in terms of
experience, gender, qualifications and background.
The fact that we are one of the few listed companies
with two of the most senior Board roles filled by
women illustrates well that Dialight is a place where
any person, regardless of their background, can
thrive. The Board is currently comprised of seven
Directors, three of whom are women (43%).
The spread of nationalities is: three British, one
American, one German, one South African and one
French. The Board remains strongly committed to
enhancing cognitive and other forms of diversity in
its future appointments.
Activities during 2021
As the work of the Committee stabilised across
2021, it met less frequently than in the prior year.
The activities of the Committee are summarised on
these pages and have included discussions on the
need to develop greater strength in depth in senior
management and ongoing succession planning.
Priorities for the coming year
The Committee’s priority for 2022 will be to focus
on succession planning and talent development
at Executive and Board level.
On behalf of the Nominations Committee.
Karen Oliver
Chair of the Nominations Committee
27 March 2022
2021
MARCH
– Annual review of
Directors & Board
– Re-election of Directors
at AGM
JULY
– Board Chair
succession
– Board SID renewal
– Board WENED role
enhancement
– Audit Committee
member appointment
MAY
– CFO renewal process
DECEMBER
– Annual governance
review
– Executive Director
succession planning
Terms of reference
Terms of reference
A copy of the terms of reference (“ToR”) for the
A copy of the terms of reference (ToR) for the
Nominations Committee is available on the
Nominations Committee is available on the
Company’s website or on request from the
Company’s website or on request from the
Company Secretary at the registered office.
Company Secretary at the registered office.
The ToR are reviewed annually by the Committee.
The ToR are reviewed annually by the
Committee.”
Dialight plcAnnual Report and Accounts 2021 62
AUDIT COMMITTEE REPORT
Committee activities
David Thomas
Audit Committee Chair
Key activities during the year
– Consideration of the business forecasts against
available banking facilities as part of going concern
and viability reviews
– Review of the valuation of inventory, focusing on the
provisions for excess and obsolete items
– Assessment of whether internal controls are effective
and functioning as intended
– Review the effectiveness of the risk management
systems to ensure compliance with the responsibilities
of the Board for internal controls and risk management
– Maintain oversight of the risk register, assess the
principal risks and mitigating actions
– Review the Group’s whistleblowing arrangements
– Consider and report on the significant risks and issues
in relation to the financial statements and how these
should be addressed
Main responsibilities of the Committee
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
Dear shareholders
I am pleased to present the Audit Committee report
for the year ended 31 December 2021. This report
provides an insight into the activities undertaken or
overseen by the Audit Committee (‘Committee’) in
what has been another unprecedented year.
COVID-19 continues to cause substantial ongoing
disruption to the Company and, whilst the role and
responsibilities of the Committee during the year have
not changed, we have adjusted the ways that we work
and provide oversight, adopting a more flexible
approach to reflect changes in risks and priorities
throughout the year.
Composition of the Committee
The Committee met three times during 2021 and
has a programme of business reflecting the
Committee’s terms of reference.
Committee member
Member from/until
Attendance
David Thomas (chair)
26 April 2016
Stephen Bird
Resigned 10
September 2021
Gaëlle Hotellier
3 October 2016
Gotthard Haug
Other attendees:
10 September
2021
3/3
2/2
2/3
1/1
– Chief Executive
– Chief Financial Officer
– Group General Counsel & Company Secretary
– Group Financial Controller
– External auditor
The Committee met separately during the year to
discuss matters without management present.
In addition, KPMG was provided with the
opportunity at each meeting to discuss any issues
without the presence of management.
The Chair meets with members of the executive and
management teams as well as KPMG outside of
formal Committee meetings to discuss matters
which fall within the Committee’s terms of reference.
2021
JULY
– Review of
interim results
– Going concern review
– Approval of key
accounting judgements
for interim results
– Audit tender discussion
– Approval of KPMG
audit plan for 2021
MARCH
– Risk management
review
– Going concern
and viability review
– Review of 2020
annual accounts
and preliminary
announcement
– Receiving and
discussing KPMG
presentation on audit
and control matters
– Review and re-
appointment of
KPMG as auditor
DECEMBER
– Audit Committee
evaluation
– Approval of 2021
audit fees
– Approval of tender
process for 2023 audit
– Review of key year-end
accounting judgements
– Review of internal
control framework
and effectiveness
– Approval of 2022
internal audit work plan
– Approval of non-audit
services
– Review of risk register
and climate change
risks ahead of TCFD
disclosure in 2021
Annual Report
Despite a challenging year, the Committee has
continued to discuss and challenge the assumptions
and judgements made by management in the
preparation of the published financial information,
provided input and oversight of the internal controls
processes and risk management and managed the
relationship with the Group’s external auditor, KPMG
LLP (“KPMG”).
The Committee has an annual work plan linked to
the Group’s financial reporting cycle, which ensured
that it has considered all matters delegated to it by
the Board and ensured that the interests of
shareholders are properly protected. Additionally,
the Committee has considered the ongoing impact
of COVID-19 on our business along with the global
supply chain and logistics challenges, and you will
find important detail on this in other sections of the
Annual Report (see pages 5 to 13 and 45 to 48).
2022 priorities
During 2022 the Committee intends to focus on the
following additional areas:
– inventory valuation and provisioning
– impact of BEIS reforms
– reporting of ESG related activity and data
– auditor succession
– internal audit
Governance
All members of the Committee are independent
Non-Executive Directors whose qualifications are
outlined in the Directors’ biographies on page 54.
Each member of the Committee has a detailed
understanding of Dialight’s strategy, business model
and the Group’s culture and core values together
with significant knowledge and business experience
in financial reporting, risk management, internal
control and strategic management. In addition, I meet
the requirement to bring recent and relevant financial
experience to the Committee and further information
about my experience can be found on page 54. I can
confirm that the Board is satisfied that the Committee
has the resources and expertise to fulfil its
responsibilities and has competence relevant to the
sector in which the Company operates.
Dialight plcAnnual Report and Accounts 2021 63
AUDIT COMMITTEE REPORT CONTINUED
Internal control and risk management processes
The Board has overall responsibility for the risk
management framework, as explained on page 41.
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, we received detailed reports that
enabled us 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 function;
– allocation of identified risk to a specific risk
owner with responsibility for monitoring and
mitigating that risk;
– periodic, externally facilitated briefings on
new and emerging risk themes across our
sector and generally;
– the Board of Directors and Audit Committee
oversight on risk register and risk review process;
– monthly operational reporting;
– the control structure for delegated authorities; and
– external and outsourced “internal” auditors.
The Committee also reviews the Group’s internal
control systems and their effectiveness prior to
reporting any significant matters to the Board.
Internal controls are the responsibility of the
Chief Financial Officer. Confirmation that the
controls and processes are being adhered to
throughout the business is the responsibility
of the relevant managers and is continually
tested by the work of Group Finance.
Dialight traditionally outsources the internal
audit function. Restrictions during the COVID-19
pandemic unfortunately resulted in no internal audit
activity being carried out in 2021. A detailed audit
plan for activity in 2022 has been approved by the
Committee and combines outsourced activity
with reviews by Group Finance. Outsourced
activity will focus on inventory, payroll and
cyber security controls.
Fair, balanced and understandable
One of the key compliance requirements of
a group’s financial statements is for the Annual
Report to be fair, balanced and understandable.
The coordination and review of Group-wide
contributions to the Annual Report follows a
well-established process, which is performed
in parallel with the formal process undertaken
by the external auditor. A summary of the
process is as follows:
– The Annual Report and Accounts is drafted by
the appropriate senior management with overall
coordination by a team comprising the Group
General Counsel & Company Secretary, the
Chief Financial Officer, and the Group Financial
Controller to ensure consistency;
– Comprehensive reviews of the drafts of the
Annual Report and Accounts are undertaken by
management, the Board Chair and respective
Chair of each Committee to ensure that (i) all
key events and issues which had been reported
to the Board in the Executive Board reports during
the year had been appropriately referenced or
reflected within the Annual Report; and (ii) the
completeness and accuracy of definitions of
alternative performance measures used in the
Annual Report and Accounts, their consistency
of use, relevance to users of the Annual Report
and Accounts and balance with statutory metrics;
– A near-final draft is reviewed by the Committee;
– A final draft is reviewed by the Board; and
– Formal approval of the Annual Report and
Accounts is given by a committee of the Board.
This approach enabled the Committee, and then
the Board, to confirm that the Company’s 2021
Annual Report taken as a whole is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the
Company’s position and performance, business
model and strategy.
Key judgements and financial reporting matters
The Committee assesses and challenges whether
during the year suitable accounting policies have
been adopted and whether management has
made appropriate estimates and judgements.
Key accounting judgements considered, conclusions
reached and their financial impacts during the year
under review are set out in the table below.
Additionally, we discussed with the external auditor
the significant issues addressed by the Committee
during the year and the areas of particular focus, as
described in the independent auditor’s report on
pages 83 to 89.
Key judgements and financial reporting matters 2021
Audit Committee review and conclusions
Going concern and viability statement
The Directors must determine that the business is 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
COVID-19 pandemic and worldwide commodity
and logistics challenges.
Valuation of inventory
The Committee reviewed the nature of the costs
absorbed into inventory, the level of production over
which these costs were absorbed, the variances,
including in respect of material usage and purchase
price, between standard cost and actual cost and the
reasons for movements in inventory value period to
period. The basis for and level of provisioning, including
for aged, and obsolete product which are judgmental
or require a high degree of estimation, were presented
to the Committee by management.
Capitalised development costs
Data in relation to historical 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 conducted an annual assessment
pursuant to which the Directors were able to conclude
that it is appropriate to prepare the financial statements
on a going concern basis, as set out in more detail
on page 48. Furthermore, the Committee 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.
Further detail can be found on page 48.
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 has tasked management with
proposing a simpler approach to inventory provisioning.
The Committee concluded that current year
development department capitalisation was
appropriate and that the carrying values at
31 December 2021 were supported by forecast
cash flows.
Dialight plcAnnual Report and Accounts 2021 64
AUDIT COMMITTEE REPORT CONTINUED
Key judgements and financial reporting matters 2021
Audit Committee review and conclusions
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.
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.
On-going litigation with Sanmina Corporation
The Committee considered the disclosures of the
ongoing legal proceedings with its former
manufacturing partner, Sanmina Corporation, and the
possible impact it has when assessing the going
concern and long-term viability statement of the Group
as disclosed in note 27.
The Committee reviewed management’s impairment
review process including, where applicable, the
potential indicators of impairment and/or reversal,
cash flow projections, post COVID-19 revenue
recovery, 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 concluded that no impairment charge
be recognised. Further details are disclosed in note 14.
The Committee reviewed the presentation and
treatment of non-underlying items and agreed that
the items listed in note 6 are appropriately classified
and disclosed.
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.
External audit effectiveness and independence
KPMG has been the Company’s external auditor since
2001 and the Committee has recommended to the
Board that KPMG be proposed for re-appointment at
the forthcoming AGM on 19 May 2022.
There are no contractual obligations that restrict
the Company’s choice of external audit firm, but
the restrictions on audit rotation set out in the 2016
Regulations preclude KPMG from being considered
in the tender process.
Under the Statutory Auditors and Third Country
Auditors Regulations 2016, the Company is required
to re-tender its external auditor by 31 December
2023. Our current auditor, KPMG, is therefore eligible
to continue as auditor until 31 December 2023.
The Committee has commenced the audit re-tender
process with a view to appointing a new audit firm
for the 2023 audit by the end of 2022. Invitations to
tender have been sent out to a combination of “Big
Four” and non “Big Four” audit firms.
KPMG is engaged to express an opinion on the
financial statements. It reviews the data contained in
the financial statements to the extent necessary to
express its opinion. It discusses with management
the reporting of operational results and the financial
position of the Group and presents findings to the
Committee. The Directors in office at the date of
this report are not aware of any relevant information
that has not been made available to KPMG and
each Director has taken steps to be aware of all
such information and to ensure it is available to
KPMG. KPMG’s audit report is published on
pages 83 to 89.
In order to assess the effectiveness and
independence of the external auditor, the
Committee carried out a structured review of the
external audit process, including the planning,
execution and quality of the audit. This included:
– discussing and agreeing at the planning stage the
draft list of specific risks to audit effectiveness
and quality (specific audit quality risks)
– KPMG reporting against audit scope and
subsequent meetings providing the Committee
with an opportunity to monitor progress and
raise questions
– KPMG report on specific audit quality risks
applicable to Dialight and how these have
been addressed at the planning and final stages
of the audit
– obtaining written assurance from KPMG that
all partners and staff complied with their ethics
and independence policies and procedures
– ensuring regular rotation of lead audit partner
and other senior audit staff
Feedback was sought from members of the
Committee and senior management of the business
areas subject to the audit. The feedback was
considered, discussed and summarised by
management and reported to the Committee and
Board. Having conducted such review, and reviewed
overall performance, we have concluded that KPMG
has demonstrated appropriate qualifications and
expertise throughout the period under review, and
that the audit process was effective and independent.
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. It is also the Group’s
policy to balance the need to maintain audit
independence with the desirability of taking advice
from the leading firm in relation to the matter
concerned and being efficient. No non-audit fees
were incurred for the year ended 31 December 2021.
Audit Committee evaluation
It is incumbent on the Board to ensure that a formal
and rigorous review of the effectiveness of the
Committee is conducted each year. This was
accomplished through a self-assessment process
at the December 2021 meeting, which included a
review of the Committee terms of reference and
was reported to the Board in December. No issues
or recommendations for change were identified.
We are also mindful of the proposed audit market
reforms, including the Government’s consultation
“Restoring trust in audit and corporate governance”.
The current audit tender process takes account of
issues raised in the consultation. We will continue to
monitor events during the forthcoming year and will
act as may be required and appropriate, following
the outcome of the consultation.
In concluding this report, and particularly bearing in
mind the disruption caused by COVID-19, on behalf
of the Committee I would like to recognise and
thank the Dialight management and finance team,
and KPMG for their commitment and valuable
contributions during what has been an extremely
challenging year for the business.
I will be available to answer any questions in relation
to this Audit Committee report before the Annual
General Meeting. Please email your queries to the
contact details in the AGM notice.
David Thomas
Chair of the Audit Committee
27 March 2022
Dialight plcAnnual Report and Accounts 2021 65
REMUNERATION COMMITTEE REPORT
Gaëlle Hotellier
Chair of the
Remuneration Committee
Roles and responsibilities of
the Remuneration Committee
The primary responsibilities of the Remuneration
Committee are to:
– set the Remuneration Policy for all Executive Directors
(including interim roles), the Company’s Chair and the
Company Secretary 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 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).
Dear shareholders
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the year ended
31 December 2021. As in previous years, this report
is split into three sections: this Annual Statement
(pages 65 to 66); the Remuneration Policy (pages 67
to 73); and the annual report on the implementation
of the Remuneration Policy during 2021 (pages 74 to
79). We have also included “at a glance” summaries
on pages 67 and 74 to aid the reader.
COVID-19 and its impact on remuneration
In this section we outline how the Group and the
Remuneration Committee have sought to mitigate
the effects on our workforce and business of
COVID-19 throughout the pandemic period, not
just during 2021. It has been a challenging period
for all our employees, but we believe that the way
in which we sensitively implemented mitigations
has contributed to the Group emerging from the
pandemic with a highly motivated workforce.
The Group introduced a progressive reduction in
base salary across the majority of employees during
the most challenging months of May to September
2020 (inclusive). At an Executive Director and
Executive Committee level, this resulted in a
voluntary reduction of 20% of base salary for the
five-month period. Below this level, pay reductions
were implemented at 15% for senior managers,
10% for their direct reports and 0% for the lower
paid (many of whom work in our manufacturing
operations). Similarly, fees paid to the Non-
executive Directors were voluntarily reduced by
Statement of shareholder
voting (2021 AGM)
% votes for
– 99.85
Directors’
Remuneration
Report FY2020
2021 Remuneration
Policy
– 96.30
% votes
against Votes withheld
– 0.15 – 1,115 (out of
19,070,322
votes cast)
– 3.70 – 205,478 (out
of 18,865,959
votes cast)
20% for the period from May to September 2020
inclusive and the then Chair waived his fee
completely for the same period. At all levels, pay
reductions were effected on a voluntary basis.
There have been no “make good” payments
to reimburse these pay/fee reductions but, as the
effects of the pandemic have receded, the Group
has taken steps, again in a progressive manner, to
make sustainable improvements in remuneration
structures across the Group including substantial
base payment increases in our manufacturing
facilities and annual “cost-of-living” increases
across the Group’s workforce. These salary
increases were progressively phased – meaning
that increases for our manufacturing staff were
implemented in May 2021 whilst at the other end
of the spectrum, the final employees to receive
increases (in October 2021) were at Executive
Committee and Board level. The COVID-19
pandemic also impacted the payment of bonuses in
2020 – with pre-pandemic bonus targets for EBIT
and cash not being met. In addition, in consultation
with management, it was agreed that the personal
objective element of bonuses, though met, should
not be paid in light of the impacts of the limited
furloughs and salary reductions during 2020.
As outlined below, the Group’s performance
across 2021 has improved significantly and the
Remuneration Committee is pleased to confirm
that a significant proportion of bonus objectives
were met in respect of the reporting year.
The Remuneration Committee wishes to record its
thanks to all the Group’s employees impacted by
salary sacrifice and furlough arrangements during
2020 and by the phased introduction of “cost-of-
living” increases during 2021.
Board changes in 2021
On 1 October 2020, Wai Kuen Chiang assumed the
role of Chief Finance Officer and she remained with
the Company until 14 June 2021. The Remuneration
Committee was actively involved in the discussions
around her departure and whilst she was paid her
full pay, benefit and pension entitlements through to
her departure date; no additional payments were
made. Clive Jennings joined the Company as
Interim CFO on 4 May 2021. He was not a Director
during the reporting period and his remuneration
therefore falls outside of the statutory reporting
Composition of the Committee
The names of those who served on the
Remuneration Committee during the year can be
found in the table below:
Committee member
Member from/until
Attendance
Gaëlle Hotellier
(Committee Chair)
From 8 January 2018
(Chair from 1 June
2018)
David Thomas
From 26 April 2018
Karen Oliver
From 30 July 2020
7/7
7/7
7/7
All members of the Remuneration Committee are
considered independent within the definition set
out in the 2018 Code. None of the Remuneration
Committee has any personal financial interest in
Dialight (other than as shareholders), conflicts
of interests arising from cross directorships, or
day-to-day involvement in running the business.
During the year, the Remuneration Committee
met seven times. Of these, three meetings were
formal scheduled meetings and the other four
were meetings held to deal with the review and
approval of specific technical remuneration
matters. Attendance by individual members of
the Remuneration Committee is disclosed in the
table above.
Only members of the Remuneration Committee
have the right to attend Remuneration Committee
meetings. The Chief Executive Officer and the
Company Secretary attend the Remuneration
Committee’s meetings by invitation, but are not
present when their own remuneration is discussed.
The Remuneration Committee also takes
independent professional advice as required.
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 Committee.
Dialight plcAnnual Report and Accounts 2021 66
REMUNERATION COMMITTEE REPORT CONTINUED
Committee activities
2021
2021
FEBRUARY
– Reviewing
feedback from
major shareholders
on draft 2021
Remuneration Policy
and finalising policy
APRIL
– Approving phased
introductions across
Group for annual pay
increases – starting
with lowest-paid
employees
MAY
– Reviewing proposed
remuneration for
Interim CFO role; and
reviewing outcome of
AGM vote on the new
Remuneration Policy
and awarding RSPs
to Fariyal Khanbabi
under the new
Remuneration Policy
SEPTEMBER
– Approval of final phase
of annual pay
increases; shareholder
consultation on
implementation of 2021
Remuneration Policy
MARCH
– Review of annual pay
increment policy and
application (for Chair,
Executive Director
roles and general
policy across Group);
review and approval of
outcomes for 2020
bonus plan and 2018
PSP plan; review and
approval of 2021
bonus plan structures;
drafting and approval
of Annual
Remuneration Report;
and review and
approval of 2021 RSP
grants (excluding
Directors)
JUNE
– Approval of
remuneration
arrangements on
the departure of
Wai Kuen Chiang
DECEMBER
– Review of outcome
of shareholder
consultation; and
annual Committee
governance review
regime. However, details of his remuneration as
Interim CFO is included to aid year on year analysis
for the CFO role and can be found on pages 74 and
75. Further details of Wai Kuen Chiang’s
remuneration are set out on pages 74, 75 and 78.
David Blood stepped down as Chair of the
Company on 10 September 2021 and was replaced
by Karen Oliver. David has remained on the Board
and reverted to the standard NED engagement fee
rate. Karen is paid at the same rate as Chair as was
David and, as she was new to the role in 2021,
voluntarily waived any 2021 “cost-of-living” fee
increase. Annual increases for Non-Executive
Directors and role-specific Director fee uplifts are
a matter for the Board, but it should be noted that
these increases were aligned with other employees
(at 3%) and, for NEDs, delayed until October 2021
so as to ensure equal treatment with senior Group
executives.
2021 AGM result and the implementation
of the 2021 Remuneration Policy
Following extensive consultation with major
shareholders, the Remuneration Committee
proposed a strengthened Remuneration Policy
at the 2021 AGM. This policy was passed with
the support of 96.30% of voting shareholders.
The key improvements in the 2021 Remuneration
Policy were: (a) replacement of the non-performing
Performance Share Plan (“PSP”) policy with the
DRSP – granting restricted shares (at a 50%
reduction in value) free of performance criteria other
than retention in role and Remuneration Committee
discretion as to Group performance being in line
with strategy; (b) an increase in the Executive
Director shareholder guidelines to 200% of base
salary; (c) retention of all bonus and DRSP shares
to meet shareholding guidelines; and (d) post-
employment retention of shares for a two-year
period. The introduction of the 2021 Remuneration
Policy concludes a rolling programme of
improvements to the Group remuneration
policy across the preceding two years and the
Remuneration Committee is now confident that
there is a robust but fair remuneration structure
for Executive Directors and their direct reports
which achieves a much closer alignment with the
interests of shareholders.
Ongoing shareholder consultation on
remuneration issues
The Committee is committed to maintaining an
ongoing dialogue with major shareholders on
remuneration matters and has already consulted
with shareholders in Autumn 2021 in respect of
the DRSP awards made to Executive Directors in
May 2021 and on remuneration matters generally.
The Committee welcomes any direct
correspondence from shareholders
on remuneration matters.
Exercise of discretion
The Committee has not exercised any discretion
during the reporting year in respect of approving
awards under schemes that, without the exercise
of such discretion, would not have vested. In the
previous reporting year (2020) the Remuneration
Committee exercised discretion in reducing PSP
awards in line with the decline in the share price (in
respect of the 12-month period prior to grant of the
2020 PSPs), and in agreeing with Fariyal Khanbabi
not to make any payment under the individual
objective element of the Annual Performance Bonus
Plan (“APBP”) (payment which was otherwise due)
in light of the impact during 2020 of the COVID-19
pandemic on Group employees and performance.
Looking forward
With the 2021 Remuneration Policy in place and
implemented, the Committee believes that Dialight’s
remuneration policies are now very well placed to
incentivise high performance by the Executive
Directors and fully and fairly align Executive Director
and shareholder interests, as well as meeting the
requirements of shareholders’ and general
governance best practice. On behalf of all of my
colleagues on the Committee, I hope that
you will support the resolutions at the 2022 AGM.
Gaëlle Hotellier
Chair of the Remuneration Committee
27 March 2022
External advice to the
Remuneration Committee
The Remuneration Committee has access to the
advice of the Chief Executive Officer, Company
Secretary and the Group HR Director as well as
external advisers as required. During the year
ended 31 December 2021, the Remuneration
Committee consulted Mercer Limited, a business
of Marsh McLennan, which provided independent
advice (for a total fee of £15,205 excluding VAT)
on: the new 2021 Remuneration Policy and
shareholder consultations; remuneration
arrangements on the departure of Wai Kuen
Chiang; updates on the external remuneration
environment; performance testing for long-term
incentive plan; remuneration arrangements for
Non-Executive Directors in Workforce
Engagement roles (advice to the Board); and 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.
Compliance statement
This Remuneration Report (inclusive of this
introduction and report by Gaëlle Hotellier, the
policy outlined on pages 67 to 73 and the report
on the implementation of the policy on pages 74
to 79) has been prepared in accordance with the
provisions of the Companies Act 2006 and
Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013. It also meets the
requirements of the FCA Listing Authority’s Listing
Rules and the Disclosure Guidance and
Transparency Rules. The sections of the
Remuneration Report that are subject to audit are
marked as Audited Information. The remaining
sections of the Remuneration Report are not
subject to audit.
Dialight plcAnnual Report and Accounts 2021 67
2021 REMUNERATION POLICY OVERVIEW
Executive Director remuneration under the new 2021 policy
Total executive director remuneration is made up of the following five components:
A new Remuneration Policy was introduced in 2021 as the final stage of a 2-year
review and change process. The process involved a series of consultations with key
shareholders in 2020 and 2021 – with a follow-up correspondence in Autumn 2021.
The Committee is confident that the Company’s Remuneration Policy now delivers
an optimal degree of shareholder alignment for Executive Directors’ remuneration
structures. This page provides an “at a glance” summary of the 2021 Remuneration
Policy. The policy is set out in detail on pages 67 to 73.
Extended consultation
% of shareholders consulted in 2020 and 2021 on new Remuneration Policy.
New in 2021
% reduction in maximum CEO share awards.
New in 2021
% increase in shareholding requirement for Executive
Directors under new Remuneration Policy.
72.4%+
As a % of total
issued share capital
50%
(from 150% of salary
for PSPs to 62.5% of
salary for RSPs)
100%
(to 200% of salary)
New in 2021
Maximum pension payable to Executive Directors
(% of base salary).
5%
2 years
% of voting shareholders voting in favour of new 2021 Remuneration Policy. 96.3%
New in 2021
Post-employment share-holding period introduced.
Policy adoption
BASE SALARY
BENEFITS
PENSION
Benchmarked
alignment
Competitive salary
aligned to market
and individual
factors.
Annual review
Within context of
wider workforce
conditions
and Company
performance.
Benchmarked
alignment
Market competitive,
but cost effective,
to attract and retain
high calibre
Executives.
Aligned with
employees
Aligned to majority
of employees in
applicable
jurisdiction.
CEO and CFO roles
both at 5%.
Aligned with
employees
CEO and CFO
aligned with
standard UK
employee benefits:
car allowance;
medical;
life assurance.
BONUS
(CASH AND SHARES)
SHARE PLAN
AND HOLDINGS
Maximum bonus
CEO: 150% of base
salary
Restricted Share Plan
maximum award
– CEO: 62.5% of base
CFO: 125% of
base salary
Financial metrics
Minimum of 75% of
bonus pot against
financial targets.
Shareholder
alignment
Up to on-target
pay-out (50%)
paid in cash.
Any payment over
on-target paid in
Dialight shares (50%
vest in 2 years, 50%
vest in 3 years).
salary
– CFO: 50% of
base salary
– 3-year DRSP vesting
period
– 2-year post-vesting
holding period.
In-role shareholding
guidelines
200% of base salary.
Post-employment
shareholding
guidelines
2-year post-
employment
holding period.
REMUNERATION: DIRECTORS’ REMUNERATION POLICY (2021)
Policy approval
This section of the report details the Remuneration
Policy for Executive and Non-Executive Directors.
The Remuneration Policy was approved at the 2021
AGM and is effective for up to three years. 96.3%
of voting shareholders voted in favour of this policy.
Following the approval of the policy, major
shareholders were again consulted, in Autumn 2021,
on its implementation and as part of an ongoing
dialogue between the Remuneration Committee and
major shareholders. The Remuneration Committee
welcomes input from all the Group’s stakeholders
on remuneration matters.
Background and overview of the policy
The Committee has a clear policy on remuneration:
that base salary and benefits for Executive Directors
should represent a fair and incentivising return for
employment but that the majority of remuneration
should be dependent on the continued success
of the Company and be aligned with delivery of
Dialight’s strategic plan and the creation of
shareholder value. The policy has been designed,
consulted on and reviewed so that it reinforces
these principles. The 2021 policy implemented
certain key improvements to the policy that
brought it fully into line with best practice and
the Remuneration Committee is now confident
that it delivers on the key principles of fair return,
alignment with shareholder interests, and alignment
with the level of remuneration and pay awards made
generally to employees of the Group.
Dialight plcAnnual Report and Accounts 2021 68
REMUNERATION POLICY TABLE
Link to strategy
Operation
Opportunity
Performance metrics
BASE SALARY
To recruit, retain and motivate individuals of
high calibre, and reflect the skills, experience
and contribution of the relevant Director; to
ensure that fixed pay represents a fair return
for employment.
The Remuneration Committee sets base salary
with reference to relevant market data and an
individual’s experience, responsibilities and
performance. Base salary is considered by the
Remuneration Committee on an individual’s
appointment and then generally reviewed once
a year or when an individual changes position
or responsibilities.
When making a determination as to the appropriate
level of remuneration, the Remuneration Committee
firstly considers pay and conditions for employees
across the Group, the general performance of the
Company and the wider economic environment.
The Remuneration Committee may also undertake
periodic benchmarking for similar roles in
comparable organisations.
None
Any base salary increases are applied in line with
the outcome of the review. In respect of existing
Executive Directors, it is anticipated that salary
increases will generally be in line with the broader
employee population. In exceptional circumstances
(including, but not limited to, material increases in
role size or complexity), the Remuneration
Committee has discretion to make appropriate
adjustments to salary levels to ensure that they
remain market competitive. It is not envisaged that
this will be a frequent occurrence.
Detail of current salaries for the Executive Directors can be
found on page 74.
BENEFITS
To provide market competitive, yet cost effective,
benefits to attract and retain high-calibre
Executives.
Executive Directors receive benefits which consist
primarily of the provision of a car allowance, life
insurance and medical insurance, although they
may include such other benefits as the
Remuneration Committee deems appropriate
including in circumstances where new benefits are
introduced for other employees in the location
where an Executive Director is based.
Benefits vary by role and individual circumstances;
eligibility and cost are reviewed periodically.
None
The Remuneration Committee retains the discretion
to approve a higher total benefit cost in exceptional
circumstances (e.g. relocation) or in circumstances
where factors outside the Company’s control
have changed materially (e.g. increases in life
insurance premiums).
The value of benefits awarded to the Executive Directors can
be found in the table on page 75.
Dialight plcAnnual Report and Accounts 2021
69
REMUNERATION POLICY TABLE CONTINUED
Link to strategy
Operation
Opportunity
Performance metrics
PENSION
To provide market competitive, yet cost effective,
benefits to attract and retain high-calibre
Executives.
A Company contribution to a defined contribution
pension scheme or provision of a cash payment in
lieu of a pension contribution (or combination of
such) for UK-based Directors. In the US, Dialight
operates a 401(k) and SERP (or cash equivalent
payment in lieu in respect of the latter).
Salary is the only element of remuneration that
is pensionable.
Executive Directors will receive pension
arrangements consistent with the majority
of employees in the relevant jurisdiction:
None
– 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.
ANNUAL PERFORMANCE BONUS PLAN (“APBP”)
The APBP incentivises the achievement of annual
objectives which support the short-term
performance goals of the Company.
APBP measures, weightings and targets are set by
the Remuneration Committee at the beginning of
each financial year following the finalisation of the
budget for that year.
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.
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.
Performance is assessed on an annual basis,
as measured against specific objectives set at
the start of each year. Financial measures will
make up at least 75% of the total annual bonus
opportunity in any given year, with up to 25%
based on individual objectives linked to
Dialight’s strategy.
The Committee has discretion to adjust the
formulaic bonus outcomes both upwards (within
the plan limits) and downwards (including to zero)
to ensure alignment of pay with performance, e.g.
in the event of one of the targets under the bonus
being significantly missed or if there are
unforeseen circumstances outside
management control.
The Committee also considers measures outside
the bonus framework (including ESG factors) to
ensure there is no reward for failure and that
outcomes are fair in the context of overall
performance and the Group’s wider
environmental and societal impact.
Dialight plcAnnual Report and Accounts 2021 70
REMUNERATION POLICY TABLE CONTINUED
Link to strategy
Operation
Opportunity
Performance metrics
RESTRICTED SHARE PLAN (“DRSP”)
The DRSP replaced the PSP for awards to
Executive Directors in 2021 and thereafter.
No new PSP awards will be granted to Executive
Directors (except, potentially, in the case of
“buy-outs” under the Recruitment Policy shown
on page 72). PSP awards made in 2020 or earlier
will continue to operate under the terms of the
shareholder approved PSP.
The DRSP provides a simple and transparent
long-term incentive award to help ensure
alignment between the interests of shareholders
and those of the Executive Directors, and is
aligned to the plans operated below Board level.
NON-EXECUTIVE DIRECTOR FEES
The Company sets fee levels to attract and retain
Non-Executive Directors with the necessary
experience and expertise to advise and assist
with establishing and monitoring the strategic
objectives of the Company.
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.
Fee levels are typically considered every year,
taking into account fees paid for equivalent roles at
companies of similar size, time commitment and
complexity. The fees paid to the Chair are
determined by the Remuneration Committee, while
fees for Non-Executive Directors are determined by
the Board. Additional fees are payable for acting as
Senior Independent Director and as Chair of any of
the Board’s Committees. Non-Executive Directors
do not receive any bonus, do not participate in
awards under the Company’s share plans and are
not eligible to join the Company’s pension scheme.
The 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.
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.
None
These maximum opportunities under the DRSP
represents a 50% reduction against the maximum
opportunity that was available under the legacy PSP
scheme.
The Committee has discretion to reduce awards in
the event that there has been a significant fall in the
share price.
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 pages 74
and 75.
Dialight plcAnnual Report and Accounts 2021 71
NOTES TO THE REMUNERATION POLICY TABLE
Explanatory detail for future
Remuneration Policy table
For the avoidance of doubt, in approving this
Directors’ Remuneration Policy, authority was given
to the Company to honour any commitments
previously entered into with current or former
Directors (such as the vesting or exercise of
past share awards).
Performance measures and targets
Measures used under the APBP are selected
annually to reflect Dialight’s main short-term
objectives and reflect both financial and non-
financial priorities, as appropriate. The performance
underpins attached to DRSP awards will be based
on those which best reflect the overall performance
of the business. These might include, but not be
limited to, absolute TSR, relative TSR, ESG metrics
and operational performance over the period,
as well as individual contribution and broader
stakeholder experience. For the APBP, EBIT
continues to be used as the primary measure
to provide a direct link to one of our KPIs.
The Committee introduced a net debt measure for
the 2021 APBP, reflecting the importance of careful
cash management in ensuring we are able to fund
the Company’s strategic objectives over the short
and longer term. Up to 25% of the APBP may be
based on individual strategic goals in order to
reflect the importance of incentivising non-financial
objectives linked to Dialight’s strategy. Targets are
set on an annual basis taking into account the
Company’s budget as well as external expectations
for Dialight and the sector. If an event occurs which
causes the Remuneration Committee to consider
that an outstanding DRSP, PSP award or bonus
award would not achieve its original purpose
without alteration, the Remuneration Committee
has discretion to amend the targets, provided the
new conditions are materially no less challenging
than was intended when originally imposed.
Such discretion could be used to appropriately
adjust for the impact of material acquisitions or
disposals, or for exceptional and unforeseen
events outside the control of the management
team and would be disclosed in the relevant
Remuneration Report.
Difference between the Directors’ Remuneration
Policy and that for other employees
All employees receive salaries and benefits which
are consistent with local market practice, with any
review of fixed pay taking into account experience,
responsibility, individual performance and salary
levels at comparable companies.
Senior management is typically eligible to
participate in the APBP, with opportunities and
performance measures reflecting organisational
level and business area, as appropriate.
DRSP awards at senior management level and to
other key employees also take the form of restricted
share units with vesting subject only to continued
employment over a number of years. This helps
Dialight remain competitive in the main talent
markets in which it operates, while also continuing
to align plan participants with the interests of
shareholders in growing the value of the Company
over the longer term. Share awards to participants
below Executive Director level are not subject to a
holding period.
Shareholding guidelines
Executive Directors will now be required to
accumulate and maintain a holding of Dialight
shares equivalent in value to 200% of their base
salary, an increase from the 100-125% of salary
requirement in the previous policy. The net of tax
number of vested shares under the Company’s
DRSP (and awards that vest under the legacy PSP)
will normally be required to be retained until the
guideline has been met. Current shareholding levels
are set out on page 79. The Committee is also
introducing post-employment guidelines for
Executive Directors. From 2021, Executive Directors
will be required to retain shares equivalent to the
in-post shareholding guideline (or actual
shareholding, if lower) for a period of 24 months
following the cessation of their employment.
Committee discretion
As it is not possible for any Remuneration Policy
to anticipate every possible scenario, the
Remuneration Committee retains the ability to
apply various discretions and judgements in order
to ensure the achievement of fair outcomes and
to maintain the flexibility required to balance the
interests of individuals and those of the Company.
For example, the Committee may be required to
exercise discretion when determining whether or not
the outcomes of performance measures and targets
applicable to variable incentives are fair in context,
or if realities encourage the use of upward or
downward adjustments (within scheme limits).
Accordingly, the Committee retains a number of
discretions including the ability to determine the
following: (a) scheme participants; (b) the timing
of grant and size of awards, subject to the maximum
levels set out above; (c) appropriate treatment of
vesting of awards in the context of a change of
control; (d) appropriate adjustments to awards in
the event of variations to the Company’s share
capital; (e) treatment, size and grant of awards in a
recruitment context; and (f) the application, scope,
weighting and targets for performance measures
and performance conditions. Although it is not
possible to give an exhaustive list of Remuneration
Committee discretions, the exercise of any such
discretion and the rationale underpinning their use,
would be provided in context, as part of the Annual
Report on Remuneration.
Malus and clawback
Payments and awards under the APBP bonus and
DRSP (as well as awards already made under the
legacy PSP scheme) are subject to malus and
clawback provisions which can be applied to both
vested and unvested awards. Circumstances in
which malus and clawback may be applied include a
material misstatement of the Company’s financial
accounts, fraud or gross misconduct on the part of
the award-holder, an error in calculating the award
vesting outcome, material reputational damage
and corporate failure. In respect of the APBP, the
provisions apply for up to two years following
payment. In respect of DRSP and PSP awards,
the provisions applied remain subject to the
provisions throughout the vesting and holding
periods (where applicable). Participants in both
schemes will be required to acknowledge their
understanding of the withholding and recovery
provisions as a pre-condition to participation in
order to help ensure that the provisions would be
enforceable should the circumstances arise.
Pay for performance
The following charts provide an estimate of the
potential future rewards for the Group Chief
Executive and Chief Finance Officer, and the
potential split between different elements of pay,
under four different performance scenarios:
“Fixed”, “On-target”, “Maximum” and “Maximum
including share price appreciation” using the
following assumptions:
– the “Minimum” scenario reflects base salary,
pension and benefits (i.e. fixed remuneration)
which are the only elements of the remuneration
package not linked to performance;
– the “Target” scenario reflects fixed remuneration
as above, plus APBP pay-out of 50% of maximum
and DRSP vesting at 100% of the award; and
– the “Maximum” scenario is shown on two bases:
excluding and including the impact of share price
appreciation on the value of DRSP outcomes.
In both cases, the scenario includes fixed
remuneration and full pay-out of all incentives,
with the final scenario also including the impact of
a 50% increase in Dialight’s share price on the
value of the DRSP.
Dialight plcAnnual Report and Accounts 2021 72
NOTES TO THE REMUNERATION POLICY TABLE CONTINUED
Forward-looking Pay Scenario Chart
CEO
CFO
Minimum
100% 497
Minimum
100% 322
On-target
45%
30% 25%
1,120
On-target
49%
28%23%
654
Maximum
34%
47% 19%
1,460
Maximum
38%
44% 18%
838
Maximum
+50% share
price growth
31%
42%
27%
1,602
Maximum
+50% share
price growth
36%
40% 24%
912
Fixed
APBP
DRSP
Fixed
APBP
DRSP
Note that any DRSP awards granted will not
normally vest until the third anniversary of the
date of grant, and the projected value is based
on the face value at award rather than vesting
(i.e. the scenarios exclude the impact of any share
price movement over the period). The exception
to this is the last scenario which, in line with the
relevant reporting requirements, illustrates the
maximum outcome assuming 50% share price
appreciation for the purpose of DRSP value.
Recruitment Policy
In cases of appointing a new Executive Director from outside the Company, the Remuneration Committee
may make use of all the existing components of remuneration as follows:
Component: Salary
Benefits
Pension
APBP
DRSP
Approach:
New appointees will
be eligible to receive
benefits in line with
the current policy, as
well as expatriation
allowances or
benefits and any
necessary expenses
relating to an
Executive’s
relocation on
appointment.
New appointees will
be eligible to
participate in one of
the Company’s
defined contribution
plans, or receive a
cash supplement or
local equivalent on
the same basis as
the majority of
employees in the
relevant jurisdiction.
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.
The scheme as
described in the
policy table will
apply to new
appointees, with the
relevant maximum
typically being
pro-rated to reflect
the proportion of
employment over
the year.
Where applicable,
targets for the
individual strategic
element will be
tailored to each
Executive.
New appointees
will be granted
restricted share
awards under the
DRSP on the same
terms as other
Executives, as
described in the
policy table.
The normal limit of
62.5% of salary
will apply, save in
exceptional
circumstances
where up to 75%
of salary may be
awarded.
Maximum:
n/a
n/a
n/a
150% of salary
62.5% of salary
In determining appropriate remuneration, the
Remuneration Committee will take into
consideration all relevant factors (including
quantum, nature of remuneration and the jurisdiction
from which the candidate was recruited) to ensure
that arrangements are in the best interests of both
Dialight and shareholders.
In addition to the remuneration structure
outlined above, the Committee may, in certain
circumstances, choose to make an award in respect
of a new appointment to “buy out” incentive
arrangements forfeited on leaving a previous
employer on a like-for-like basis. If the Remuneration
Committee determines that it is appropriate
to do so it will apply the following approach:
– The fair value of these incentives will be
calculated taking into account: the proportion of
the performance period completed on the date
of the Executive’s cessation of employment; the
performance conditions attached to the vesting
of these incentives; the likelihood of them being
satisfied; and any other terms and conditions
having a material effect on their value
(“Lapsed Fair Value”).
– The Remuneration Committee may then grant up
to the same fair value as the Lapsed Fair Value
where possible under the Company’s incentive
plans (subject to the limits under these plans) –
the Remuneration Committee, however, also
retains the discretion to provide the Lapsed Fair
Value under specific arrangements in relation to
the recruitment of the particular individual within
the constraints set out in the Listing Rules.
The approach to the recruitment of internal
candidates would be similar but the Remuneration
Committee would continue to honour existing
contractual commitments prior to any promotion.
For the avoidance of doubt, this would not extend
to pension arrangements which, as above, would be
aligned with the majority of employees in the
relevant jurisdiction.
For Non-Executive Directors, the Remuneration
Committee and the Company would seek to pay
fees in line with the Company’s existing Policy.
A base fee in line with the prevailing fee schedule
would be payable for Board membership, with
additional fees payable for acting as Senior
Independent Director and/or as Chair of a Board
Committee.
Service contracts
Executive Directors’ service contracts, including
arrangements for early termination, are carefully
considered by the Remuneration Committee.
Executive Directors’ service contracts contain
provisions that require up to 12 months’ notice of
termination on either side. Such contracts do not
contain any provisions for payments outside the
scope of those contained in the contract.
Executive Director service contracts are available to
view at the Company’s registered office. Non-
Executive Directors have specific terms of
engagement provided in formal letters of
appointment, which contain three-month notice
periods that are mutual. The Non-Executive
Directors are appointed for a three-year term,
subject to annual re-election by the shareholders at
the Company’s AGM.
Dialight plcAnnual Report and Accounts 2021
73
NOTES TO THE REMUNERATION POLICY TABLE CONTINUED
Notice periods
Executive Directors’ service contracts require up to
12 months’ notice to be given by Dialight in the
event of termination. Fariyal Khanbabi’s contract can
be terminated with and without cause and requires
up to 12 months’ notice from either party and
provides for pay in lieu of notice but does not
contain any additional compensation provisions, nor
does it contain liquidated damages clauses. If a
contract is to be terminated, the Remuneration
Committee will determine such mitigation as it
considers fair and reasonable in each case.
In determining any compensation, it will take into
account the best practice provisions of the UK
Corporate Governance Code and published
guidance from recognised institutional investor
bodies, and will take legal advice on the Company’s
liability to pay compensation and the appropriate
amount. The Remuneration Committee periodically
considers what compensation commitments an
Executive Director’s contract would entail in the
event of early termination. There are no contractual
arrangements that would guarantee a pension with
limited or no abatement on severance or early
retirement. The Remuneration Committee will
exercise discretion in making appropriate payments
in the context of outplacement, settling legal claims
or potential legal claims by a departing Executive
Director, including any other amounts reasonably
due to the Executive Director; for example, to meet
the legal fees incurred in connection with the
termination of employment, where the Company
wishes to enter into a settlement agreement and the
individual must seek independent legal advice.
Treatment of departing Executive Directors
The below summarises how the awards under the
APBP, DRSP and PSP are typically treated in specific
circumstances, with the final treatment remaining
subject to the Committee’s discretion
– Annual bonus: In the event of an Executive
Director leaving Dialight before the end of a
bonus year or prior to the payment of a bonus,
the Remuneration Committee has discretion to
allow them to be paid a portion of bonus relative
to their point of leaving. This will be highly
contingent on the manner of the Executive
Director’s departure – specifically, payment would
only be made if they are classified as a “good
leaver” pursuant to the rules of the APBP as well
as business performance. For good leavers,
deferred bonus shares will normally be retained
by the participant and will be released in full
following completion of the applicable deferral
period. For other leavers, deferred bonus shares
will lapse.
– DRSP/PSP Leavers before the end of the
performance or vesting period: In most
circumstances, awards will lapse. If the Executive
Director is classed as a ‘good leaver’, outstanding
DRSP/PSP shares would typically be pro-rated for
the proportion of the vesting or performance
period served and released, subject to applicable
performance conditions for PSP awards, at the
normal vesting date. The Remuneration
Committee has flexibility to allow awards to vest
earlier than above when an individual leaves;
however, the default position will be for awards
not to be released early except in compassionate
circumstances.
– DRSP/PSP leavers after the end of the
performance or vesting period: Any awards in
a holding period will normally be released
following completion of the holding period.
For the purpose of the above, “good leaver” is
defined as a participant ceasing to be employed by
the Group by reason of death, disability, ill health,
redundancy, retirement with agreement of the
Company or any other reason that the
Remuneration Committee determines in its absolute
discretion. As noted above, should the Executive
Director leave the Company in any other
circumstances, outstanding awards would typically
lapse. The Remuneration Committee also retains
discretion in the event of a change of control to
release awards under the DRSP and/or the PSP.
It is usual in this situation that awards would be
pro-rated for time and performance subject to the
discretion of the Committee. In relation to the APBP,
the scheme rules allow the Remuneration
Committee to determine that all deferred share
elements of the bonus awards will vest on a change
of control and may be exercised within such period
as the Remuneration Committee shall specify.
External appointments
It is the Company’s policy that, except in
extraordinary circumstances, Executive Directors
should only accept one appointment with a third
party as a Non-Executive Director. Any such
appointment is subject to prior Board approval and
consideration will be given to potential conflicts of
interest with Dialight and the time demands of the
external appointment. The Executive Director
concerned is entitled to retain any fees from
such a non-executive directorship.
Employment conditions elsewhere in the Group
The Remuneration Committee takes into account
what the general rise in employee salaries was
across the Group at the review date when
considering changes to the remuneration of the
Executive Directors. The Remuneration Committee
did not expressly seek the views of employees when
drawing up the Remuneration Policy, but does carry
out an annual review of salaries across the Group,
and the Board and Remuneration Committee are
regularly updated on employee matters.
Shareholder views
The Remuneration Committee maintains a regular
dialogue with its major shareholders and monitors
trends and developments in corporate governance
and market practice to ensure that the structure of
Executive Director remuneration under the prevailing
Remuneration Policy is appropriate. As outlined in
2020, the Remuneration Committee reviewed
aspects of the Remuneration Policy in 2020 and
consulted with its major shareholders as part of this
process. During the 2020 shareholder consultation
process the Remuneration Committee had
responses from investors representing 72.4% of
Dialight’s issued share capital. The feedback was
positive, with comments received being taken into
account in the drafting of this policy. Following the
consultation, and as noted in the Annual Statement,
the Remuneration Committee proposed a new
Remuneration Policy at the Company’s 2021 AGM
and this revised Remuneration Policy was supported
by 96.3% of voting shareholders.
Dialight plcAnnual Report and Accounts 2021 74
REMUNERATION: POLICY IMPLEMENTATION IN 2021 AND 2022
The Remuneration Committee is responsible for implementation of the Remuneration Policy. This page provides
an “at a glance” summary of the implementation of the Remuneration Policy in 2021. The details of that policy
implementation and details on how the policy will be implemented in 2022 is set out on pages 78 to 79.
2021 Remuneration outcomes
2022 Implementation of Remuneration Policy
CEO (Fariyal Khanbabi)
CFO* (see below)
Non-Executive Directors
CEO (Fariyal Khanbabi)
CFO (Clive Jennings)
Non-Executive Directors
Fixed components:
Fixed components:
Chair fee:
£120,000
Fixed components:
Fixed components:
Chair fee:
£120,000
Base salary*:
£440,000
Base salary*:
£314,000
NED base fee*:
£42,000
Base salary*:
£453,200
Base salary*:
£295,000
NED base fee*:
£43,260
Pension:
Benefits:
5%
Car, health
insurance,
life assurance
Pension:
Benefits:
5%
SID uplift fee*:
£5,100
Car, health
insurance,
life assurance
AuditCo chair uplift fee*: £5,100
RemCo chair uplift fee*: €7,000
Pension:
Benefits:
5%
Car, health
insurance,
life assurance
Pension:
Benefits:
Workforce Engagement NED**:
£5,000
5%
SID uplift fee*:
£5,253
Car, health
insurance,
life assurance
AuditCo chair uplift fee*:
£5,253
RemCo chair uplift fee*: €7,210
Workforce Engagement NED*:
£5,000
Variable components (CEO):
Variable components (CFO):
Variable components (NEDs):
Variable components (CEO):
Variable components (CFO):
Variable components (NEDs):
Bonus metrics:
Bonus metrics:
150% of
salary (50%
EBIT, 25%
cash, 25%
strategic
goals)
Bonus outcome:
£424,875
Bonus outcome:
PSP vesting:
DRSP awards**:
Nil (2018
grant)
89,547 (2021
grant)
PSP vesting:
DRSP awards:
Nil (2021
grant)
125% of
salary (50%
EBIT, 25%
cash, 25%
strategic
goals)
£0
n/a
Nil
Bonus metrics:
DRSP awards:
150% of
salary (50%
EBIT,
25% cash,
25%
strategic
goals)
Up to 62.5%
of base
salary
Bonus metrics:
DRSP awards:
Nil
125% of
salary (50%
EBIT,
25% cash,
25%
strategic
goals)
Up to 50% of
base salary
* Annual increment of 3% effective from
* This is a role-specific outcome
1 October 2021.
** Restricted share awards made under
the 2021 Remuneration Policy and
awarded on 19 May 2021.
combining total remuneration for Wai
Kuen Chiang (CFO: 1 January 2021 –
14 June 2021) and Clive Jennings
(Interim CFO: 4 May 2021 –
31 December 2021). Note – Clive
Jennings was not a Director during
the reporting year.
* Annual increment of 3% effective
from 1 October 2021 on these roles.
* Annual increment to be reviewed
* Annual increment to be reviewed in
* Annual increment to be reviewed
in March 2022.
2023.
in March 2022.
** New appointee to role (Gaëlle
Hotellier) – with remuneration
effective from 1 August 2021.
COVID-19 remuneration mitigations
2020 salary reductions: Executive and Non-Executive Directors took salary reductions of 20% of base
salary for a five-month period in 2020 and the Chair took a 100% reduction for a six-month period in 2020.
There have been no additional payments in 2021 to reimburse these salary reductions.
2021 annual salary review: Annual salary reviews across the Group were phased to reflect the gradual
reduction in COVID-19 impacts. Annual increments were paid to manufacturing plant staff in May 2021,
with the increment to the remainder of non-executive staff delayed until August 2021. Annual increments
for Executive Committee members, Executive Directors and Non-Executive Directors were delayed until
October 2021.
Dialight plcAnnual Report and Accounts 2021
2021 Directors’ pay (£’000s)
Salary/fees Benefits Pension
Sub-total
fixed
Bonus
PSP
Sub-total
variable
Total
Remuneration
Non-Executive Directors
75
2021 OUTCOMES
Single figure of total remuneration (audited information)
The following tables provide details of the Directors’ remuneration for the 2021 financial year, together with
their remuneration for the 2020 financial year, in each case before deductions for income tax and national
insurance contributions (where relevant):
Executive Directors
Fariyal Khanbabi
Clive Jennings
Past Executive Directors
Wai Kuen Chiang
Non-Executive Directors
David Blood
Gotthard Haug
Gaëlle Hotellier
Karen Oliver
David Thomas
Past Non-Executive
Directors
Stephen Bird
443
187
127
97
42
€67
66
49
33
21
–
22
9
5
–
–
–
–
–
–
6
–
–
–
–
–
–
486
196
138
97
42
€67
66
49
33
425
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
911
196
138
97
42
€67
66
49
33
1 Fariyal Khanbabi received an annual salary increment of 3% with effect from 1 October 2021 (see pages 65 and 77).
2 Clive Jennings was not a Director. From 4 May 2021 to 31 December 2021 he was engaged as Interim CFO and attended Board meetings.
Financial data in respect of Clive Jennings is disclosed in the interests of transparency and to facilitate year on year comparison.
3 Wai Kuen Chiang’s appointment was terminated on 14 June 2021. No payments were made to Wai Kuen Chiang over and above contractual
salary, pension and benefits through to the date of termination.
4 David Blood stepped down as Chair with effect from 10 September 2021 but remained as a Non-Executive Director. He received an annual fee
increment of 3% with effect from 1 October 2021.
5 Gotthard Haug received an annual fee increment of 3% with effect from 1 October 2021.
6 Gaëlle Hotellier was appointed as Workforce Engagement NED (succeeding David Thomas) with effect from 1 September 2021. She receives
a fee uplift of £5,000 per annum in respect of this role. She also received an annual fee increment of 3% with effect from 1 October 2021 in
respect of her basic NED fee and her uplift fee for chairing the Remuneration Committee.
7 Karen Oliver was appointed as Chair with effect from 10 September 2021 on an annualised fee of £120,000.
8 Stephen Bird stepped down from the Board with effect from 10 September 2021 and received a pro-rated amount of his annual fee of £42,000
and his SID uplift.
9 Fariyal Khanbabi’s bonus will be paid as £340,000 cash (cash element is capped at 50% of the maximum bonus opportunity) and the balance
will be deferred into shares under the APBP.
2020 Directors’ pay (£’000s)
Salary/fees
Benefits
Pension
Sub-total
fixed
Bonus
PSP
Sub-total
variable
Total
remuneration
Executive Directors
Fariyal Khanbabi
Wai Kuen Chiang
Stephen Bird
David Blood
Gotthard Haug
Gaëlle Hotellier
Karen Oliver
David Thomas
Past Non-Executive
Directors
Steve Good
404
70
43
60
28
€59
28
43
11
19
3
24
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
447
77
43
60
28
€59
28
43
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
447
77
43
60
28
€59
28
43
11
1 Fariyal Khanbabi was awarded an uplift of £12,292 pcm (disregarded for the purposes of calculating pension payments, and bonus and PSP
awards) with effect from 10 August 2019 and for the duration of, her appointment as Interim CEO of the Company. This period ended on
4 March 2020. From 5 March 2020, upon her appointment as CEO, she was remunerated on the basis of a permanent CEO salary at the
annualised rate of £440,000. From May to September 2020, Fariyal Khanbabi voluntarily sacrificed 20% of her base salary.
2 Wai Kuen Chiang was appointed as a Director on 1 October 2020.
3 The Non-Executive Directors voluntarily sacrificed 20% of their fees from May to September 2020 inclusive. There were no increases in
Non-Executive Director fee rates in 2020.
4 Stephen Bird continued to receive a fixed uplift in recognition of his role as SID. This fee was not increased in 2020.
5 David Blood voluntarily sacrificed 100% of his fees as Board Chair from April to September 2020 inclusive. There were no increases in fee
rates in 2020.
6 Gotthard Haug and Karen Oliver were appointed as non-executive directors on 1 April 2020 and received a pro-rated amount of their annual
fees of £42,000.
7 Steve Good stepped down as an non-executive director on 31 March 2020 and received a pro-rated amount of his annual fee of £42,000.
Dialight plcAnnual Report and Accounts 2021 76
2021 OUTCOMES 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 contributions to Fariyal Khanbabi’s and Wai Kuen Chiang’s
pensions during the year. Fariyal Khanbabi received Company contributions of 5% of her base salary
(electing, mid-year, to receive a cash payment in lieu of the employer contribution). Wai Kuen Chiang
received Company contributions of 5% of her base salary for the period until her departure on 14 June
2021. The Company is fully compliant with the requirement that Executive Directors’ (both UK-based)
pension contributions are aligned with the average pension contribution to the Group’s UK workforce
(a rate of 5%).
APBP: structure
Following adoption of the 2020 Remuneration Policy, the APBP for Executive Directors operates on the basis
that is set out in the Remuneration Policy report on pages 69 and 71. 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. Anticipating, and applying, the 2021 Remuneration Policy, the 2021 Executive
Director APBP was based on three elements: 50% of the available bonus pot being payable against an EBIT
metric; 25% against Absolute Net Debt; and 25% against individual objectives set personally for the
Executive Director.
APBP: personal objective element
The personal objectives were structured around objectives of a largely quantifiable nature as follows:
APBP: 2021 outcomes
As set out above, net debt performance did not meet the threshold target and therefore 0% of the net debt
element of the available bonus pot was payable. 75% of the EBIT element of was achieved.
The Remuneration Committee considered the appropriateness of the formulaic levels of the vesting of the
financial-target elements of the bonus scheme within the wider context of the Group performance and
third-party impacts, and determined that, on balance, the level of pay-out on the financial-target elements of
the bonus scheme was appropriate. The Remuneration Committee also reviewed performance against the
personal objective elements of the bonus scheme – determining that each of the personal objectives had
been met, notwithstanding the very considerable challenges that the business faced with the impact of
COVID-19 and disrupted supply chains. The Remuneration Committee also considered the appropriateness
of a 100% vesting of the personal objective element of the bonus scheme and determined that, as the
performance objectives had in fact been exceeded, the personal objective element should be paid in full.
PSPs and RSPs (audited information)
Under the 2021 Remuneration Policy the Company’s PSP scheme was replaced by a DRSP scheme (see
pages 70 and 71). However, whilst Group Executives below Board Director level have received DRSPs for
several years now, PSPs were still granted to Executive Directors up to and including the 2020 grant (which
will vest in 2023). The following PSP awards to Executive Directors lapsed in their entirety as the relevant
performance conditions were not achieved:
– awards made in 2017 (with the applicable three-year performance testing period ended
on 31 December 2019:
– awards made in 2018 (with the applicable three-year performance testing period ended
on 31 December 2020; and
CEO role
CFO role
– awards made in 2019 (with the applicable three-year performance testing period ended
Securing value (10% of available bonus pot). Measured
against quantified performance in securing new business
for: new customers; winning strategic accounts; production
efficiencies; and supply chain optimisation.
Production efficiency (10% of available bonus pot).
Measured against binary production efficiency targets
for: operational costs analysis; capital costs and
product margins.
Transformation (10% of available bonus pot). Measured
against binary sustainability targets: development of
“net-zero” strategy and finalisation of environmental
product declarations on named product families.
Culture (5% of available bonus pot). Measured against
binary objectives and targeted to improve the culture of
engagement, leadership and actively sponsoring diversity
and inclusiveness – focused on: Dialight foundation; internal
communications; and employee welfare.
Transformation (10% of available bonus pot). Measured
against delivery plan targets for: finance team building; and
finance team leadership.
Controls (5% of available bonus pot). Measured against
binary control-related targets relating to: internal controls
framework; 1st level of defence controls; and 2nd level of
defence controls.
ABPB: financial element
The performance range in respect of quantitative elements of the 2021 EBIT and Absolute Net Debt
performance (collectively comprising 75% of the applicable bonus pot) were as follows:
EBIT element (after provision for bonus)
Absolute Net Debt
Threshold
Target
Maximum
£3.0m
£11.0m
£4.0m
£10.0m
£5.0m
£9.0m
Actual
£4.5m
£15.7m
on 31 December 2021.
CEO pay: pay ratio methodology
The table on page 77 discloses the ratio of the CEO’s pay against the remuneration of the Group’s UK
workforce in 2021. The ratios have been calculated in accordance with “Option A” of the three
methodologies provided under the applicable regulations, which we believe to be the most statistically
appropriate approach. This data is presented against the comparable, indicative, full-time equivalent total
remuneration of those employees whose pay is ranked at the 25th percentile, median and 75th percentile in
the Group’s UK workforce. Where possible, employee pay was calculated based on actual pay and benefits
for the 12-monthly payrolls within the full financial year. Given the small size of the Group’s UK workforce,
we have adopted the following protocols to avoid skewing the figures: if a role was maintained but the
individual(s) in such role changed, the figure provided in respect of such role has been calculated on a pro
rata basis for the two or more relevant individuals; and if there was a new role or a role was eliminated, the
figure provided was calculated as an annualised rate for such role. It should be noted that all the Group’s
manufacturing operations and most of its employees are located outside of the UK and therefore do not fall
within the reporting requirements.
CEO pay – pay ratio distorting events in 2020 and 2021.
The 2020 and 2021 ratios were impacted by the COVID-19 pandemic and resulted in adjustments in Group
Remuneration Policy to achieve a more equitable outcome for all employees across the Group at a
challenging time for our employees, supply chain and markets. In 2020 the impact was primarily the
non-payment of any variable remuneration and by the voluntary reduction in CEO base pay across five
months of the year by 20% (a progressive COVID-19 salary reduction policy under which the most highly
Dialight plcAnnual Report and Accounts 2021 77
2021 OUTCOMES CONTINUED
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).
It should be noted that no balancing payment has been made in respect of any salary reductions in 2020.
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). The pay ratio for
the FY2019 is also included to aid analysis, but it should be noted that no variable remuneration was paid
in FY2019. This ratio is therefore difficult to compare to prior years and can be expected to rise in future
years as the impact of COVID-19 recedes and as variable elements of remuneration become payable.
Year
2021
2020
2019
25th percentile
ratio
50th percentile
ratio
75th percentile
ratio
8.3:1
11.7:1
10.8: 1
6.0:1
7.7:1
8.4:1
3.6:1
5.6:1
5.3:1
CEO pay – Percentage change in the remuneration of the CEO.
The following table sets out the change in remuneration paid to the Chief Executive Officer from 2020 to
2021 compared with the average percentage change for employees as a whole. The above notes in respect
of comparison of pay ratio calculations apply. The 2020 baseline amounts for CEO salary and benefits were
impacted by the CEO COVID-19 salary reduction and it should also be noted that no APBP was paid in
2020 and that no CEO PSPs vested in 2020 or 2021. 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. Please note that the above disclosures are statutory disclosures, and the Committee welcomes
this level of disclosure in principle. However, in light of the impact on remuneration levels of the pandemic,
the Committee believes that: (a) the ratios set out are unlikely to reflect the long-term ratios; and (b) the
movement in values year on year is not necessarily indicative of any likely movement in future years.
Salary
Bonus
Benefits
% change 2020-2021
CEO Group employees
3%*
100%
0%
3%
100%
0%
* Calculated using the contractual entitlement for 2020 in respect of Fariyal Khanbabi, after add back of her voluntary COVID-19 salary sacrifice
(£36k) calculated at the rate of 20% of base salary for the months of May-September 2020 inclusive. It should also be noted that her 2021 pay
increment was made effective only from October 2021 (the last quarter of the year).
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 2020 and 2021 relative to the total amount of distributions in each year:
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:
600
500
400
300
200
100
0
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dialight
FTSE250 Index (excl. investment trusts)
FTSE250 SmallCap Index (excl. investment trusts)
FTSE AllShare Electronics & Electrical Equipment Index
Source: Datastream
Total CEO remuneration
The table below sets out the “single figure” of total remuneration of the CEO over the past nine years:
2013
2014
20151
2016
2017
2018
20192
20203
2021
R Burton
R Burton
R Burton
R Stuckes
M Sutsko M Sutsko M Sutsko
M Rapp
M Rapp
F Khanbabi F Khanbabi F Khanbabi
Total
remuneration
(£’000s)4
Bonus outcome
(% of max)
PSP vesting
outcome (%
of max)
1,222
901
681
1,145
583
586
562
447
911
-
29
100
-
-
-
74
-
-
-
-
n/a
-
-
-
-
62.5
-
1 R Burton (January and February); R Stuckes (March to June); and M Sutsko (July to December).
2 M Rapp (January to 9 August); and F Khanbabi, as Interim CEO (from 10 August to December).
3 F Khanbabi as Interim CEO to 4 March, and as permanent CEO from 5 March. F Khanbabi also sacrificed £36k base salary for the months
2021
2020
Spend on pay
Distributions
May–September inclusive, related to COVID-19 reduction.
£29.1m
£27.2m
£0m
£0m
4 All historical USD figures translated using the average 2021 GBP:USD rate of 1.38 to avoid currency impacts.
Dialight plcAnnual Report and Accounts 2021 78
2021 OUTCOMES CONTINUED
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2022
RSP awards made in 2021 (audited information)
Following approval of the 2021 Remuneration Policy (see pages 65, 67 to 73) at the 2021 AGM, RSPs were
granted to Fariyal Khanbabi as set out below. In accordance with the Remuneration Policy, awards will vest
so long as: (a) the recipient remains in role as at the vesting date; and (b) the Remuneration Committee is
satisfied that Dialight’s underlying performance and delivery against strategy are sufficient to justify the level
of pay-out. A mandatory two-year post-vesting holding period will apply to any shares received by Fariyal
Khanbabi on the vesting or exercise of these awards (as well as any other applicable restrictions – see
pages 71 to 73). In 2020 the total amount of nil cost options under the PSP schemes awarded to Fariyal
Khanbabi was 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 48.7%. A similar analysis was conducted prior to the
award of RSPs to Fariyal Khanbabi in May 2021. Across the previous 12 months, the share price had risen by
81% and accordingly no reduction was made against the RSPs awarded to her.
Director
Wai Kuen Chiang2
Plan
% of salary awarded
Nature of interest
Fariyal Khanbabi
RSP
62.5%
Nil-cost option
Exercise price per share
n/a
Number of shares subject to an award1 89,547
Face value of an award1
Performance conditions
£275,000
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
19.05.21
Date of end of performance period
19.05.24
1 Based on five-day average share price on date of award of £3.0710.
2 Wai Kuen Chiang left her role on 14 June 2021 and accordingly no RSPs were awarded to her.
Payments to past Directors or for loss of office (audited information)
Wai Kuen Chiang entered into an agreement to terminate her employment as CFO and her appointment as
an Executive Director on 9 April 2021. She left the Group on 14 June 2021. She was paid salary and benefits
pro rata up to her leave date on 14 June 2021. No exit or other termination payments were made to her with
the exception of £3,500 in respect of legal fees. She was not entitled to any further payments and did not
receive any bonus payment nor was any award of RSPs made, retained or vested on her departure. No past
Director became entitled to any vesting of awards under prior APBP and/or PSP schemes.
–
–
–
–
–
–
–
–
–
2022: Executive Director salaries, pensions and benefits
Where there are any new appointments of Executive Directors in 2022, remuneration packages (including
base pay) will be compliant with the 2021 Remuneration Policy. The Committee has adopted a clear and
principled approach to the setting of Executive Director pension contributions, and this is set out in the 2021
Remuneration Policy. All Executive Director pension contributions will be capped at the amount offered in
the applicable jurisdiction to the majority of employees. At the present time, in the case of UK-based
Executive Directors, this means pension contributions being limited to 5% of base salary.
2022: APBP
The 2022 APBP bonus scheme for Executive Directors will be in line with that set out in the 2021
Remuneration Policy. Specifically: 25% of the available bonus opportunity will be tested against personal
objectives; 25% against a cash conversion metric (for which a net debt target is used); and 50% against an
EBIT metric. Details of the personal objectives and the other performance metrics will be released in the
Company’s 2023 Annual Report, but in outline they include: business growth (measured through new
customers and strategic account metrics; sustainability (using appropriate ESG objectives); and talent and
people focused objectives. 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 of award date and 50%
after three years of award date. Any shares vesting will have to be retained until such time as the recipient
meets the applicable shareholding guidelines (which, under the 2021 Remuneration Policy, has increased to
200% of base salary).
2022: RSP
The 2022 share scheme awards for Executive Directors will be made in the awards window following release
of the Group’s preliminary announcement (27 March 2022). Any awards made will comply with the structure
set out in the 2021 Remuneration Policy (as set out on pages 67 to 73) – i.e. to a maximum of 62.5% of base
salary and with vesting based on continuation in role. Any shares that vest after the three-year performance
period will have to be retained until such time as the recipient meets the applicable shareholding guidelines
(which, under the 2021 Remuneration Policy, has increased to 200% of base salary).
Dialight plcAnnual Report and Accounts 2021 79
IMPLEMENTATION OF THE REMUNERATION POLICY FOR 2022 CONTINUED
Outstanding awards under the PSP and APBP (audited information)
Type of
award
Award
date
Number
at
01.01.21
Awarded
in year
Vested in
year
Exercised
in year
Lapsed
in year
Number
at
31.12.21
Exercise
price
Earliest
vesting/
exercise
date
Expiry
date
Fariyal
Khanbabi
PSP
PSP
PSP
RSP
Total
Notes:
NCO 16.03.18
50,862
NCO 05.03.19
68,803
NCO 27.03.20
201,367
–
–
–
NCO 19.05.21
–
89,547
321,032
89,547
–
–
–
–
-
–
–
–
–
-
(50,862)
-
–
–
–
68,803
201,367
89,547
(50,862)
359,717
–
–
16.03.21
16.03.23
Year
05.03.22
05.03.24
Fariyal Khanbabi
27.03.23
27.03.25
David Blood
–
19.05.24
19.05.26
Gotthard Haug
NCO denotes nil-cost options. These are subject to applicable performance conditions.
The average closing market price of a share over the five trading days of 12 May 2021 to 18 May 2021, which was used for the purpose of
calculating award values on 19 May 2021 (the date of the awards recorded in the tables above as made during the year) was 307.10 pence.
Options under the PSP scheme are exercisable for two years from the date of vesting. Awards granted since 2018 are subject to a mandatory
two-year post-vesting holding period.
Options under the APBP are exercisable for five years from the date of grant.
Under the APBP scheme, awards vest 50% on or after 31 January in the second year after grant with the remaining 50% vesting on or after
31 January in the third year after grant.
During the year, the range of share prices was 230 pence to 380 pence, with the price on 31 December 2021 being 330 pence.
Executive Directors’ shareholding guidelines
Executive Directors are required (under the 2021 Remuneration Policy) to accumulate and maintain a holding
of Dialight shares equivalent in value to 200% of base salary and are required to retain all net of tax APBP
and PSP/RSP share vestings until the guidelines have been met. All Dialight shares, whether purchased on
the open market or received through vestings and/or exercises under the various Dialight share plans, are
included in the relevant calculation. The Dialight share price used to value a holding for the purposes of the
guidelines will be the higher of: (a) the prevailing price on the date that the holding is valued (on the last
working day of the relevant financial year); and (b) the acquisition price (i.e. the price on the date on which
the shares were acquired/awards vested).
The Remuneration Committee is aware of the significance of Executive Directors having a personal holding
of shares in Dialight (to align management’s interests with those of the shareholders) and acted to further
strengthen the shareholding guidelines under the terms of the 2021 Remuneration Policy. Fariyal Khanbabi’s
current shareholding position reflects the fact that neither her APBP or PSP awards have vested in recent
years. Although the Committee recognises that Fariyal Khanbabi has not yet acquired the shareholding
required, the Remuneration Committee acknowledges the mitigating circumstances surrounding this issue.
The holdings of ordinary shares in the Company as at 31 December 2021 by the Executive Directors are
shown below.
Total shareholding of Directors (audited information)
The table below shows the holdings of ordinary shares in the Company as at 31 December 2021 by each of
the Directors:
Beneficially-held shares1
Ordinary shares
at 1 January
2021
Ordinary shares
at 31 December
2021
Unvested and/or
subject to
performance
conditions2
12,389
12,389
359,717
–
–
882
–
5,994
–
2,500
882
2,698
5,994
–
–
–
–
–
Gaëlle Hotellier
Karen Oliver
David Thomas
1 Some of these shares may be held through nominees.
2 Relates to outstanding awards under the PSP.
Directors’ service agreements and letters of appointment
The dates on which Directors’ initial service agreements/letters of appointment commenced and the expiry
dates as at 31 December 2021 are as follows:
Directors
Commencement date Expiry date of current employment/service agreement or letter of appointment
David Blood
1 July 2015
Following his resumption of an NED role (on stepping down as Chair on 10
September 2021), David’s engagement has reverted to his previous appointment
terms with a term of up to three years.
Gotthard Haug 1 April 2020
Letter of appointment was for an initial term of three years (ending on 31 March
2023).
Gaëlle Hotellier 3 October 2016
Letter of appointment was for an initial term of three years. A further three-year
extension was agreed in 2019 (ending 2 October 2022).
Clive Jennings
18 January 2022
The contract is terminable by the Company or the Director on 6 months’ notice.
Fariyal Khanbabi 8 September 2014
Karen Oliver
1 April 2020
The contract is terminable by the Company or the Director on 12 months’ notice.
Fariyal entered into a new service agreement on 4 March 2020 upon assuming the
CEO role. She retains continuity of service from her earlier agreement entered into
on 8 September 2014 (in respect of her CFO role) and supersedes both the
arrangements put in place upon her assuming the interim CEO role and her
previous contractual entitlement to a higher pension contribution.
Letter of appointment was for an initial term of three years (ending 31 March 2023).
Karen entered into a further letter of appointment on assuming the Chair role
extending the term expiry date to the date of the Company’s AGM in 2024.
David Thomas
26 April 2016
Letter of appointment was for an initial term of three years. A further three-year
extension was agreed in 2019 (ending 25 April 2022).
Dialight plcAnnual Report and Accounts 2021 80
OTHER STATUTORY INFORMATION
Activities
Dialight plc is a holding company. A list of its
subsidiary companies, including its overseas
branches, is set out on pages 121 and 122.
Our businesses by sector and their activities
are set out on page 4.
Ordinary dividends
Under the terms of the COVID-19 CLBILS (£8m)
and associated additional commercial loan (£2m)
facilities, distributions are not permitted where there
is an outstanding amount under either facility.
The Board is therefore not proposing any final
dividend payment for 2021 (2020: nil). The Group
has a clear capital allocation discipline and is
committed to returning future excess funds
to shareholders via future dividend or share
repurchase, subject to any restrictions under
these facilities.
The Company has established the Dialight
Employees’ Share Ownership Plan Trust (”ESOT”),
in respect of which all employees of the Group,
including Executive Directors, are potential
beneficiaries. The ESOT held 205,026 shares in the
Company as at 31 December 2021 (2020: nil) and it
is likely that it will acquire further shares in the
Company in 2022 in anticipation of future vestings
under the DRSP. It is anticipated that the ESOT will
waive any right to dividends payable in respect of
any Dialight shares held by the ESOT.
Share capital and capital structure
Details of the share capital, together with details of
the movements in the share capital during the year,
are shown in note 20 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 2021
under the authority granted at the 2021 Annual
General Meeting (“AGM”).
Substantial interests in shares
As at 9 March 2022, the Company had been notified, in accordance with DTR chapter 5, of the following
voting rights as a shareholder of the Company.
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.
Shareholder
Aberforth Partners LLP
Generation Investment Management LLP
Schroder Investment Management
Sterling Strategic Value Fund S.A., SICAV-RAIF
Impax Asset Management
Odyssean Capital
Blackmoor Investment Partners
Tee Family
Holding
7,637,198
6,532,248
3,948,928
3,279,940
2,295,552
2,277,700
1,212,440
541,507
%
Voting rights
23.42
20.03
12.11
10.06
7.04
6.98
3.72
1.66
Employee share plans
Details of employee share plans are set out in note
16 to the financial statements. The Company
currently has in place two share plans: the
Restricted Share Plan (“DRSP”) (which under the
2021 Remuneration Policy succeeded the Dialight
Performance Share Plan (“PSP”)) and the Annual
Performance Bonus Plan (“APBP”). It also has a
Sharesave Plan, but this was not used for
subscriptions in 2021 as it is a UK-orientated
scheme and was considered insufficiently
responsive to the Group’s international employee
footprint. There are currently no active savers under
the Sharesave Plan. Further details of these share
plans are provided in the report of the Remuneration
Committee.
The rules of the DRSP (and the preceding PSP)
provide that, in the event of a change of control
through a general offer or scheme of arrangement,
shares subject to awards under the DRSP (and the
preceding PSP) could be released within one month
of the date of notification of the likely change of
control. The rules of the Sharesave Plan have
special provisions which also allow for early exercise
in the event of a change of control, reconstruction
or winding up of the Company. Internal
reorganisations do not automatically trigger the
early exercise of options. The ESOT held 205,026
shares as at 31 December 2021 (2020: nil) )
and it is likely that it will acquire further shares
in the Company in 2022 in anticipation of future
vestings under the DRSP (and the preceding PSP).
The Trustees of the ESOT retain the voting rights
over the shares held in the ESOT and may
exercise these rights independent of the
interests of the Company.
Appointment and replacement of Directors
With regard to the appointment and replacement of
Directors, the Company is governed by its Articles,
the UK Corporate Governance Code (the “2018
Code”), the Companies Act 2006 and related
legislation. Directors can be appointed by the
Company by ordinary resolution at a general
meeting or by the Board. If a Director is appointed
by the Board, such Director will hold office until the
next AGM and shall then be eligible subject to
Board recommendation, for election at that meeting.
In accordance with Provision 18 of the 2018 Code
each of the Directors, being eligible, will offer
themselves for election or re-election at the 2022
AGM (subject to any retirements). The Company
can remove a Director from office, either by passing
a special resolution or by notice being given by all
the other Directors. The Articles themselves may be
amended by special resolution of the shareholders.
Dialight plcAnnual Report and Accounts 2021 81
OTHER STATUTORY INFORMATION CONTINUED
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.ir.dialight.com, and are summarised
in the Corporate Governance report on page 57.
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 £25m multi-currency revolving credit
facility with HSBC Bank plc (“HSBC”) which was
entered into on 25 February 2020 for an initial
duration of three years expiring on February 2023.
A £10m CLBILS facility and commercial loan facility
was completed on 15 June 2020. Under the terms
of both facilities, and in the event of a change
of control of the Company, HSBC can withdraw
funding and all outstanding loans; accrued interests
and other amounts due and owing become payable
within 20 business days of the change.
Allotment authority
Under the Companies Act 2006, the Directors may
only allot shares if authorised by shareholders to do
so. At the 2022 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 2022 AGM will
expire at the conclusion of the AGM of the
Company in 2023. Passing this resolution will give
the Directors flexibility to act in the best interests of
shareholders, when opportunities arise, by issuing
new shares.
The Companies Act 2006 also requires that, if the
Company issues new shares for cash or sells any
treasury shares, it must first offer them to existing
shareholders in proportion to their current holdings.
At the 2022 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 2022 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 2022 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
99% of voting shareholders supported the allotment
resolutions at the 2021 AGM.
Auditor
Each of the persons who is a Director at the date
of approval of this Annual Report and Accounts
confirms that:
– so far as the Director is aware, there is no relevant
audit information of which the Company’s Auditor
is unaware; and
– the Director has taken all the steps that he/she
ought to have taken as a Director in order to
make himself/herself aware of any relevant audit
information and to establish that the Company’s
Auditor is aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section 418
of the Companies Act 2006. The Board is
recommending to shareholders the re-appointment
of KPMG as auditor of the Company and a
resolution authorising the Directors to set its
remuneration will be proposed at the forthcoming
AGM. However, shareholders’ attention is drawn
to the matters set out on page 64 in respect of the
audit re-tender.
AGM
The Company’s AGM will be held on Thursday
19 May 2022. 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.ir.dialight.com.
Scope of the reporting in this Annual Report
and Accounts
The Directors present their Annual Report on the
affairs of the Group, together with the financial
statements and Auditor’s Report, for the year ended
31 December 2021.
The Corporate Governance report set out on pages
49 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. 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 14 to 16.
Details related to employee matters are in the
“Our people” section on pages 24 to 26.
Environmental matters, including greenhouse gas
emissions reporting, are included within the ESG
Report on pages 19 to 39. Information about the
use of financial instruments by the Company and
its subsidiaries is given in note 24 to the financial
statements. Information on the Company’s political
and charitable contributions during the year is set
out on page 27.
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
27 March 2022
Dialight plcAnnual Report and Accounts 2021 explain the parent company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the parent company and enable
them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible
for such internal control as they determine is
necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error, and have general
responsibility for taking such steps as are
reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and
other irregularities. Under applicable law and
regulations, the Directors are also responsible for
preparing a Strategic Report, a Directors’ report, a
Directors’ Remuneration Report and a Corporate
Governance Statement that complies with that law
and those regulations. The Directors are responsible
for the maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK governing
the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
Responsibility statement of the Directors
in respect of the annual financial report
We confirm that to the best of our knowledge:
– the 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 Directors’ and corporate governance reports
include a fair review of the development and
performance of the business and the position of
the issuer and the undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties
that they face.
We consider 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.
For and on the behalf of the Board of Dialight plc.
Fariyal Khanbabi
Group Chief Executive
27 March 2022
82
DIRECTORS’ RESPONSIBILITY STATEMENT
Directors are responsible for preparing this Annual
Report and the Group and parent company financial
statements in accordance with applicable law and
regulations.
UK company law requires the Directors to prepare
Group and parent company financial statements for
each financial year. 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).
The Directors must not approve the financial
statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group
and parent company and of the Group’s profit or
loss for that period.
In preparing each of the Group and parent company
financial statements, the Directors are required to:
– select suitable accounting policies and to then
apply them consistently;
– make judgements and estimates that are
reasonable, relevant, reliable and prudent;
– for the Group financial statements, state whether
they have been prepared in accordance with
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 being 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
Dialight plcAnnual Report and Accounts 2021 83
Independent auditor’s report to the members of Dialight plc
1. Our opinion is unmodified
We have audited the financial statements of Dialight plc (“the Company”) for the year ended
31 December 2021 which comprise the Consolidated income statement, Consolidated statement of
comprehensive income, Consolidated statement of changes in equity, Consolidated statement of
financial position, Consolidated statement of cash flows, Company balance sheet,
Company statement of changes in equity, and the related notes, including the accounting
policies in note 3 and 4.
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 December 2021 and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with UK-adopted
international accounting standards;
– the parent Company financial statements have been properly prepared in accordance with FRS 102
The Financial Reporting Standard applicable in the UK and Republic of Ireland; and
– the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”)
and applicable law. Our responsibilities are described below. We believe that the audit evidence we
have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with
our report to the audit committee.
We were first appointed as auditor by the directors in 2001. The period of total uninterrupted
engagement is for the 20 financial years ended 31 December 2021. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to listed public interest entities. No
non-audit services prohibited by that standard were provided.
Overview
Materiality: Group financial
statements as a whole
£0.67m (2020: £0.55m)
Coverage
Key audit matters
Recurring risk
0.5% (2020: 0.5%) of group revenue
97.9% (2020: 99%) of group profit before tax
Inventory valuation
Termination of outsourced
manufacturing supply agreement
vs 2020
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance
in the audit of the financial statements and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team.
We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our
audit opinion above, together with our key audit procedures to address those matters and, as required
for public interest entities, our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit
of the financial statements as a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate opinion on these matters.
Dialight plc Annual Report and Accounts 2021 84
Independent auditor’s report to the members of Dialight plc continued
Recurring risk
The risk
Our response
Recurring risk
The risk
Our response
Inventory
Valuation
(£42.4 million;
2020: £32.5 million)
Refer to page 62
(Audit Committee
Report), pages 95
and 99 (accounting
policy) and page
114 (financial
disclosures).
Subjective estimate:
Inventory Provision
The group has significant
inventory balance representing
34% (2020: 30%) of the total
assets.
Our procedures included:
– Methodology implementation: We assessed the
methodology behind the provision calculation to
consider whether judgments applied in the
methodology are reasonable and incorporates
the accounting standards appropriately.
– The group operates in
– Reperformance: we independently
industry whereby
development in product
technology may result in
inventory becoming slow
moving or obsolete.
This factor, in turn means that
certain finished goods items
cannot be sold for at least the
carrying amounts and raw
materials and sub–assembly
inventory cannot be used in
the manufacture of products.
– Significant levels of longer
dated inventory may indicate
an element of slow moving
or obsolete inventory that
requires provision.
– Furthermore, we consider
there is a fraud risk relating to
inventory provisioning as
management could alter the
provision in order to create an
artificial improvement in the
Group’s trading performance.
– The effect of these matters is
that, as part of our risk
assessment, we determined
that the provision for
inventory has a high degree
of estimation uncertainty,
with a potential range of
reasonable outcomes greater
than our materiality for the
financial statements as a
whole. Further details are set
out in note 2 and note 17.
recalculated the provision for raw materials and
sub-assemblies based on the methodology
provided by the directors, using inventory aging
and usage data. For variances noted for slow
moving inventory, we challenged the directors
on their judgment for not recognising a
provision in respect of such items.
– Reperformance: we independently
recalculated the finished goods provisions
based on the methodology provided by
directors, using historic sales, backlog and
pipeline data.
– Tests of detail: we sampled finished good
products with significant excess stock that had
not been either partially or fully provided for.
For each inventory product selected we
challenged the directors on their category
allocation by developing our own expectation
of what might be considered slow moving and
seeking specific corroboration from the
Group’s engineering team on the continuing
value and utility of such inventory.
– Tests of detail: we verified data elements in the
provision calculation such as historic usage of
raw materials and subassemblies, backlog and
pipeline data for finished goods to supporting
documentation.
– Test of detail: We tested that finished goods on
hand at the end of the year were recorded at the
lower of cost and net realisable value by testing
a sample of inventory items to the most recent
sales price or prices in backlog and pipeline data.
– Sensitivity analysis: We performed sensitivity
analysis on judgemental assumptions such as
determination of the excess stock that bears a
risk of not being recoverable.
– Assessing transparency: We assessed the
adequacy of the group’s disclosures about the
degree of estimation involved in arriving at the
provision.
We performed the detailed tests above rather than
seeking to rely on any of the Group’s controls
because our knowledge of the design of these
controls indicated that we would be unlikely to
obtain the required evidence to support reliance
on controls.
Our results:
We found the resulting estimate of the inventory
provision to be acceptable (2020: acceptable)
Having found the estimate to be at the low end of
the range we consider to be acceptable, we
exercised judgement to determine the
acceptability of the amount recognised, taking into
account the clarity of the associated disclosure of
the provision as a percentage of inventory.
Dialight plc Annual Report and Accounts 2021 85
Independent auditor’s report to the members of Dialight plc continued
2. Key audit matters: our assessment of risks of material misstatement (continued)
Recurring risk
The risk
Our response
Termination of
outsourced
manufacturing
supply
arrangement:
Group and Parent
Refer to page 62
(Audit Committee
Report), page 102
(accounting policy)
and page 120
(financial
disclosures).
Dispute outcome
On 20 December 2019 a claim
was brought against the parent
company by its former
outsourced manufacturing
partner relating to excess and
obsolete inventory and unpaid
trade payables balances netted
off with an amount held in
Escrow. Following the
termination of the group’s
manufacturing outsourcing
agreement, the claimant has
alleged it should be reimbursed
for this excess and obsolete
inventory. This has been
disclosed as a contingent
liability (£0-£8.9m) and has not
been recognised as a provision
in the Group’s financial
statements.
There is a significant
judgement involved in
determining the likelihood of
success of the claim, and if the
claimant is successful, the
potential range of reasonable
financial outflows in the
settlement could be greater
than our materiality for the
financial statements as a
whole, and possibly many
times that amount.
Our procedures included:
– Enquiry of lawyers: we assessed the status
and likely outcome of the claim through
enquiries of the Group’s internal legal counsel,
and inspection of internal notes and reports, as
well as discussions with the Group’s external
counsel, review of summary judgement
requests, and formal legal confirmations from
the Group’s external counsel as to the status
of proceedings.
– Accounting analysis: we evaluated the
treatment of outstanding balances with
Sanmina, and the assessment performed by the
Directors in determining whether the criteria for
recognising a provision or a contingent liability
was met at year end.
– Assessing transparency: we assessed
whether the Group’s and parent company’s
disclosures relating to the contingent liability
and related balances adequately disclose the
circumstances and judgement applied.
We performed the tests above rather than seeking
to rely on any of the group’s controls because the
nature of the balance is such that we would expect
to obtain audit evidence primarily through the
detailed procedures described.
Our results:
– We found the treatment and disclosure of this
contingent liability to be acceptable. (2020:
acceptable).
We continue to perform procedures over Inventory Cost. However, as there has been no further change
in the accounting policy or methodology, no material issues were identified within the prior period, and
the materiality threshold has increased, we have not assessed this as one of the most significant risks in
our current year audit and, therefore, it is not separately identified in our report this year.
We continue to perform procedures over Going Concern and recoverability of goodwill and other
intangible assets. However, following improvement in the group’s results, we have not assessed either of
these as one of the most significant risks in our current year audit and, therefore, these are not separately
identified in our report this year.
We continue to perform procedures over capitalization of development costs. However, as there has been
no further change in the accounting policy or methodology, no material issues were identified in the prior
period, and the materiality threshold has increased, we have not assessed this as one of the most
significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £0.67 million (2020: £0.55m),
determined with reference to a benchmark of total revenue, of £131m, of which it represents 0.5%
(2020: 0.5% of Group revenue).
We consider total revenue to be the most appropriate benchmark given the recent volatility in the
Group’s profitability benchmarks.
Materiality for the parent company financial statements as a whole was set at £0.37m (2020: £0.3m),
determined with reference to a benchmark of gross assets, of which it represents 0.6% (2020: 0.5%).
In line with our audit methodology, our procedures on individual account balances and disclosures
were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level
the risk that individually immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 65% (2020: 65%) of materiality for the financial statements as a
whole, which equates to £0.44m (2020: £0.3m) for the Group and £0.24m (2020: £0.2m) for the parent
company. We applied this percentage in our determination of performance materiality based on the
level of identified control deficiencies and entity level control deficiencies identified during the prior
period.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements
exceeding £33,500 (2020: £27,000), in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s eight (2020: eight) reporting components, we subjected three (2020: three) to full
scope audits for Group purposes and two (2020: two) to specified risk-focused audit procedures.
The latter were not individually financially significant enough to require a full scope audits for Group
purposes, but did present specific individual risks that needed to be addressed.
Dialight plc Annual Report and Accounts 2021 86
Independent auditor’s report to the members of Dialight plc continued
3. Our application of materiality and an overview of the scope of our audit (continued)
The five components within the scope of our work accounted for the percentages illustrated opposite
Revenue
£131.6m (2020: £(119)m)
Group materiality
£0.67m (2020: £0.55m)
£0.67m
Whole financial statements materiality (2020: £0.55m)
£0.44m
Whole financial statements performance materiality (2020: £0.36m)
£0.54m
Range of materiality at 5 components:
(£0.18m-£0.54m) (2020: £0.19m to £0.40m)
£0.03m
Misstatements reported to the Audit Committee
(2019: £0.03m)
Revenue
Group materiality
Group revenue
Group profit before tax
14.7%
15.1%
80.2%
83.7%
16.4%
29.2%
98.9%
(2020: 95.3%)
97.9%
(2020: 96.2%)
66.9%
81.3%
Group total assets
15%
16.5%
80.8%
83.7%
Group profit before exceptional
items and tax
Full scope for Group audit purposes 2021
Specified risk-focused audit procedures 2021
Full scope for Group audit purposes 2020
Specified risk-focused audit procedures 2020
Residual components
10.8%
31.6%
99%
(2020: 97.3%)
98.4%
(2020: 94.8%)
63.2%
87.5%
The Group team instructed component auditors as to the significant areas to be covered, including the
relevant risks detailed above and the information to be reported back. The Group team approved the
component materialities, which ranged from £0.18m to £0.54m (2020: £0.19m -£0.4m), having regard
to the mix of size and risk profile of the Group across the components. The work on two of the five
components (2020: two of the five components) was performed by component auditors and the rest,
including the audit of the parent company, was performed by the Group team.
The scope of the audit work performed was predominately substantive as we placed limited reliance
upon the Group’s internal control over financial reporting.
Telephone conference meetings were held with the two component auditors that were not physically
visited due to travel restrictions imposed as a result of the COVID 19 pandemic. At these meetings, the
findings reported to the Group team were discussed in more detail, and any further work required by
the Group team was then performed by the component auditor.
4. Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend
to liquidate the Group or the Company or to cease their operations, and as they have concluded that
the Group’s and the Company’s financial position means that this is realistic. They have also concluded
that there are no material uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval of the financial statements
(“the going concern period”).
We used our knowledge of the Group, its industry, and the general economic environment to identify
the inherent risks to its business model and analysed how those risks might affect the Group’s and
Company’s financial resources or ability to continue operations over the going concern period.
The risks that we considered most likely to adversely affect the Group’s and Company’s available
financial resources and metrics relevant to debt covenants over this period were:
– The uncertainty of the ongoing impact of supply chain disruption, COVID-19, and inflationary cost
pressures on the Group’s revenue growth and gross margin.
We considered whether these risks could plausibly affect the liquidity in the going concern period by
comparing severe, but plausible downside scenarios that could arise from these risks individually and
collectively against the level of available financial resources and covenants indicated by the Group’s
financial forecasts.
We considered whether these risks could plausibly affect the liquidity and covenant compliance in the
going concern period by comparing severe, but plausible downside scenarios that could arise from
these risks individually and collectively against the level of available financial resources and covenants
indicated by the Group’s financial forecasts.
Dialight plc Annual Report and Accounts 2021 87
Independent auditor’s report to the members of Dialight plc continued
4. Going concern (continued)
Our procedures included:
– Critically assessing assumptions in the Directors’ initial downside scenarios relevant to liquidity and
covenant metrics, in particular in relation to profitability by comparing to historical trends, investor
market analysis and assessing whether downside scenarios applied mutually consistent assumptions
in aggregate, taking into account all reasonably possible downsides. As a result of this comparison
we requested the Directors to apply more severe downside assumptions for some sensitivities.
We also compared past budgets to actual results to assess the directors’ track record of budgeting
accurately.
– We inspected the confirmation from the lender of the level of committed financing, and the
associated covenant requirements, including their approval of the refinancing of the £25m facility
until March 2025.
We considered whether the going concern disclosure in note 2 to the financial statements gives a full
and accurate description of the Directors’ assessment of going concern, including the identified risks,
dependencies and related sensitivities.
Our conclusions based on this work:
– we consider that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate;
– we have not identified, and concur with the directors’ assessment that there is not, a material
uncertainty related to events or conditions that, individually or collectively, may cast significant
doubt on the Group’s or Company’s ability to continue as a going concern for the going concern
period;
– we have nothing material to add or draw attention to in relation to the directors’ statement in note 2
to the financial statements on the use of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the Group and Company’s use of that basis for the
going concern period, and we found the going concern disclosure in note 2 to be acceptable; and
– the related statement under the Listing Rules set out on page 50 is materially consistent with the
financial statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the time they were made, the
above conclusions are not a guarantee that the Group or the Company will continue in operation.
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions
that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
– Enquiring of directors and the Audit Committee as to the Group’s high level policies and procedures
to prevent and detect fraud, and the Group’s channel for “whistleblowing” as well as whether they
have knowledge of any actual, suspected or alleged fraud.
– Reading Board and Audit Committee minutes.
– Considering remuneration incentive schemes and performance targets for management and
directors.
– Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any
indications of fraud throughout the audit.
This included communications from the Group to component audit teams of relevant fraud risks
identified at the Group level and request component audit teams to report to the Group audit team
any instances of fraud that could give rise to a material misstatement at Group.
As required by auditing standards, we perform procedures to address the risk of management override
of controls, in particular the risk that Group and component management may be in a position to make
inappropriate accounting entries. On this audit we do not believe there is a fraud risk related to revenue
recognition as the calculation of revenue recognition is non-complex with limited opportunity for
manipulation of recognition under IFRS 15.
We also identified fraud risks in relation to inappropriate capitalisation of development costs,
allocation of overhead and labour costs to inventory cost, and inventory provision manipulation,
in response to possible pressures to meet profit targets and identified opportunities to
manipulate results.
Further details in respect of inventory provision manipulation are set out in the key audit matter
disclosure in section 2 of this report.
We also performed procedures including:
– Identifying journal entries to test for all full scope components based on a risk criteria and comparing
the identified entries to supporting documentation. Those included journals with unusual account
pairings to cash, revenue and accounts associated with a significant risk, journals to seldom used
accounts, journals with missing descriptions or journals containing selected risk terms.
– Agree a sample of capitalised development cost to underlying support, including direct confirmation
of timesheets with personnel.
– Assess a sample of projects against the IAS 38 capitalised criteria, through review of the business
case and challenge of management.
– Agree a sample of capitalised inventory costs to underlying support, and re-calculate the allocation
of overheads.
– Assess the appropriateness of the overhead allocation methodology and perform sensitivities over
the underlying assumptions.
Dialight plc Annual Report and Accounts 2021 88
Independent auditor’s report to the members of Dialight plc continued
5. Fraud and breaches of laws and regulations – ability to detect (continued)
Identifying and responding to risks of material misstatement due to non-compliance with laws
and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect
on the financial statements from our general commercial and sector experience, through discussion
with the directors (as required by the audit standards), and discussed with the directors the policies
and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any
indications of non-compliance throughout the audit. This included communication from the Group to
full-scope component audit teams of relevant laws and regulations identified at the Group level, and a
request for full scope component auditors to report to the Group team and any instances of non-
compliance with laws and regulations that could give rise to a material misstatement at Group.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements,
including financial reporting legislation (including related companies legislation), distributable profits
legislation and taxation legislation and we assessed the extend of compliance with these laws and
regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation. We identified the following areas as those most
likely to have such an effect: health and safety, data protection laws, anti-bribery, employment law, and
certain aspects of company legislation recognising the nature of the Group’s activities.
Auditing standards limit the required audit procedures to identify non-compliance with these laws and
regulations to enquiry of the directors and other management and inspection of regulatory and legal
correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or
evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have
detected some material misstatements in the financial statements, even though we have properly
planned and performed our audit in accordance with auditing standards. For example, the further
removed non-compliance with laws and regulations is from the events and transactions reflected in the
financial statements, the less likely the inherently limited procedures required by auditing standards
would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
controls. Our audit procedures are designed to detect material misstatement. We are not responsible
for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all
laws and regulations.
6. We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with
the financial statements. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our
financial statements audit work, the information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
– we have not identified material misstatements in the strategic report and the directors’ report;
– in our opinion the information given in those reports for the financial year is consistent with the
financial statements; and
– in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared
in accordance with the Companies Act 2006.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between
the directors’ disclosures in respect of emerging and principal risks and the viability statement,
and the financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
– the directors’ confirmation within the viability statement on page 48 that they have carried out a
robust assessment of the emerging and principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and liquidity;
– the Emerging and Principal Risks disclosures describing these risks and how emerging risks are
identified, and explaining how they are being managed and mitigated; and
– the directors’ explanation in the viability statement of how they have assessed the prospects of the
Group, over what period they have done so and why they considered that period to be appropriate,
and their statement as to whether they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary qualifications or assumptions.
Dialight plc Annual Report and Accounts 2021 89
Independent auditor’s report to the members of Dialight plc continued
6. We have nothing to report on the other information in the Annual report (continued)
We are also required to review the viability statement, set out on page 48 under the Listing Rules.
Based on the above procedures, we have concluded that the above disclosures are materially
consistent with the financial statements and our audit knowledge.
Our work is limited to assessing these matters in the context of only the knowledge acquired during
our financial statements audit. As we cannot predict all future events or conditions and as subsequent
events may result in outcomes that are inconsistent with judgements that were reasonable at the time
they were made, the absence of anything to report on these statements is not a guarantee as to the
Group’s and Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between
the directors’ corporate governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with
the financial statements and our audit knowledge:
– the directors’ statement that they consider that the annual report and financial statements taken as a
whole is fair, balanced and understandable, and provides the information necessary for shareholders
to assess the Group’s position and performance, business model and strategy;
– the section of the annual report describing the work of the Audit Committee, including the significant
issues that the audit committee considered in relation to the financial statements, and how these
issues were addressed; and
– the section of the annual report that describes the review of the effectiveness of the Group’s risk
management and internal control systems.
We are required to review the compliance statements relating to the Group’s compliance with the
provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in respect this respect.
7. We have nothing to report on the other matters on which we are required to report
by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent Company, or returns adequate for
our audit have not been received from branches not visited by us; or
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 82, the directors are responsible for: the
preparation of the financial statements including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; assessing the Group and 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 they 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
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
9. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Lynton Richmond (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
– the parent Company financial statements and the part of the Directors’ Remuneration Report to be
27 March 2022
audited are not in agreement with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
Dialight plc Annual Report and Accounts 2021 90
Consolidated income statement
for the year ended 31 December 2021
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Note
2021
£m
2020
£m
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations
Income tax on exchange differences on translation of foreign operations
Items that will not be reclassified subsequently to profit and loss
Remeasurement of defined benefit pension liability
Income tax on remeasurement of defined benefit pension liability
16
9
Other comprehensive income/(expense) for the year, net of tax
Profit/(loss) for the year
Total comprehensive income/(expense) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income/(expense) for the year
0.7
–
0.7
2.5
(0.5)
2.0
2.7
0.3
3.0
2.8
0.2
3.0
(1.8)
(0.3)
(2.1)
(1.3)
0.3
(1.0)
(3.1)
(7.8)
(10.9)
(11.0)
0.1
(10.9)
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit/(loss) from operating activities
Underlying profit/(loss) from operating activities
Non underlying items
Profit/(loss) from operating activities
Financial expense
Profit/(loss) before tax
Taxation
Profit/(loss) for the year
Profit/(loss) for the year attributable to:
Equity owners of the Company
Non-controlling interests
Profit/(loss) for the year
Profit/(loss) per share
Basic
Diluted
Note
5
6
6
5
6
5
8
5
9
10
2021
£m
131.6
(84.6)
47.0
(21.3)
(23.6)
2.1
4.5
(2.4)
2.1
(1.4)
0.7
(0.4)
0.3
0.1
0.2
0.3
2020
£m
119.0
(85.0)
34.0
(20.8)
(22.0)
(8.8)
(6.4)
(2.4)
(8.8)
(1.3)
(10.1)
2.3
(7.8)
(7.9)
0.1
(7.8)
11
11
0.9p
0.9p
(24.0)p
(24.0)p
These results are all from continuing operations.
The accompanying notes form an integral part of these financial statements.
Dialight plc Annual Report and Accounts 2021 91
Consolidated statement of changes in equity
for the year ended 31 December 2021
Share
capital
£m
Merger
reserve
£m
Translation
reserve
£m
Note
Capital
redemption
reserve
£m
Own
Shares
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Balance at
1 January 2021
Profit for the year
Other
comprehensive
income:
Foreign
exchange
translation
differences, net
of tax
Remeasurement
of defined
benefit pension
liability, net of tax
Total other
comprehensive
income
Total
comprehensive
income for
the year
Transactions
with owners,
recorded
directly
in equity:
Share-based
payments
Re-purchase of
own shares
Total
transactions
with owners
Balance at
31 December
2021
0.6
–
0.5
–
9.3
–
2.2
–
16
7
20
–
–
–
–
_
–
–
–
–
–
–
_
–
–
0.7
–
0.7
0.7
_
–
–
–
–
–
–
_
–
–
–
–
–
–
–
–
Total
equity
£m
57.3
Balance at
1 January 2020
0.3
Loss for the year
Share
capital
£m
Merger
reserve
£m
Translation
reserve
£m
Note
Capital
redemption
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Total
equity
£m
0.6
–
0.5
–
11.6
–
2.2
–
52.6
67.5
(7.9)
(7.9)
0.3
0.1
67.8
(7.8)
44.3
0.1
56.9
0.1
0.4
0.2
–
0.7
2.0
2.0
2.0
2.7
–
–
–
0.7
2.0
2.7
2.1
2.8
0.2
3.0
Other comprehensive
(expense)/income:
Foreign exchange
translation differences,
net of tax
Disposal of subsidiary
Remeasurement of
defined benefit pension
liability, net of tax
Total other
comprehensive expense
Total comprehensive
(expense)/income for
the year
Transactions with
owners, recorded
directly in equity:
Share-based payments
Total transactions
with owners
Balance at
31 December 2020
16
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
(0.2)
–
(2.3)
(2.3)
–
–
–
–
–
–
–
–
–
–
0.2
(2.1)
–
(1.0)
(1.0)
(0.8)
(3.1)
–
–
–
–
(2.1)
–
(1.0)
(3.1)
(8.7)
(11.0)
0.1
(10.9)
0.4
0.4
0.4
0.4
–
–
0.4
0.4
0.6
0.5
9.3
2.2
44.3
56.9
0.4
57.3
The accompanying notes form an integral part of these financial statements.
_
0.6
0.6
(0.7)
–
(0.7)
(0.7)
0.6
(0.1)
_
–
–
0.6
(0.7)
(0.1)
0.6
0.5
10.0
2.2
(0.7)
47.0
59.6
0.6
60.2
Dialight plc Annual Report and Accounts 2021 92
Consolidated statement of total financial position
at 31 December 2021
Note
2021
£m
Assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred tax assets
Employee benefits
Other receivables
Total non-current assets
Inventories
Trade and other receivables
Income tax recoverable
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Trade and other payables
Provisions
Tax liabilities
Lease liabilities
Borrowings
Total current liabilities
Provisions
Borrowings
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
12
13
14
15
16
18
17
18
19
21
22
13
23
22
23
13
Equity
Issued share capital
Merger reserve
Other reserves
Retained earnings
Non-controlling interests
Total equity
Note
20
20
2021
£m
0.6
0.5
11.5
47.0
59.6
0.6
60.2
2020
£m
0.6
0.5
11.5
44.3
56.9
0.4
57.3
The accompanying notes form part of these financial statements. These financial statements were
approved by the Board of Directors on 27 March 2022 and were signed on its behalf by:
2020
£m
12.8
9.8
21.2
1.4
1.1
5.0
51.3
32.5
19.9
1.0
5.3
58.7
12.0
11.3
21.4
1.3
3.9
4.7
54.6
42.4
26.2
1.2
1.2
71.0
125.6
110.0
Fariyal Khanbabi
Group Chief Executive
Clive Jennings
Chief Finance Officer
Company number: 2486024
(32.9)
(0.6)
(1.7)
(1.2)
(4.0)
(40.4)
(1.3)
(12.9)
(10.8)
(25.0)
(65.4)
60.2
(21.5)
(1.5)
(1.5)
(1.4)
(4.0)
(29.9)
(1.2)
(12.7)
(8.9)
(22.8)
(52.7)
57.3
Dialight plc Annual Report and Accounts 2021 93
Consolidated statement of cash flows
for the year ended 31 December 2021
Operating activities
Profit/(loss) for the year
Adjustments for:
Financial expense
Income tax expense/(credit)
Share-based payments
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment losses on intangible assets
Loss on disposal of business
Operating cash flow before movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
(Decrease)/increase in provisions
Pension contributions in excess of the income statement charge
Cash generated by operations
Income taxes (paid)/received
Interest paid2
Net cash generated by operations
Investing activities
Capital expenditure
Capitalised expenditure on development costs
Purchase of software and licences
Net cash used in investing activities
Note
2021
£m
2020
£m
8
9
12
13
14
14
6
22
16
8,13
12
14
14
0.3
1.4
0.4
0.6
3.1
2.2
3.5
–
–
11.5
(9.6)
(5.8)
11.1
(0.8)
(0.4)
6.0
(0.6)
(1.4)
4.0
(2.1)
(3.2)
(0.3)
(5.6)
(7.8)
1.3
(2.3)
0.4
3.1
2.0
3.0
0.3
1.1
1.1
12.6
2.7
(6.3)
0.5
(0.1)
10.5
2.9
(1.3)
12.1
(0.8)
(3.4)
(0.3)
(4.5)
Financing activities
Drawdown of bank facility
Repayment of bank facility
Re-purchase of own shares
Repayment of lease liabilities1
Net outflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rates
Cash and cash equivalents at end of year
The Group has classified:
Note
23
23
20
13
19
2021
£m
2020
£m
4.2
(4.0)
(0.7)
(1.7)
(2.2)
(3.8)
5.3
(0.3)
1.2
10.0
(10.3)
–
(1.7)
(2.0)
5.6
0.5
(0.8)
5.3
1 cash payments for the principal portion of lease payments as financing activities;
2 cash payments for the interest portion as operating activities consistent with the presentation of interest payments chosen by the Group.
The accompanying notes form an integral part of these financial statements.
Dialight plc Annual Report and Accounts 2021 94
Notes to the consolidated financial statements
for the year ended 31 December 2021
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 132 under the “Directory and shareholder
Information” section. The consolidated financial statements of the Company for the year ended
31 December 2021 comprise the Company and its subsidiaries (together referred to as the “Group”).
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with UK-adopted
International Accounting Standards in conformity with the requirements of the Companies Act 2006.
The Company has elected to present its parent company financial statements in accordance with FRS
102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.
(b) Consolidated basis of preparation
The Group’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the Strategic Report on pages 4 to 48. The financial position
of the Group, its cash flows, liquidity position and borrowing facilities are discussed in the Group Chief
Financial Officer’s Review on pages 45 to 47.
The uncertainty as to the future impact on the financial performance and cash flows of the Group from
the ongoing COVID-19 pandemic and worldwide supply chain issues have been considered as part of
the Group’s adoption of the going concern basis in the preparation of the consolidated financial
statements. The consolidated financial statements are prepared on a going concern basis which the
Directors believe to be appropriate for the reasons stated below.
The Group’s multicurrency revolving credit facility with HSBC of £25m was due to expire in February
2023 but has been re-negotiated until March 2025. The new £25m multi-currency three-year loan has
been fully approved and contains normal covenants, covering maximum net leverage and minimum
interest cover levels. Documentation is ongoing and formal signing is expected in April. In accordance
with the Group’s strong ESG commitment, the new facility is a sustainability linked loan.
performance is recovering as these restrictions lift and the associated forecast outturns alongside
identified downside risks and mitigating actions. The Group has modelled two main scenarios in its
assessment of going concern, being the base case and a downside scenario. We have modelled future
financial performance taking into account these restrictions, mitigations, expected inventory unwind
not materialising and a negative outcome from ongoing litigation as per note 27.
Base case
The base case is derived from the Board approved 2022 budget and strategic plan, which assume,
consistent with current trading patterns, that our factories continue to have “essential business” status
and operate as normal. In this scenario, the Directors consider that the Group will continue to operate
within its available committed facilities with sufficient headroom and meet its financial covenant
obligations.
The key assumptions in the base case include:
– Lighting growth consistent with 2021 driven by a strong level of project-based activity
– gross margin reflects levels consistent with the final quarter of 2021; and
– operating costs flexed in line with the incremental revenue
Downside case
In a severe but plausible downside scenario, the Directors have assumed continuing adverse impacts
from a prolonged global pandemic with severe impact to our customers, suppliers and operations.
The associated forecast has considered the following identified downside risks:
– Significantly lower revenue growth in 2022 as compared to 2021, with lower growth in 2023 and 2024
reverting to normal levels but from a lower base
– Gross margin reductions ranging from 1.9% to 2.9% over the three years
– Only 75% of the targeted inventory unwind is achieved in 2022
– Litigation by the former manufacturing partner is settled at the maximum liability of their claim and
the Dialight claim for damages in excess of £190m is unsuccessful
The Group increased its banking facility with HSBC on 15 June 2020 by adding a further £10m facility
on a three year basis, utilising a combination of £8m under the COVID-19 Large Business Interruption
Scheme (CLBILS) and a £2m commercial loan. The £10m additional facilities are repayable over
30 months, in equal instalments, from January 2021. £4m was repaid in the year, with a further £4m
payable in 2022 and the facilities fully repaid by June 2023 at the latest. At 31 December the Group had
£31m of available funds across both facilities and £1.2m of cash on hand.
In all these scenarios, the Group assumes a series of mitigating actions can be put in place swiftly,
including various temporary and permanent cost and cash reductions.
In this severe but plausible downside scenario, the Group continues to retain sufficient committed
headroom on liquidity and is able to meet its financial covenant obligations within the going concern
assessment period. It has also been assumed that no additional debt is raised during the
assessment period.
Further details, including the relevant covenant tests, are included in note 23.
In assessing the going concern assumptions, the Directors have prepared various scenarios that
reflect the continuing impact of COVID-19, worldwide commodity shortages, extended logistics
delays, government enforced restrictions in the countries we operate in, the extent to which
Consequently, the Directors are confident that the Group and Company will have sufficient funds to
continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial statements on a going concern basis.
Dialight plc Annual Report and Accounts 2021 95
2. Basis of preparation (continued)
(c) Use of estimates, judgements and assumptions
The preparation of the consolidated financial statements requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets
and liabilities, income and expenses. These estimates, judgements and assumptions are based on
historical experience and other factors that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates. The areas which require the most use of management
estimation and judgement are set out below.
Significant judgements
Termination of outsourced manufacturing agreement
Significant judgement is applied in determining whether to recognise a provision or a contingent
liability in respect of the claims from the Group’s former manufacturing partner Sanmina. In the view
of management, it is not probable that the Group will have to make a payment, therefore no provision
is required and the matter is disclosed as a contingent liability in note 27, which contains further
details on the matter.
Development and patent costs
The Group capitalises development costs and patent costs provided they meet all criteria in the
respective accounting policy. Costs are only capitalised when management applies judgement that is
satisfied as to the ultimate commercial viability of the projects based on review of the relevant business
case. The capitalised costs are amortised over the expected useful economic life, which is determined
based on the reasonable commercial prospects of the product and a comparison to similar products
being sold by the Group.
The Group has £12.0m (2020: £11.9m) 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. Within this
cost, there is £1.1m relating to development projects which have been paused during COVID-19 where
the Engineering team were redeployed to focus on inventory projects to consume raw materials on
hand to help the business mitigate the global supply chain challenges. This project will recommence
in the current financial year with the objective of concluding it in 2023 with product launch. 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 three-year strategic plan.
Significant estimates
Inventory reserve - Raw Materials and Sub-Assemblies
Consistent with last year, the Group adopts a usage-based approach in calculating its inventory
provision. COVID-19 and global commodity shortages have significantly impacted our operations,
logistics and supply chains over the past year and therefore the approach to identify inventory at risk
has been flexed to consider the impact from these factors. Management’s focus has been on inventory
that is over 365 days old.
Raw materials and sub-assemblies are reserved if the quantity on hand, that is greater than 365 days
old, exceeds three year’s historical usage and, following review by engineering and supply chain
personnel, there is no reasonable prospect of the components being used or their shelf life not being
exceeded. Three years is felt to be appropriate at this time as: recent usage has been depressed
following the economic impacts from COVID-19; the majority of components have a long shelf life;
product demand mix between project and MRO business has been skewed; and new products or
upgrades have been delayed.
Raw material and sub-assembly inventory consists of a large number of Stock Keeping Units (“SKUs”)
of varying value. Assessment of every at-risk SKU would be impractical, and the reserve has therefore
been determined by assessing the nature, usability and condition for a range of at-risk SKUs that
represent a significant population of the inventory at risk. The result from this assessment was then
used to determine a reserve percentage that was applied to the remaining population, with the
combination of these calculations determining the total reserve required.
The provision element that relates to raw material and sub-assembly items greater than 365 days old is
£2.2m and represents 43% of that specific aged category of Inventory.
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 provision for all categories of inventory over which judgement has been exercised was
£3.0m (2020: £2.4m) and this represents 7% (2020: 7%) of the gross inventory value.
Details of the inventory reserve are set out in note 17.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 96
2. Basis of preparation (continued)
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.
3. Changes in significant accounting policies
The following accounting standards, interpretations, improvements and amendments have become
applicable for the current period and although the Group has adopted them, they have had no material
impact on the Group. These comprise:
Firstly, in relation to the amount of production overheads that are included in the inventory valuation.
The pools of cost related to production comprise labour and direct overheads attributable to the
production process. They are assessed to ensure that costs not related to production are excluded.
Consistent with last year, the Group uses the weighted average inventory turns calculated by
comparing the level of inventory on hand with the amount of production by month. This gives the
number of days of overhead that should be absorbed in inventory (2021: 162 days, 2020: 169 days).
The value of directly attributable costs over which judgement was exercised was £5.0m (2020: £4.3m)
and this represents 12% (2020: 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 £14k.
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 (2021: 64 days, 2020: 62 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 £3.1m (2020: £2.2m) and this
represents 7% (2020: 7%) of the inventory value. For every day that the estimate of the days used
for the overhead absorbed changes, it changes the calculation by £62k.
Goodwill and other intangible assets
The Group tests at least annually whether goodwill has suffered any impairment in accordance with the
accounting policy set out in note 4(h). The recoverable amounts of the Group’s CGU’s have been
determined based on value in use calculations, which involve a high level of estimation due to the
uncertainty caused by COVID-19 and potential material shortages due to delays in the supply chain.
These calculations require the use of estimates and assumptions consistent with the Board approved
2022 budget and the strategic plan for the following two years.
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 ability to cope with accelerated product
demand and has been reflected in our forecast.
– Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16).
The following amendments to standards and interpretations have also been issued, but are not yet
effective and have not been early adopted for the financial year ended 31 December 2021:
– IFRS 17 Insurance Contracts (Effective day 1 January 2023);
– Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(Amendment to IAS 12) (Effective from 1 January 2023);
– Onerous Contracts – Cost of Fulfilling a Contract (Amendment to IAS 37). The current effective
day is 1 January 2021. This is not expected to be applicable to the Group. (Effective from
1 January 2023);
– Annual Improvements to IFRS Standards 2018-2020 (Effective from 1 January 2023);
– Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16) (Effective
from 1 January 2023);
– Reference to the Conceptual Framework (Amendments to IFRS 3) (Effective from 1 January 2023);
– Classification of Liabilities as Current and Non-current (Amendment to IAS 1) (Deferred until not
earlier than 1 January 2024);
– Accounting Policies, Changes in Accounting Estimates and Errors: definition (Amendments to AIS 8)
(Effective from 1 January 2023);
– Amendments to IAS1 Presentation of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements (Effective from 1 January 2023);
– Sale or Contribution of Assets between an Investor and its Associate or Joint venture (Amendments
to IFRS 10 and IAS 28).
The adoption of these amendments is not expected to have a material impact on the Group.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 97
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.
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.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the parent and its
subsidiaries as at 31 December 2021. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has the ability to affect those returns
through its power over the investee. Specifically, the Group controls an investee if, and only if, the
Group has (a) power over the investee, (b) exposure, or rights, to variable returns from the investee,
and (c) ability to use its power to affect those returns. The Group re-assesses whether or not it controls
an investee if facts and circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and
expenses of a subsidiary acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the Group ceases to control
the subsidiary. If the Group loses control of a subsidiary, it derecognises the related assets (including
goodwill), liabilities and other components of equity, while any resultant gain or loss is recognised in
the income statement.
Intercompany transactions, balances and unrealised gains on transactions between Group companies
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies as applied to subsidiaries have been changed
where necessary to ensure consistency with the policies adopted by the Group.
(b) Business combinations and goodwill
Business combinations are accounted for using the acquisition method as at the acquisition date,
which is the date on which control is transferred to the Group. In assessing control, the Group takes
into consideration potential voting rights that were then currently exercisable.
Acquisitions on or after 1 January 2010
For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:
– the fair value of the consideration transferred; plus
– the recognised amount of any non-controlling interests in the acquiree; less
– the net recognised amount (generally fair value) of the identifiable assets acquired and
liabilities assumed.
When the excess is negative, a gain is recognised immediately in profit or loss. Costs related to the
acquisition, other than those associated with the issue of debt or equity securities, that the Group
incurs in connection with a business combination are expensed as incurred.
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.
(c) Non-underlying items
The Group incurs costs and earns income that is non-underlying in nature or that, in the Directors’
judgement, needs to be disclosed separately by virtue of its size and incidence in order for users of the
consolidated financial statements to obtain a proper understanding of the financial information and the
underlying performance of the business.
These items could include (but are not limited to):
– the costs related to transferring production back from an outsourced manufacturer
– the impairment of tangible or intangible assets which relate to the closure of part of a business or
removal of a product line
– the impairment of inventory as a result of a significant change in product design
– Individual restructuring projects which are material or relate to the closure of a part of the business
and are not expected to recur;
– gains or losses on disposal of businesses;
– gains or losses arising on significant changes to closed defined benefit pension plans; and
– costs arising from the dispute 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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 98
4. Significant accounting policies (continued)
(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.
The estimated useful lives are as follows:
Plant, equipment and vehicles
Right of use assets
3–10 years
2–10 years
Income and expense items of overseas operations are translated at average exchange rates for
the period.
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 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.
The estimated useful lives are as follows:
Patents and trademarks
Development costs
Product upgrades
New product
Control and technology related products
3–5 years
3 years
4 years
5 years
(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.
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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021
99
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.
(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 and deferred bonus scheme, 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.
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 based on normal operating
capacity. Inventory is accounted for on a first-in, first-out basis. When calculating any reserve,
management considers the nature and condition of the inventory on an item by item and category
basis, as well as basing on an assessment of market developments; change in strategy or business
model; regulatory and technology evolvement; and analysis of historical and projected usage with
regard to quantities on hand for all raw materials, sub-assemblies and finished goods.
(l) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
(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 the
current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation is performed by an independent qualified actuary using the projected unit credit
method. In accordance with IFRIC 14 – IAS 19 “The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction”, the pension surplus can be recognised as an asset on the balance
sheet, limited to the present value of economic benefits available in the form of any future refunds from
the plan or reductions in future contributions to the plan. To calculate the present value of economic
benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the
return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest)
are recognised immediately in other comprehensive income. The Group determines the net interest
expense/(income) on the net defined benefit liability/(asset) for the period by applying the discount
rate used to measure the defined benefit obligation at the beginning of the annual period to the
then-net defined benefit liability/(asset), taking into account any changes in the net defined benefit
liability/(asset) during the period as a result of contributions and benefit payments. Net interest
expense and other expenses related to defined benefit plans are recognised in the income statement.
When the benefits of a plan are changed, or when a plan is curtailed, the resulting change in benefit
that relates to past service, or the gain or loss on curtailment, is recognised immediately in the income
statement. The Group recognises gains and losses on the settlement of a defined benefit plan when
the settlement occurs.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 100
4. Significant accounting policies (continued)
(iii) Share-based payments and deferred bonus transactions
The PSP allows Group employees to acquire shares of the Company. The fair value of the grants is
measured using the five-day weighted average prior the 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 are awarded shares in the Company under the Annual
Performance Bonus Plan. 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.
(r) Revenue recognition
Revenue from the sale of goods is measured by completion of the performance obligations in
the contract and at the fair value of the consideration received or receivable, net of returns and
allowances, trade discounts, volume rebates and product returns. An allowance is made for
expected returns, discounts and rebates based on distributor agreements and historical trends.
Revenue represents the invoiced value of goods supplied and is recognised in the income statement in
line with performance of contractual obligations and based on Incoterms in contract. The majority of
our sales are on an ex works basis with revenue recognised on despatch of finished goods. Warranty is
not a separable performance obligation so has no impact on revenue recognition.
All of the share awards are based on three-year continued service conditions.
(iv) Bonus plan
The Group recognizes a liability in respect of the best estimate of bonus payable where contractually
obliged to or where past practice has created a constructive obligation.
(o) Other provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive
obligation as a result of a past event and it is probable that an outflow of economic benefits will be
required to settle the obligation. Warranty provision is made for the expected costs of future warranty
claims relating to past product sales. This provision is estimated based on historical trends for returns,
product-specific warranty terms, internal knowledge of product performance characteristics and the
expected costs of remedying warranty-returned products. All other provisions are based on
management’s best estimate of a probable expected outcome.
(p) Trade and other receivables
Trade and other receivables are recognised at fair value (which ordinarily reflects the invoice amount)
and carried at amortised cost, less an allowance for expected lifetime losses as permitted under the
simplified approach in IFRS 9. Fully provided balances are not written off from the balance sheet until
the Group has decided to cease enforcement activity.
The Group has applied the simplified approach as permitted by IFRS 9. The expected credit loss (ECL)
model considers the Group’s historical credit loss, factors specific to each receivable, the current
economic environment and expected changes in future forecasts (see note 24).
(q) Trade and other payables
Trade and other payables are initially recorded at fair value and then subsequently stated at
amortised cost.
(s) Net financing costs
Net financing costs comprise interest receivable, interest payable on borrowings, 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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 101
4. Significant accounting policies (continued)
(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.
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.
(i) As a lessee
At commencement or on modification of a contract that contains a lease component, the Group
allocates the consideration in the contract to each lease component on the basis of its relative
stand-alone prices. However, for the leases of property the Group has elected not to separate
non-lease components and accounts for the lease and non-lease components as a single
lease component.
The Group recognises a right of use asset and a lease liability at the lease commencement date.
The right of use asset is initially measured at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it is located, less any lease incentives received.
The right of use asset is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term, unless the lease transfers ownership of the
underlying asset to the Group by the end of the lease term or the cost of the right of use asset reflects
that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated
over the useful life of the underlying asset, which is determined on the same basis as those of property
and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if any,
and adjusted for certain remeasurements of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at
the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot
be readily determined, the Group’s incremental borrowing rate. The Group operates in multiple
economic environments so the incremental borrowing rate (IBR) that applies will vary from
lease to lease.
The Group has property leases in the USA, Mexico, UK, Australia and Malaysia. The Mexican and
Malaysian leases are for industrial premises with the remaining leases being for office buildings.
The IBR is determined based on the interest rates available to the Group entities in which the underlying
leases are held, based on the credit rating of each of these entities. Certain adjustments are made to
these interest rates to reflect the terms of the individual leases and the types of assets leased.
The IBRs calculated for use by the Group vary between 2% and 5% for the UK, USA and Australia
jurisdictions and between 5% and 7% for the Mexico and Malaysia jurisdictions.
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments; variable lease payments that depend on
an index or a rate, initially measured using the index or rate as at the commencement date; amounts
expected to be payable under a residual value guarantee; and the exercise price under a purchase
option that the Group is reasonably certain to exercise, lease payments in an optional renewal period
if the Group is reasonably certain to exercise an extension option, and penalties for early termination
of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, if there is
a change in the Group’s estimate of the amount expected to be payable under a residual value
guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or
termination option or if there is a revised in-substance fixed lease payment. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the carrying amount of the right of use
asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced
to zero.
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 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 IBR is the rate of interest that Dialight pays to borrow (a) over a similar term (b) with a similar
security, (c) the funds necessary to obtain an asset of a similar value to the right of use asset (d) in a
similar economic environment. The rate reflects the amount that the Group could borrow over the term
of the lease.
The Group 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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 102
4. Significant accounting policies (continued)
(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.
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.
Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability,
either directly or indirectly.
Segmental assets and liabilities are not reported internally and are therefore not presented below.
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
Reportable segments
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.
2021
Revenue
Gross profit
Overheads
(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.
Underlying profit/(loss) from operating activities
Non-underlying items
Profit/(loss) from operating activities
Financial expense
Profit before tax
Taxation
Profit after tax
Lighting
£m
Signals &
Components
£m
Unallocated
£m
90.5
33.7
(28.4)
5.3
(2.4)
2.9
41.1
13.3
(7.8)
5.5
–
5.5
–
–
(6.3)
(6.3)
–
(6.3)
Total
£m
131.6
47.0
(42.5)
4.5
(2.4)
2.1
(1.4)
0.7
(0.4)
0.3
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 103
5. Operating segments (continued)
Sales revenue by geographical market
Lighting
£m
Signals &
Components
£m
Unallocated
£m
81.7
23.7
(26.8)
(3.1)
(2.4)
(5.5)
37.3
10.3
(7.7)
2.6
–
2.6
–
–
(5.9)
(5.9)
–
(5.9)
2020
Revenue
Gross profit
Overheads
Underlying (loss)/profit from operating activities
Non-underlying items
(Loss)/profit from operating activities
Financial expense
Loss before tax
Taxation
Loss after tax
Other segmental data
2021
Lighting
£m
Signals &
Components
£m
Total
£m
Lighting
£m
2020
Signals &
Components
£m
Depreciation of property, plant
and equipment
Depreciation of right of use assets
Amortisation
Impairment of intangible assets
2.1
1.5
2.4
–
1.0
0.7
1.1
–
3.1
2.2
3.5
–
2.1
1.4
2.1
0.3
1.0
0.6
0.9
–
Total
£m
119.0
34.0
(40.4)
(6.4)
(2.4)
(8.8)
(1.3)
(10.1)
2.3
(7.8)
Total
£m
3.1
2.0
3.0
0.3
Geographical segments
The Lighting and Signals & Components segments are managed on a worldwide basis, but operate in
three principal geographic areas: North America, EMEA and Rest of World. The following table
provides an analysis of the Group’s sales by geographical market, irrespective of the origin of the
goods. All revenue relates to the sale of goods.
North America
EMEA
Rest of World
Total sales revenue
2021
£m
101.0
10.2
20.4
131.6
2020
£m
89.8
9.9
19.3
119.0
6. Non-underlying items
Statutory operating profit includes the following non-underlying costs which are separately disclosed
to allow the reader to obtain a full understanding of the financial information and the best indication of
the underlying performance of the Group. The table below presents the components of non-underlying
profit or loss recorded within cost of sales and administrative expenses.
Non-underlying items
Redundancy costs
Loss on disposal of subsidiary
Costs related to manufacturing partner
Release of warranty provision
Release of litigation provision
Non-underlying items recorded in administrative expenses
2021
£m
–
–
2.9
(0.3)
(0.2)
2.4
2020
£m
0.9
0.8
0.3
–
0.4
2.4
The Group has continued to progress its legal claim against its former manufacturing partner, Sanmina
Corporation, following the termination in September 2018 of the manufacturing services agreement.
During the year, costs of £2.9m have been expensed, comprising £2.4m of legal costs in preparing
for litigation and a £0.5m provision against slow-moving inventory. This inventory was acquired at
transition and was expected to be used within two years. This has not proved to be the case and with
the cost having been added to the legal counterclaim against Sanmina during 2021, the Directors have
determined that provision is now appropriate. Further details on the litigation and contingent liability
are provided in note 27.
Release of warranty provision of £0.3m relates to unclaimed warranty related to the disposal of the
Group’s Wind business in 2019. The Group has already received and paid all claims related to this
disposal and the remaining balance of the provision was therefore released.
Other litigation credit related to employment litigation cases; a provision of £0.4m (see note 22) was
released as it was not probable that Group would have to pay for the claims which was netted off with
£0.2m legal cost incurred in the year relating to the cases.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 104
6. Non-underlying items (continued)
Prior year redundancy costs of £0.9m related to severance payments for the various initiatives
during the year to right-size the cost base. Costs of £0.7m relate to legal fees for defending against
employment litigation (£0.4m) and legal costs relating to the legal claim with the former manufacturing
partner (£0.3m).
The loss on disposal of subsidiary related to the sale of the Group’s Brazil business in November 2020.
In 2020, the net assets and the net loss on disposal of Dialight Do Brasil Technologia Led Ltda were
as follows:
Current assets
Current liabilities
Net assets of the business disposed of
Loss on disposal of the business
Total consideration paid
Satisfied by:
Foreign translation
Other disposal costs
Total
7. Personnel expenses
Wages and salaries
Social security contributions
Equity-settled share-based payment transactions
Contributions to defined contribution plans
Total charge for defined benefit plans
Total personnel expense
2020
£m
1.4
(0.6)
0.8
(1.1)
(0.3)
(0.2)
(0.1)
(0.3)
2020
£m
27.2
3.3
0.4
0.8
0.1
31.8
2021
£m
29.1
3.4
0.6
0.8
0.1
34.0
The increase in personnel costs is driven by increases in national minimum wage levels in Mexico,
reversal of temporary salary reductions in 2020 due to COVID-19, cost of annual pay reviews and
bonus accruals for 2021 performance.
The average number of employees by geographical location was:
US and Mexico
Rest of World
Total average number of employees
2021
Number
2020
Number
1,445
234
1,679
1,360
254
1,614
In 2021, the Group employed an average of 1,118 direct staff (2020: 1,022) and 561 indirect staff
(2020: 592).
The main Board Directors are considered to be the Group’s key management personnel.
Key management personnel compensation comprised the following:
Short-term employee benefits
Share-based payments
Total compensation for key management personnel
2021
£m
1.2
0.6
1.8
2020
£m
1.0
0.4
1.4
The aggregate of remuneration and amounts receivable under long-term incentive schemes of the
highest paid Director was £0.5m (2020: £0.4m), and pension contributions of £nil (2020: £nil) were
made to a money purchase scheme on their behalf. During the year, the highest paid Director received
89,547 shares under a long-term incentive scheme.
Number of Directors accruing benefits under money purchase schemes
Number of Directors in respect of whose qualifying services shares were
received or receivable under long term incentive schemes
2021
2020
1
1
1
1
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 105
8. Financial expenses
Reconciliation of effective tax rate
Net interest on defined benefit liability
Interest expense on financial liabilities, except lease liabilities
Interest expense on lease liabilities
Net financing expense recognised in the consolidated income statement
9. Taxation
Recognised in the income statement
Current tax expense
Current year
Adjustment for prior years
Total current tax expense/(credit)
Deferred tax expense
Origination and reversal of temporary differences
Adjustment for prior years
Total deferred tax
Total tax expense/(credit)
2021
£m
0.1
0.8
0.5
1.4
2021
£m
1.3
(0.6)
0.7
0.1
(0.4)
(0.3)
0.4
2020
£m
0.1
0.6
0.6
1.3
2020
£m
0.3
(2.9)
(2.6)
(0.9)
1.2
0.3
(2.3)
Profit/(loss) for the year
Total tax charge/(credit)
Profit/(loss) before tax
Income tax using the UK corporation tax rate
Non-deductible loss on disposal of a business
Effect of higher taxes on overseas earnings
Reduction in tax rate
Non-deductible expenses
Current year losses for which no deferred tax
is recognised
US carry back claim
Adjustment for prior years
Research and development credits
Foreign taxes incurred
2021
%
2021
£m
2020
%
0.3
0.4
0.7
0.1
–
0.3
–
0.2
0.4
(0.3)
(0.6)
(0.2)
0.5
0.4
(19.0)
1.0
–
(1.0)
1.9
9.9
(12.5)
(4.0)
(1.0)
1.9
(22.8)
19.0
–
43.0
–
28.6
57.1
(43.0)
(88.3)
(28.6)
69.3
57.1
2020
£m
(7.8)
(2.3)
(10.1)
(1.9)
0.1
–
(0.1)
0.2
1.0
(1.3)
(0.4)
(0.1)
0.2
(2.3)
The effective tax rate for the year is 57.1% compared with 22.8% in the prior year and the standard rate
of 19% (2020: 19.0%) in the UK.
The normalised tax rate for the Group in the year is 28.6% (tax rate before adjustments), and based
on a pre-tax profit of £0.7m this would generate a tax charge of £0.2m. However, in the year there
is a tax charge of £0.4m (57.1%). The difference of 28.5% is due to the following major factors:
– The current losses in the European Lighting business not recognised as a deferred tax asset,
resulting in £0.4m of tax credit not being recognised in the year. We do not anticipate this business
making sufficient taxable profits in the short term to utilise the losses.
– The Group has benefited from the stimulus package under the Cares Act in the US which allows us
to get tax relief by carrying back losses made in 2020 for five years. This allows the Group to benefit
from tax recovery at 35% rather than the current rate of 21% that was used to calculate the
recoverable amount in 2020 and this gives rise to a one-off tax credit of £0.3m.
– A prior year adjustment of £0.6m relating to additional research and development credit in the US.
– A non-deductible expense of £0.2m on non-underlying expenses relating to the Sanmina litigation
which is not allowed as a taxable expense.
– The foreign tax incurred of £0.5m relates to taxes payable in Mexico on profits by a Mexican
subsidiary of Dialight Corporation
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 106
9. Taxation (continued)
Tax charge/(credit) recognised directly in equity
10. Profit/(loss) for the year
Profit/(loss) for the year has been arrived at after charging:
Employee benefits
Other
2021
£m
0.5
(0.1)
2020
£m
(0.3)
0.3
Current tax
Current tax is calculated with reference to the profit or loss of the Company and its subsidiaries
in their respective countries of operation. Set out below are details in respect of the significant
jurisdictions where the Group operates and the factors that influenced the current and deferred
taxation in those jurisdictions.
UK
The UK companies are subject to a corporate tax rate of 19% (2020: 19.0%). There are no UK timing
differences recognised at 31 December 2021. In the March 2021 Budget, the UK Government
announced that legislation will be introduced in the Finance Bill 2021 to increase the main rate
of UK corporation tax from 19% to 25%, effective 1 April 2023.
US
The majority of the Group’s profits arise in the US where the corporation tax rate is 24%, including 21%
federal tax and 3% state tax (2020: 24%, including 21% federal tax and 3% state tax).
Group
The majority of the Group’s profits are driven by the US entity where the tax rate is 24% underpinning
the Group’s tax rate, which has increased as a result of the higher mix of profits coming from high
tax jurisdictions.
Research and development costs:
Expensed as incurred
Amortisation charge
Total research and development costs
Depreciation of fixed assets, excluding right of use assets
Depreciation of right of use assets
Impairment of intangible assets
Lease expense – low value leases and leases with a remaining term of less than
one year
2021
£m
2020
£m
4.9
2.5
7.4
3.1
2.2
–
0.1
4.6
2.1
6.7
3.1
2.0
0.3
0.3
There is lower capitalisation of, and a higher profit and loss charge for research and development
costs in 2021 compared with the prior year. During 2021 the Engineering team focused on inventory
projects to consume raw materials on hand to help alleviate with the global supply shortages.
These factors resulted in less time being capitalised, and consequently a higher profit and loss charge.
The amortisation charge increased as new products became available for use in 2021 as well as a full
amortisation charge for the projects launched in 2020.
Auditor’s remuneration
Audit of these financial statements
Amounts receivable by auditor in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
2021
£m
0.5
0.2
0.7
2020
£m
0.4
0.2
0.6
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 107
11. Earnings/(loss) per share
Basic earnings/(loss) per share
The calculation of basic earnings/(loss) per share (“EPS”) at 31 December 2021 was based on a profit
for the year of £0.3m (2020: £7.8m loss) and the weighted average number of ordinary shares
outstanding during the year of 32,393,109 (2020: 32,555,137).
12. Property, plant and equipment
Weighted average number of ordinary shares
Weighted average number of ordinary shares
Basic earnings/(loss) per share
2021
£m
2020
£m
32,393
32,555
2021
0.9p
2020
(24.0)p
Diluted earnings/(loss) per share
The calculation of diluted EPS at 31 December 2021 was based on a profit for the year of £0.3m and
the weighted average number of dilluted ordinary shares during the year of 32,803,606
(2020: 32,555,137), excluding the purchase of 205,026 own shares by the Group during the year.
Weighted average number of ordinary shares
2021
£m
2020
£m
Cost
At 1 January 2020
Exchange adjustments
Additions
Disposal of business
Other disposals
At 31 December 2020
Exchange adjustments
Additions
Balance at 31 December 2021
Accumulated depreciation
At 1 January 2020
Exchange adjustments
Charge for the year
Disposals
Weighted average number of ordinary shares
32,804
32,555
At 31 December 2020
Diluted earnings/(loss) per share
2021
0.9p
2020
(24.0)p
Exchange adjustments
Charge for the year
Balance at 31 December 2021
Carrying amount at 31 December 2021
Carrying amount at 31 December 2020
Land and
buildings
£m
Plant,
equipment
and vehicles
£m
3.0
(0.1)
–
–
–
2.9
–
–
2.9
(3.0)
0.1
–
–
(2.9)
–
–
(2.9)
–
–
48.1
(1.4)
0.8
(0.1)
(2.9)
44.5
0.5
2.1
47.1
(32.5)
1.0
(3.1)
2.9
(31.7)
(0.3)
(3.1)
(35.1)
12.0
12.8
Total
£m
51.1
(1.5)
0.8
(0.1)
(2.9)
47.4
0.5
2.1
50.0
(35.5)
1.1
(3.1)
2.9
(34.6)
(0.3)
(3.1)
(38.0)
12.0
12.8
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 108
13. Leases
Right of use assets
Cost
Balance at 1 January 2020
Exchange adjustments
Modifications
Balance at 31 December 2020
Exchange adjustments
Modifications
Additions
Balance at 31 December 2021
Accumulated depreciation
Balance at 1 January 2020
Charge for the year
Balance at 31 December 2020
Charge for the year
Balance at 31 December 2021
Carrying amount at 31 December 2021
Carrying amount at 31 December 2020
Buildings
£m
Non-property
leases
£m
13.9
(0.3)
(0.1)
13.5
0.1
0.1
3.0
16.7
(1.7)
(2.0)
(3.7)
(1.9)
(5.6)
11.1
9.8
–
–
–
–
–
–
0.5
0.5
–
–
–
(0.3)
(0.3)
0.2
–
Total
£m
13.9
(0.3)
(0.1)
13.5
0.1
0.1
3.5
17.2
(1.7)
(2.0)
(3.7)
(2.2)
(5.9)
11.3
9.8
The Group leases various industrial premises and office buildings. Rental contracts are typically
for fixed periods of 1.5 to 10 years, but may have extension options as described in note 13(ii).
Lease terms are negotiated on an individual basis and contain a wide range of different terms and
conditions. The lease agreements do not impose any covenants, but leased assets may not be used
as security for borrowing purposes.
From 2021, we have included non-property leases related to vehicles and software. The impact on both
right of use assets and liabilities value in the previous year was immaterial.
See accounting policy in note 4(u).
Lease liabilities
Lease liabilities recognised at 1 January 2020
Interest expense
Modifications
Repayment of liabilities
Exchange adjustments
Lease liabilities recognised at 31 December 2020
Interest expense
Lease liabilities variations
Additions
Repayment of liabilities
Exchange adjustments
Lease liabilities recognised at 31 December 2021
Buildings
£m
Non-property
leases
£m
(12.3)
(0.6)
0.1
2.3
0.2
(10.3)
(0.5)
(0.1)
(3.0)
2.0
0.1
(11.8)
–
–
–
–
–
–
–
–
(0.5)
0.2
0.1
(0.2)
Total
£m
(12.3)
(0.6)
0.1
2.3
0.2
(10.3)
(0.5)
(0.1)
(3.5)
2.2
0.2
(12.0)
Leases as lessee
The Group leases industrial premises, office buildings, IT and other equipment. The leases typically
run for a period of 2–10 years, with various options to renew the leases after that date. Lease payments
are renegotiated dependent on the lease terms to reflect market rentals. Some leases provide for
additional rent payments that are based on fixed percentage changes and/or changes in local
price indices.
The Group leases IT and other equipment with contract terms of 1 to 4 years. These leases are short
term and/or leases of low-value items. The Group has elected not to recognise right of use assets and
lease liabilities for these leases.
Information about leases for which the Group is a lessee is presented below.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 109
13. Leases (continued)
Leases as lessee (continued)
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases
of low-value assets
Total recognised in profit and loss
(i) Amounts recognised in statement of cash flows
Total cash outflow for leases
2021
£m
(0.5)
(0.1)
(0.1)
(0.7)
2021
£m
(2.2)
2020
£m
(0.6)
(0.1)
(0.3)
(1.0)
2020
£m
(2.3)
Of the total £2.2m cash outflow in 2021 (2020: £2.3m), £1.7m was for the principal portion of lease
liabilities and £0.5m was for interest on lease liabilities (2020: £1.7m and £0.6m respectively).
(ii) Extension options
Extension options are included in a number of property and equipment leases across the Group.
These terms are used to maximise operational flexibility in terms of managing contracts. The majority
of extension options held are exercisable only by the Group and not by the respective lessor.
In determining the lease term, management considers all facts and circumstances that create an
economic incentive to exercise an extension option. Extension options are only included in the lease
term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed
if a significant event or a significant change in circumstances occurs which affects this assessment
and is within the control of the Group as a lessee. The Group has estimated that the potential future
lease payments, should it exercise all the extension options, would result in an increase in lease
liabilities of £12.6m (2020: £9.7m).
Leases as lessor
The Group has a lease on an office that was entered into during 2019 and which it is also sub-letting.
(i) Operating lease
The Group has classified this sub-lease as an operating lease, because it does not transfer
substantially all of the risks and rewards incidental to the ownership of the asset. Note 4(u)(ii) sets out
information about the operating lease for the sub-leased property. The head lease expires in 2029 and
the sub-lease expires in 2026. The sub-lessor has the option to renew the lease at its sole discretion.
Rental income recognised by the Group during 2021 was £nil (2020: £nil). The following table sets out
a maturity analysis of the lease rentals receivable relating to the sub-lease, showing the undiscounted
lease payments to be received after the reporting date:
Operating leases minimum rentals receivable under IFRS16
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
2021
£m
2020
£m
0.2
0.2
0.2
0.3
0.3
–
1.2
0.2
0.2
0.2
0.2
0.3
0.3
1.4
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 110
14. Intangible assets
Concessions,
patents,
licences and
trademarks
£m
Software
and
licences
£m
Development
costs
£m
Goodwill
£m
Cost
Balance at 1 January 2020
Additions
Effects of foreign exchange movement
Balance at 31 December 2020
Additions
Effects of foreign exchange movement
Balance at 31 December 2021
Amortisation and impairment losses
Balance at 1 January 2020
Amortisation for the year
Impairment
Effects of foreign exchange movement
Balance at 31 December 2020
Amortisation
Effects of foreign exchange movement
Balance at 31 December 2021
Carrying amount at 31 December 2021
At 31 December 2020
8.8
0.8
(0.3)
9.3
0.8
0.1
10.2
(7.3)
(0.6)
–
0.2
(7.7)
(0.6)
(0.2)
(8.5)
1.7
1.6
12.9
–
(0.2)
12.7
–
0.1
12.8
(4.2)
–
–
–
(4.2)
–
–
(4.2)
8.6
8.5
5.6
0.3
(0.2)
5.7
0.3
0.1
6.1
(4.8)
(0.3)
–
0.2
(4.9)
(0.4)
–
(5.3)
0.8
0.8
Total
£m
55.4
3.7
(1.5)
57.6
3.5
0.4
61.5
(34.1)
(3.0)
(0.3)
1.0
(36.4)
(3.5)
(0.2)
28.1
2.6
(0.8)
29.9
2.4
0.1
32.4
(17.8)
(2.1)
(0.3)
0.6
(19.6)
(2.5)
–
(22.1)
(40.1)
10.3
10.3
21.4
21.2
The amortisation charge for the year is included within administrative expenses in the income statement.
Goodwill and other intangible assets (development costs, patents)
The Group has two CGUs, Lighting and Signals & Components, which are the smallest identifiable
independent groups of assets that generate cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. Where assets and costs are shared between the two
CGUs a reasonable apportionment of these is made for the purpose of the impairment calculation.
Goodwill of £8.6m (2020: £8.5m) is recognised in the Group’s balance sheet and is attributable
to Lighting. The goodwill balance arose from a number of acquisitions in the Lighting segment
in prior years.
Impairment testing
The Group tests goodwill and capitalised development costs (at the CGU level) annually for
impairment or more frequently if there are indications of impairment. The recoverable amounts of
the CGU are determined from value in use calculations. The key assumptions for the value in use
calculations are externally derived long term growth rate; pre-tax discount rate and operating cash flow
forecasts derived from the Board approved 2022 budget and the strategic plan for the following two
years (2023 to 2024). The plans take into account the continuing impact of COVID-19 and supply chain
issues based disruptions on recent trading and impact of climate risk.
Discount rate
Terminal growth rate
Revenue three-year growth rate range for lighting segment
Gross margin three-years average growth rate
Stewardship cost allocation
2021
15.1%
3.0%
20–29%
3%
80%
The risk-adjusted pre-tax discount rate used to discount the forecast cash flows for the Lighting CGU
was 15.1% (2020: 18.2%). The impairment tests showed a recoverable amount of £58.7m against all of
the assets associated with the goodwill, giving rise to a headroom of £46.5m (2020: £4m).
The pre-tax discount rate is based on the Group’s weighted average cost of capital which reflects
current market assessments of a number of factors that impact on the time value of money and any risk
specific to the Group. The rate includes management’s assessment of a normal level of debt-to-equity
ratio within similar companies in the Group’s sector. The costs of the ultimate holding company
(stewardship costs) have been allocated to each CGU as they provide necessary support to the
CGUs to generate cash inflows. These costs have been allocated on the same allocation basis as the
administration costs. The long-term growth rate into perpetuity has been determined as the average
of Consumer Price Index (CPI) rates for the countries in which the CGU operates predicted for the
next three years.
Management has arrived at the three-year strategic plan based upon certain assumptions derived
from a combination of an internal assessment of the market size, customer product requirements,
production capacity requirements, the operational costs of the organisation and external
economic factors, including the impact of COVID-19, supplier chain issues and climate change.
The key assumptions within the plan are revenue growth and gross profit, which are based
on management’s best estimate of material, labour and production cost trends, material
availability and manufacturing efficiencies.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 111
14. Intangible assets (continued)
In undertaking the assessment, the positive impact from climate change on demand for the Group’s
products and its impact on financial performance has been carefully considered. Considering the
Group’s business model, strategy and limited exposure to adverse climate change impacts,
management believes that the opportunities outweigh any risk and that the major challenge will
be our ability to cope with accelerated product demand which has been reflected in the impairment
testing models.
Sensitivity to changes in key assumptions:
Management believes that any reasonably possible change in the assumptions would not cause the
carrying amount to exceed the recoverable amount. The following table shows the amount which these
five assumptions would need to change to individually for the estimated recoverable amount to be
equal to the carrying amount.
In percentage
Discount rate
Terminal growth rate
Revenue three-year growth rate range
Gross margin three-year reduction rate
Stewardship cost allocation
Amount
required for
amount to equal
recoverable
amount
23.7%
n/a
2%
2.9%
n/a
15. Deferred tax
(i) Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Right of use assets
Intangible assets
Employee benefits
Provisions
Losses and other items
Tax assets/(liabilities)
Assets
2021
£m
–
0.3
–
–
2.2
2.6
5.1
2020
£m
–
0.2
–
–
2.7
1.7
4.6
Liabilities
Net
2021
£m
(1.3)
–
(1.7)
(0.8)
–
–
(3.8)
2020
£m
(1.3)
–
(1.8)
(0.1)
–
–
(3.2)
2021
£m
(1.3)
0.3
(1.7)
(0.8)
2.2
2.6
1.3
2020
£m
(1.3)
0.2
(1.8)
(0.1)
2.7
1.7
1.4
Deferred tax assets have been recognised in respect of all tax losses in entities expected to generate
sufficient future taxable profits. As mentioned in note 9, losses relating to the European businesses
have not been recognised in the year as they are not expected to generate sufficient short-term taxable
profits to justify recognising the associated deferred tax assets. The Group expects to generate
sufficient taxable profits to recover the remaining deferred tax assets within two to three years.
The geographic split of the deferred tax asset in relation to trading losses and other items is US £1.5m
and Singapore £0.1m. The aggregate amount of temporary differences associated with investments in
subsidiaries for which deferred taxation liabilities have not been recognised is £nil (2020: £nil).
The impairment assessment is not highly sensitive to climate change scenarios.
(ii) Movement in temporary differences during the year
The recoverable amount incorporates management’s view of the impact of COVID-19 and supply chain
issues on the near-term trading. During this time it is assumed that the Group’s factories would remain
open as their “essential business” status has been maintained and global supply chain issues will
reduce during 2022. The Group continues to operate within its available committed facilities with
sufficient headroom and meet its financial covenant obligations and no impairment is required.
Property,
plant and
equipment
£m
Intangible
assets
£m
Employee
benefits
£m
Provisions
£m
Other
short-term
timing
differences
£m
Right of use
asset
£m
Balance at 1 January 2020
Recognised in income
Recognised in equity
FX translation reserve
Balance at 31 December 2020
Recognised in income
Recognised in equity
FX translation reserve
Balance at 31 December 2021
(1.4)
0.1
–
–
(1.3)
(0.1)
–
0.1
(1.3)
(1.9)
0.2
–
(0.1)
(1.8)
0.1
–
–
(1.7)
(0.1)
(0.1)
0.3
(0.2)
(0.1)
(0.2)
(0.5)
–
(0.8)
2.3
0.4
–
–
2.7
(0.5)
–
–
2.2
2.7
(1.0)
–
–
1.7
0.9
–
–
2.6
0.1
0.1
–
–
0.2
0.1
–
–
0.3
Total
£m
1.7
(0.3)
0.3
(0.3)
1.4
0..3
(0.5)
0.1
1.3
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 112
15. Deferred tax (continued)
(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.
The following table shows a reconciliation from the opening balances to the closing balances for the
net defined benefit asset and its components:
Defined
benefit obligation
Fair value
of plan assets
Net defined benefit
liability/(asset)
2021
£m
2020
£m
Gross
amount
Tax
effect
Gross
amount
Tax
effect
Balance at 1 January
Deductible temporary differences
Tax losses
–
37.8
37.8
–
9.8
9.8
(iv) Tax losses carried forward
Tax losses for which no deferred tax assets were recognised expire as follows:
Expire
Never expire
2021
£m
–
37.8
Expiry
date
–
–
0.2
35.1
35.3
2020
£m
–
35.1
–
7.0
7.0
Expiry
date
–
–
16. Employee benefits
Defined benefit pension obligations
The Group makes contributions to two closed defined benefit plans (referred to below as Plan A and
Plan B) to provide benefits for employees and former employees upon retirement. The plans expose the
Group to actuarial risks, such as longevity risk, interest rate risk and investment risk. Both plans are
administered by discrete funds (the “Funds”) that are legally separate from the Group. Trustees include
independent and Company-appointed individuals. The Trustees of the plans are required by law to
act in the best interests of the plan participants and are responsible for setting certain policies
(e.g. investment) of the Funds.
Included in profit or loss
Current service cost
Interest cost/(income)
Included in other
comprehensive income
Remeasurements (gain)/loss
Actuarial (gain)/loss arising from:
– changes in demographic assumptions
– changes in financial assumptions
– past service cost
– return on plan assets excluding
interest income
Other
Contributions paid by the employer
Benefits paid
Balance at 31 December
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 2020. The Company expects to pay contributions of £0.4m in respect of the Funds in the year to
31 December 2022. The weighted average duration of the defined benefit obligation is 14 years.
There is no effect on recognition of the net defined benefit surplus as a result of the asset ceiling.
Represented by:
Net defined benefit asset (Plan A)
Net defined benefit asset (Plan B)
2021
£m
26.2
–
0.3
0.3
(0.4)
(1.1)
(0.4)
–
(1.9)
–
(1.2)
(1.2)
23.4
2020
£m
24.6
–
0.5
0.5
–
0.2
–
2.1
2.3
–
(1.2)
(1.2)
2021
£m
2020
£m
(27.3)
(26.9)
0.1
(0.3)
(0.2)
0.1
(0.5)
(0.4)
–
–
–
(0.6)
(0.6)
(0.4)
1.2
0.8
–
–
–
(1.0)
(1.0)
(0.1)
1.1
1.0
26.2
(27.3)
(27.3)
2021
£m
(1.1)
0.1
–
0.1
(0.4)
(1.1)
(0.4)
(0.6)
(2.5)
(0.4)
–
(0.4)
(3.9)
2021
£m
(0.2)
(3.7)
(3.9)
2020
£m
(2.3)
0.1
–
0.1
–
0.2
–
1.1
1.3
(0.1)
(0.1)
(0.2)
(1.1)
2020
£m
(0.2)
(0.9)
(1.1)
For the principal defined benefit plan, the Group considers that it has the right to a 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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 113
16. Employee benefits (continued)
Plan assets consist of the following:
Equities (class 2)
Bonds and gilts (class 2)
Cash
2021
£m
7.3
19.6
0.4
27.3
All equity securities and government bonds have quoted prices in active markets.
Actuarial assumptions
The principal assumptions at the balance sheet date (expressed as weighted averages) are:
Discount rate at 31 December
Future salary increases
Future pension increases
Inflation – RPI
Inflation – CPI
% per annum
2021
1.8
n/a
3.5
3.6
2.9
2020
£m
9.8
17.4
0.1
27.3
2020
1.1
n/a
3.0
3.1
2.3
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:
Longevity at age 65 for current pensioners
Males
Females
Longevity at age 65 for current members aged 45
Males
Females
2021
2020
Plan A
Plan B
Plan A
Plan B
20.5
23.7
21.5
24.8
20.5
23.7
21.5
24.8
23.5
25.1
24.5
26.2
20.5
23.6
21.5
24.7
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:
Discount rate (0.5% movement)
Inflation (0.5% movement)
Life expectancy (+/–1 year)
Defined benefit obligation
Increase
£m
Decrease
£m
(1.2)
0.8
1.2
1.3
(0.7)
(1.2)
Although the analysis does not take account of the full distribution of cash flows expected under the
plans, it does provide an approximation of the sensitivity of the assumptions shown.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 The 2021 awards linked to service conditions have been valued using the five-day weighted average
share price prior to award date.
Number of
awards
at the
beginning of
the year
Number of
awards
granted
during the
year
Number of
awards
vested
during the
year
Number of
awards
forfeited
during the
year
Number of
awards at
the year
end
Fair value
pence per
share
The employee expense in 2021 was £0.6m (2020: £0.4m) (see note 7).
Vesting
period
Maturity
date
17. Inventories
114
16. Employee benefits (continued)
Share-based payments
PSP
During the year, an award under the PSP was made to the Executive Directors and senior managers,
details of which are set out below. The award was split into three components, based on the EPS
performance of the Group, based on the Group’s total shareholder return (“TSR”) performance and
based on service conditions.
Date of award
March 2018 (EPS)
March 2018 (TSR)
March 2018
(service condition)
March 2018
(service condition)
March 2019 (EPS)
March 2019 (TSR)
March 2019
(service condition)
March 2020 (EPS)
March 2020 (TSR)
March 2020
(service condition)
April 2021
(service conditions)
May 2021
(service conditions)
72,907
24,303
45,251
2,307
66,707
22,236
81,891
100,684
100,684
296,309
–
–
–
–
–
–
–
–
–
–
316,060
89,547
–
–
(72,907)
(24,303)
(45,251)
(2,307)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
550 3 years Mar 2021
272 3 years Mar 2021
522 3 years Mar 2021
–
66,707
22,236
81,891
100,684
100,684
536 3 years Mar 2021
453 3 years Mar 2022
314 3 years Mar 2022
453 3 years Mar 2022
205 3 years Mar 2023
130 3 years Mar 2023
296,309
205 3 years Mar 2023
89,547
307 3 years May 2024
813,279 405,607
(47,558)
(97,210) 1,074,118
Further details of the PSP are included in the Directors’ Remuneration Report on pages 65 to 79.
Share price (April)
Share price (May)
Raw materials and consumables
Work in progress
Finished goods
Spare parts
Inventories to the value of £55.8m (2020: £56.3m) were recognised as expenses in the year.
The inventory reserve at the balance sheet date was £3.0m, which represents 7.0% of inventory
(2020: £2.4m representing 7.0% of inventory). The reserve was increased by £1.5m in the year with
utilisation of £0.9m, resulting in a net movement in the reserve of £0.6m.
316,060
257 3 years Apr 2024
As at 31 December 2021, management’s best estimate of the amount of inventory that will not be used
within the next 12 months is c.£3.4m (2020: £4.0m).
Last year, the Group changed from an age-based reserve calculation to a usage-based calculation.
A similar approach has been followed this year, that considers the significant impact that global
commodity shortages have had on our operations and the logistics and supply chain. The approach
revised the basis of calculation for the inventory reserve to focus on usage (historical) for raw materials
and sub-assemblies plus any finished goods over 365 days.
The level of inventory was increased by £9.9m in 2021 driven by management decisions to increase raw
material holdings. The Group has been impacted by the well-publicised global commodity shortages
as well as increased shipping times for inbound raw materials and outbound finished goods to its
subsidiaries in EMEA and Australia. Supplier lead times have increased, and market availability reduced
for a number of key components, including semiconductors, LEDs, and metals. Availability and lead
time uncertainty, compounded by supplier de-commits, led to the decision to increase the level of raw
material holdings in order to safeguard future production and fulfil the high levels of customer orders
being placed.
2021 service
condition
awards
2.57
3.07
2021
£m
22.2
8.7
11.2
42.1
0.3
42.4
2020
£m
13.5
6.1
12.6
32.2
0.3
32.5
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 115
18. Trade and other receivables
Amounts falling due within one year
Trade receivables
Other non-trade receivables
Prepayments and accrued income
2021
£m
23.7
1.1
1.4
26.2
2020
£m
18.1
0.4
1.4
19.9
During the year, 47,559 shares were issued (2020: 23,301) in order to satisfy the requirement for
shares that vested as part of the PSP scheme (note 16). There were notional considerations but no
proceeds in 2021 (2020: nil). The ordinary shares issued in the year have the same rights as the other
shares in issue.
During the year, the Company purchased 0.2 million shares on the open market for £0.7m, which are
being held in an employee benefit trust to settle share options in the future. This transaction decreased
the amount of shares in issue and has an impact on diluted earnings per share (note 11).
Ordinary shares
2021
Number
2020
Number
32,562,466 32,539,165
23,301
47,559
32,610,025 32,562,466
The Group’s exposure to credit and currency risks and impairment losses related to trade and other
receivables is disclosed in note 24. The increase in trade receivables resulted from the growth in
revenue, that is traditionally weighted towards the end of quarter four.
Issued share capital
In issue at 1 January
Shares issued
Amounts falling due in more than one year
Issued and fully paid at 31 December
Other receivables
2021
£m
4.7
2020
£m
5.0
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. See note 27.
19. Cash and cash equivalents
Cash and cash equivalents
20. Capital and reserves
Share capital
Allotted and fully paid
Ordinary shares of 1.89 pence each
2021
£m
1.2
2020
£m
5.3
2021
Number
2021
£m
2020
Number
2020
£m
32,610,025
0.6 32,562,466
0.6
Merger reserve
On acquiring Lumidrives Limited in 2006, the Company issued ordinary shares as part of the
consideration. Merger relief was taken in accordance with Section 131 of the Companies Act 1985 and
hence £546,000 was credited to the merger reserve.
Translation reserve
The translation reserve comprises all foreign exchange differences from 1 January 2004 arising from
the translation of the financial statements of the Company’s overseas subsidiaries.
Capital redemption reserve
The capital redemption reserve comprises the nominal value of “B” preference shares redeemed since
the capital reorganisation in 2005.
Other distributable reserve
During the year, the Company purchased 0.2 million shares on the open market for £0.7m, which are
being held in an employee benefit trust to settle share options in the future.
Dividends
No dividends were declared in the current or the prior year. After the balance sheet date no dividends
were proposed by the Directors and there are no income tax consequences for the Company.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 116
21. Trade and other payables
Trade payables
Other taxes and social security
Non-trade payables and accrued expenses
2021
£m
21.7
0.8
10.4
32.9
2020
£m
12.2
1.4
7.9
21.5
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 24.
23. Borrowings
The Group’s multicurrency revolving credit facility with HSBC of £25m was due to expire in February
2023 but has been re-negotiated until March 2025. The new £25m multi-currency three-year loan has
been fully approved and contains normal covenants, covering maximum net leverage and minimum
interest cover levels. Documentation is ongoing and formal signing is expected in April. In accordance
with the Group’s strong ESG commitment, the new facility is a sustainability linked loan.
The Group increased its banking facility with HSBC on 15 June 2020 by adding a further £10m facility
on a three-year basis, utilising a combination of £8m under the COVID-19 Large Business Interruption
Scheme (CLBILS) and a £2m commercial loan. The £10m additional facilities are repayable over
30 months, in equal instalments, from January 2021. £4m was repaid in the year, with a further £4m
payable in 2022 and the facilities fully repaid by June 2023 at the latest. At 31 December the Group had
£31m of available funds across both facilities and £1.2m of cash on hand.
22. Provisions
Balance at 1 January 2021
Provisions made during the year
Provisions used during the year
Provisions released during the year
Effects of foreign exchange movement
Balance at 31 December 2021
Warranty
and claims
£m
Lease-
restoration
£m
2.5
1.1
(1.2)
(0.7)
–
1.7
0.2
–
–
–
–
0.2
Total
£m
2.7
1.1
(1.2)
(0.7)
–
1.9
At 1 January 2020
Facility drawdown (CBILS)
Facility repayment (RCF)
At 31 December 2020
Facility drawdown (RCF)
Facility repayment (CBILS)
At 31 December 2021
Loans
£m
17.0
10.0
(10.3)
16.7
4.2
(4.0)
16.9
The warranty provision relates to sales made over the past eight years. In the previous year, the
provision also included other claims across the Group, which were either utilised or released (see note
6). The warranty provision has been estimated based on historical warranty data with similar products.
The Group expects to settle the majority of the liability over the next two to three years.
The table below provides a breakdown of the provisions into their short-term and long-term portions:
Due within one year
Due between one and five years
Due after five years
Total
2021
£m
0.6
1.1
0.2
1.9
Total
2020
£m
1.5
1.1
0.1
2.7
Details of the facilities
£25m revolving credit facility
£8m CLBILS
£2m commercial loan
Amount
drawn down
as at
31 December
2021
£m
Amount
drawn down
as at
31 December
2020
£m
Maturity
date
Interest
rate
per annum*
2.37% March 2025
2.13%
2.30%
June 2023†
June 2023†
10.9
4.8
1.2
6.7
8.0
2.0
Tenure
3 years
3 years
3 years
† This loan will be repaid in equal instalments over three year; repayment started on 15th January 2021.
* This is an indicative rate as at December 2021.
As part of the facility, the original banking covenants of net debt to EBITDA ratio and interest cover
were replaced by a new test based on exceeding a 12-month rolling EBITDA level that was derived
from a COVID impacted business plan as agreed with HSBC, for the testing periods of June 2020
to June 2021.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 117
23. Borrowings (continued)
Covenant test
Ratio
Leverage ratio
Calculation
Net debt/Adjusted EBITDA
EBITDA level
Rolling 12 month EBITDA
Interest cover
Adjusted EBITDA/Interest expense
Debt service ratio1
Net operating income/Total debt
service
For Q1-21
For Q2-21
For Q3-21
onwards
n/a
(1.1)
n/a
n/a
n/a
(3.8)
n/a
n/a
<3.0x
n/a
>4.0x
>1.2
1 The debt service ratio does not apply to the revolving credit facility and the Group was fully compliant with its banking covenants at
31 December and throughout 2021.
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.
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:
Not past due
Past due 0–30 days
Past due 31–120 days
Past due 121–365 days
More than one year
Total
Gross
2021
£m
Specific
Impairment
2021
£m
20.2
3.0
0.5
–
–
23.7
–
–
–
–
–
–
Gross
2020
£m
15.3
2.3
0.2
0.3
–
18.1
Specific
Impairment
2020
£m
–
–
–
–
–
–
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.
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 £5.7m (2020: £5.4m) are not past due and have no impairment. The ECL provision for the current
year is not material and was not material in the prior year.
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.
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.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 118
24. Financial risk management (continued)
Interest rate risk
The Group’s policy is to manage exposure to interest rate risk by utilising borrowings at LIBOR plus
applicable margins. Following the withdrawal of LIBOR, the interest rate for the Group’s bank facilities
has moved to a forward risk free rate plus spread adjustment and the applicable margin based on
EBITDA leverage levels. At 31 December 2021, the Group had total borrowing of £16.9m
(2020: £16.7m).
Foreign currency risk
Exposure to currency risk arises in the normal course of the Group’s business.
The following significant exchange rates applied during the year:
US Dollar
Euro
Canadian Dollar
Mexican Peso
2021
Average
rate
2021
At balance
sheet date
2020
Average
rate
2020
At balance
sheet date
1.38
1.16
1.72
27.88
1.35
1.19
1.72
27.64
1.28
1.12
1.72
27.51
1.36
1.11
1.74
27.14
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.
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.
In respect of other monetary assets and liabilities held in currencies other than UK Sterling, the Group
ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at
spot rates where necessary to address short-term imbalances.
The following are the contractual maturities of financial liabilities, including estimated interest
payments and excluding the impact of netting agreements:
The Group’s exposure to foreign currency risk was as follows:
Trade receivables
Currency cash
Trade payables
Gross balance sheet exposure
2021
$m
0.1
(11.8)
–
(11.7)
2021
CAD’m
4.5
0.1
–
4.6
2021
€m
0.7
–
(0.3)
0.4
2020
$m
0.1
(9.2)
–
(9.1)
2020
CAD’m
2.1
0.2
–
2.3
2020
€m
0.7
0.1
–
0.8
31 December 2021
Non-derivative
financial liabilities
Trade and other payables
Borrowings
Lease liabilities
Carrying
amount
£m
Contractual
cash flow
£m
2 months
or less
£m
2–12
months
£m
1–2 years
£m
2–5 years
£m
More than 5
years
£m
(21.7)
(16.9)
(12.0)
(50.6)
(21.7)
(16.9)
(12.0)
(50.6)
(17.7)
(0.7)
(0.1)
(18.5)
(0.8)
(3.3)
(1.7)
(5.8)
(0.3)
(2.0)
(1.8)
(4.1)
(2.9)
(10.9)
(5.0)
(18.8)
–
–
(3.4)
(3.4)
* Prepayments of £1.5m (2020: £1.4m) and other debtors of £0.1m (2020: 0.4m) do not meet the definition of a financial instrument.
** Other taxation and social security payables of £0.8m (2020: £1.4m), and other creditors of £10.4m (2020: £7.9m) do not meet the
definition of a financial instrument.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 119
24. Financial risk management (continued)
31 December 2020
Non-derivative
financial liabilities
Trade and other payables
Borrowings
Lease liabilities
Carrying
amount
£m
Contractual
cash flow
£m
2 months
or less
£m
2–12
months
£m
1–2 years
£m
2–5 years
£m
More than 5
years
£m
(21.5)
(16.7)
(10.3)
(48.5)
(21.5)
(16.7)
(10.3)
(48.5)
(17.7)
(0.7)
(0.2)
(18.6)
(0.5)
(3.3)
(1.3)
(5.1)
(3.3)
(4.0)
(1.1)
(8.4)
–
(8.7)
(3.6)
(12.3)
–
–
(4.0)
(4.0)
* The Group has disclosed a contractual maturity analysis for its financial liabilities, which is the minimum disclosure under IFRS 7
in respect of liquidity risk. IFRS 7 does not mandate the number of time bands to be used in the analysis so the Group has applied
judgement to determine an appropriate number of time bands. The Group has included both interest and principal cash flows
in the analysis.
The Group has a three-year unsecured £25m multi-currency revolving credit facility and £6.0m CLBILS,
of which £16.9m is drawn at 31 December 2021 (2020: £16.7m); see note 23.
Capital management
The Board’s policy is to maintain a strong capital base in order to maintain investor, creditor and market
confidence and to sustain future development of the business. The Board considers consolidated total
equity as capital. As at 31 December 2021, this totalled £60.2m (2020: £57.3m).
The Board is not proposing a final dividend for 2021. The Group has a clear capital allocation discipline
and is committed to returning any excess funds to our shareholders via either a future dividend or a
share re-purchase, subject to the restrictions imposed by the CLBILS borrowing.
Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term
fluctuations on the Group’s earnings. Over the longer term, however, permanent changes, in particular
in foreign exchange rates, would have an impact on equity value and consolidation earnings.
At 31 December 2021, it is estimated that a general increase of 1% in the value of the Euro and the US
Dollar against UK Sterling would have £0.1m impact on the Group’s profit before tax for the year ended
31 December 2021 (2020: no impact), and would have increased the Group’s equity for the year ended
31 December 2021 by £0.7m (2020: £0.4m).
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:
Financial assets
Cash and cash equivalents
Loans and receivables
Trade and other receivables
Total financial assets
Financial liabilities
Lease liabilities
Trade and other payables
Borrowings
Total financial liabilities
Net financial liabilities
Carrying
amount
2021
£m
Fair value
2021
£m
Carrying
amount
2020
£m
Fair value
2020
£m
1.2
1.2
5.3
5.3
24.7
25.9
24.7
25.9
18.5
23.8
18.5
23.8
(12.0)
(32.1)
(16.9)
(61.0)
(35.1)
(12.0)
(32.1)
(16.9)
(61.0)
(35.1)
(10.3)
(20.1)
(16.7)
(47.1)
(23.3)
(10.3)
(20.1)
(16.7)
(47.1)
(23.3)
Details of the major methods and assumptions used in estimating the fair values of financial
instruments reflected in the table are set out in note 4(v).
25. Capital commitments
Capital commitments at 31 December for which no provision has been made in the accounts were:
Contracted
2021
£m
2.8
2020
£m
0.4
The increase in capital commitments reflects planned capacity improvements, factory improvements
and end of life asset replacement, mainly at our Mexico facilities.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 120
26. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
Of the £0.2m (2020: £0.6m), £nil (£2019: £nil) relates to property plant and equipment.
2021
£m
0.1
0.1
0.2
2020
£m
0.3
0.3
0.6
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.
The Group has no off-balance sheet arrangements that need to be disclosed within the context
of Section 410A of the Companies Act 2006.
27. Contingencies
Sanmina litigation
As previously reported, we have sought to reach a negotiated conclusion of various outstanding
matters following the termination of the manufacturing services agreement with our former
manufacturing partner, Sanmina Corporation. On 20 December 2019, both parties issued legal
proceedings against the other. The parties are therefore in formal litigation, with no conclusion
expected before the end of 2022 at the earliest. The basis of the claim filed by Sanmina Corporation
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 costs and
losses suffered as a direct consequence of Sanmina Corporation not performing in accordance with
the terms of the manufacturing services agreement. The Group has sought external legal advice and is
paying for the legal costs as incurred. As at 31 December 2021, the Group has not made any provision
for future legal costs.
The claim filed by Dialight alleges that Dialight suffered significant costs and losses with total damages
exceeding £190m suffered as a result of: (a) Sanmina’s fraudulent inducement of Dialight to enter into
a manufacturing services agreement (MSA); (b) Sanmina breaching the terms of the MSA in a wilful
and/or grossly negligent manner (for example in respect of their failure to appropriately manage supply
chain and inventory levels and to deliver product on time and free of workmanship defects); and, (c)
Sanmina’s gross negligence and/or wilful misconduct. In the event that Sanmina’s claim is successful,
the range of outcomes could be £0 – £8.9m, excluding legal costs.
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.
Employee claims
The Group has received two claims from former employees in France and, whilst recognising the
inherent risks of employee-related litigation in France, the Directors believe that these two claims are
without merit and will be robustly defended, and are not considered likely to result in any material
outflow of funds from the Group.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 121
28. Reconciliation to non-GAAP performance measures
As explained in note 6, the Group incurs costs and earns income that is not considered to be reflective
of the underlying performance of the business. In the assessment of performance of the business units
of the Group, management examines underlying performance, which removes the impact of non-
underlying costs and income.
Profit/(loss) from operating activities
Non-underlying items (see note 6)
Underlying profit/(loss) from operating activities
Profit/(loss) from operating activities
Non-underlying items (see note 6)
Depreciation of property, plant and equipment (see note 12)
Amortisation of intangible assets (see note 14)
Underlying EBITDA
Profit/(loss) from operating activities
Non-underlying items (see note 6)
Depreciation of property, plant and equipment (see note 12)
Amortisation of intangible assets (see note 14)
Share-based payments
Net movement on working capital (Inventories, trade and other receivables,
trade and other payables) as per Consolidated statement of cash flows
Underlying operating cash flow
2021
£m
2.1
2.4
4.5
2.1
2.4
3.1
3.5
11.1
2.1
2.4
3.1
3.5
0.6
(4.3)
7.4
2020
£m
(8.8)
2.4
(6.4)
(8.8)
2.4
3.1
3.0
(0.3)
(8.8)
2.4
3.1
3.0
0.4
9.0
9.1
This gives a GBP denominated income statement, which excludes any variances attributable to foreign
exchange rate movements. The most important foreign currencies for the Group are: Pounds Sterling,
Euro, Canadian Dollar and Mexican Peso. The exchange rates used are in note 24 page 118.
Net debt
Net debt is defined as total Group borrowings less cash. Net debt of £15.7m at the year end
(2020: £11.4m) consisted of borrowings of £16.9m (2020: £16.7m) less cash of £1.2m (2020: £5.3m).
29. Related parties
The ultimate controlling party of the Group is Dialight plc. Transactions between the Company and its
subsidiaries have been eliminated on consolidation.
Transactions with key management personnel
Only Directors are considered to be key management personnel and transactions with them are
disclosed in note 16. Directors of the Company and their immediate relatives control less than 1%
of the Company.
30. Subsidiaries
In accordance with Section 409 of the Companies Act 2006, a full list of subsidiaries as at
31 December 2021 is disclosed below. Those companies stated in table (a) below are those, in the
opinion of Directors, which principally affect the revenue, profit or assets of the Dialight Group.
The remaining companies that comprise the Dialight Group are set out in table (b) below. These did
not change during 2021. The investment is held directly by Dialight plc except for those companies
indicated by*.
(a) Trading companies
Name
Percentage owned Registered office
Principal activity
Dialight Corporation*
100%
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.
Dialight Europe Limited**
100%
Constant currency
The Group’s revenues are mainly earned in the US and it presents certain key metrics on a constant
currency basis to remove any impact of currency fluctuations. The Group uses GBP based constant
currency models to measure performance. These are calculated by restating the results of the Group
for the comparable year at the same average exchange rates as those used in reported results for the
current year.
Dialight GmbH*
100%
1501 Route, 34 South
Farmingdale
NJ 07727
United States
Design, assembly and
sale of Lighting and
Signals & Components
products
Leaf C
Level 36, Tower 42
25 Old Broad Street
London EC2N 1HQ
United Kingdom
Maximilianstrasse 54
80538 Munchen
Germany
Sale of Lighting
products
Sale of Lighting
products
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 (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 132 under the “Directory and shareholder
information” section.
Name
Percentage owned Registered office
Principal activity
122
30. Subsidiaries continued
Name
Percentage owned Registered office
Principal activity
Dialight ILS Australia Pty Limited*
75%
Dialight Asia Pte. Ltd*
75%
Dialight Penang Sdn. Bhd.*
100%
Dialight de Mexico, S. de R.L. de C.V.* 100%
Dialight Latin America, S. de R.L.
de C.V.*
100%
Level 2 Spectrum
100 Railway Road
Subiaco WA 6008
Australia
Sale of Lighting
products
33 Ubi Avenue 3
07–72 Vertex (Tower A)
Singapore, 408868
Sale of Lighting
products
Room B, 3rd Floor
309-K Perak Road
10150, Penang
Malaysia
Calle Lirios S/N
Colona Pacheco
Ensenada
Baja California
Mexico
Calle Lirios S/N
Colona Pacheco
Ensenada
Baja California
Mexico
Assembly and sale of
Lighting and Signals &
Components products
Assembly of Lighting,
Signals & Components
products
Sale of Lighting and
Signals & Components
products
Belling Lee Limited**
100%
Roxboro Overseas Limited**
100%
The Roxboro Trust Company Limited** 100%
The Roxboro UK Pension Trustee
Limited*
CRL Components, Inc.*
50%
100%
Roxboro Analytical Inc.*
100%
There is only one class of share, and all shares held are considered to be ordinary shares. There have
been no changes in the class of shares held during the year.
Roxboro Holdings Inc.*
100%
Dialight ILS Australia Pty Limited and Dialight Asia Pte. Ltd are owned 75% by the Group and there are
non-controlling interests of 25%. The total profit for the year attributable to non-controlling interests
is £0.2m (2020: profit £0.1m) and their share of equity is £0.6m (2020: £0.4m).
The Group also has branches in France and the United Arab Emirates.
Roxboro Metrology Inc.*
100%
Intermediary
holding company
Non-trading/
intermediary
holding company
Dormant
Corporate pension
fund trustee
Dormant
Non-trading
Non-trading/
intermediary
holding company
Non-trading
The Corporation Trust Co.
Corporation Trust Centre
1209 Orange Street
City of Wilmington
County of New Castle DE
United States
1501 Route 34 South
Farmingdale
NJ 07727
United States
The Corporation Trust Co.
Corporation Trust Centre
1209 Orange Street
City of Wilmington
County of New Castle DE
United States
1501 Route 34 South
Farmingdale
NJ 07727
United States
** These companies are exempt from the requirement to prepare individual audited financial statements in respect of the year ended
31 December 2021, by virtue of Sections 479A and 479C of the Companies Act 2006.
31. Post balance sheet events
There are no material post balance sheet events requiring adjustment or disclosure.
Notes to the consolidated financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 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 year was £4.3m (2020:
loss of £2.7m).
The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 27 March 2022 and were
signed on its behalf by:
Fariyal Khanbabi
Group Chief Executive
Clive Jennings
Chief Finance Officer
123
Company balance sheet (prepared under FRS 102)
at 31 December 2021
Note
2021
£m
Fixed assets
Intangible assets
Investments
Pension fund asset
Current assets
Debtors (of which £25.9m due after 1 year (2020: £25.6m)
Bank and cash balances
Total assets
Creditors
Amounts falling due within one year:
Creditors
Provisions
Borrowings
Total liabilities
Net current assets
Net assets
Capital and reserves
Called up share capital
Capital redemption reserve
Other reserves
Profit and loss account
Equity shareholders’ funds
4
5
14
8
9
10
11
12,13
0.2
10.4
0.2
10.8
46.5
–
46.5
57.3
(1.6)
–
(17.0)
(18.6)
27.9
38.7
0.6
2.2
4.3
31.6
38.7
2020
£m
–
9.8
0.2
10.0
49.9
2.0
51.9
61.9
(1.7)
(0.4)
(16.7)
(18.8)
33.1
43.1
0.6
2.2
4.4
35.9
43.1
Dialight plc Annual Report and Accounts 2021 Balance at 1 January 2021
0.6
4.4
2.2
Balance at 1 January 2020
0.6
4.0
2.2
Loss
Total other comprehensive income
Total comprehensive expense for the year
Transactions with owners, recorded directly
in equity
Share-based payments, net of tax
Total contribution by and distribution
to owners
–
–
–
–
–
Balance at 31 December 2020
0.6
–
–
–
0.4
0.4
4.4
Share
capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
£m
Retained
earnings
£m
Total
equity
£m
45.4
(2.7)
38.6
(2.7)
–
–
(2.7)
(2.7)
–
–
0.4
0.4
–
–
–
–
–
2.2
35.9
43.1
124
Company statement of changes in equity
for the year ended 31 December 2021
Share
capital
£m
Other reserve
capital
contribution
£m
Capital
redemption
£m
Own Shares
£m
Loss
Total other comprehensive
income
Total comprehensive expense
for the year
Transactions with owners,
recorded directly in equity
Share-based payments,
net of tax
Purchase of own shares
Total contribution by and
distribution to owners
–
–
–
–
–
–
Balance at 31 December 2021
0.6
–
–
–
0.6
–
0.6
5.0
–
–
–
–
–
–
Retained
earnings
£m
35.9
(4.3)
Total
equity
£m
43.1
(4.3)
–
–
(4.3)
(4.3)
–
–
–
–
–
(0.7)
(0.7)
–
–
–
0.6
(0.7)
(0.1)
2.2
(0.7)
31.6
38.7
At 31 December 2021 the number of shares held by the Group through the ESOT was 0.2 million
ordinary shares (2020: nil). The market value of these shares at 31 December 2021 was £0.7m
(2020: £nil).
During the year, the Company purchased 0.2 million shares on the open market for £0.7m, which are
being held in an employee benefit trust to settle share options in the future.
Dialight plc Annual Report and Accounts 2021 125
Notes to the Company financial statements
for the year ended 31 December 2021
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 132 of this Annual Report and Accounts.
The Company is a holding company that manages the other trading subsidiaries of the Dialight Group.
The functional currency of Dialight plc is considered to be UK Sterling because that is the currency of
the primary economic environment in which the Company operates.
2. Basis of preparation
These financial statements have been prepared in accordance with Financial Reporting Standard 102
The Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”).
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to
present its own profit and loss account.
In these financial statements, the Company is considered to be a qualifying entity (for the
purposes of this FRS) and has applied the exemptions available under FRS 102 in respect
of the following disclosures:
– Cash flow statement and related notes; and
– Key management personnel compensation.
As the consolidated financial statements of the Group include the equivalent disclosures,
the Company has also taken the exemptions under FRS 102 available in respect of the
following disclosures:
– Certain disclosures required by FRS 102.26 Share Based Payments; and
– Certain disclosures required by FRS 102.11 Basic Financial Instruments and FRS 102.12 Other
Financial Instrument Issues in respect of financial instruments not falling within the fair value
accounting rules of Paragraph 36(4) of Schedule 1.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all
periods presented in these financial statements:
(a) Going concern
The Directors have a reasonable expectation that the Company has adequate resources to continue
in operational existence for a period of no less than 12 months from the date of this report. Thus, they
continue to adopt the going concern basis of accounting in preparing the annual financial statements
(see note 1(b) in the consolidated financial statements).
(b) Intangible fixed assets
Intangible assets that have finite useful lives are measured at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised in profit and loss on a straight-line basis
over the estimated useful lives of intangible assets from the date that they are available for use.
(c) Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the instrument.
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
(i) Financial assets and liabilities
All financial assets and liabilities are initially measured at transaction price (including transaction
costs), except for those financial assets classified as at fair value through profit or loss, which are
initially measured at fair value (which is normally the transaction price excluding transaction costs),
unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing
transaction, the financial asset or financial liability is measured at the present value of the future
payments discounted at a market rate of interest for a similar debt instrument.
The Company’s debt instruments are subsequently measured at amortised cost using the effective
interest method.
Debt instruments that are classified as payable or receivable within one year on initial recognition,
and which meet the above conditions, are measured at the undiscounted amount of the cash or other
consideration expected to be paid or received, net of impairment.
(ii) Investments
Investments in subsidiaries and associates are measured at cost less impairment. For investments
in subsidiaries acquired for consideration, including the issue of shares qualifying for merger relief,
cost is measured by reference to the nominal value of the shares issued plus the fair value of other
consideration. Any premium is ignored.
(iii) Equity instruments
Equity instruments issued by the Company are recorded at the fair value of cash or other resources
received or receivable, net of direct issue costs.
Dialight plc Annual Report and Accounts 2021 126
2. Basis of preparation (continued)
(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.
(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.
(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.
Other long term employee benefits are measured at the present value of the benefit obligation at the
reporting date.
The Group recognizes a liability in respect of the best estimate of bonus payable where contractually
obliged to or where past practice has created a constructive obligation.
Exchange differences are recognised in profit or loss in the period in which they arise.
(h) Leases
Rentals under operating leases are charged on a straight-line basis over the lease term, even if the
payments are not made on such a basis. Benefits received and receivable as an incentive to sign an
operating lease are similarly spread on a straight-line basis over the lease term.
(i) Share-based payment
The Company grants to its employees rights to the equity instruments of Dialight plc. The fair value
of awards granted is recognised as an employee expense with a corresponding increase in equity.
The fair value is measured at grant date and spread over the period during which the employees
become unconditionally entitled to receive the awards. The fair value of the awards granted is
measured using a pricing model, taking into account the terms and conditions upon which the awards
were granted. The amount recognised as an expense is adjusted to reflect the actual value of share
awards that vest except where forfeiture is only due to share prices not achieving the threshold for
vesting. Where the Company grants awards over its own shares to employees of its subsidiaries, it
recognises an increase in the cost of investment in its subsidiaries equivalent to the equity-settled
share-based payment charge recognised in its subsidiaries’ financial statements with the
corresponding credit being recognised directly in equity.
(j) Dividends
Dividends are recognised in the period in which they are approved by the Company’s shareholders or,
in the case of an interim dividend, when the dividend is paid. Dividends receivable from subsidiaries
are recognised when either received in cash or applied to reduce a creditor balance with a subsidiary.
(k) Provisions
A provision is recognised in the balance sheet when the Company has a present legal or constructive
obligation as a result of a past event and it is probable that an outflow of economic benefits will be
required to settle the obligation.
Notes to the Company financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 127
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 2, the
Directors are required to make judgements, estimates and assumptions about the carrying amounts
of assets and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods.
The Directors consider that there are no critical accounting judgements or key sources of estimation
uncertainty within the Company’s individual financial statements.
5. Investments in subsidiary undertakings
Cost
At 1 January 2021
Share-based payments
At 31 December 2021
Provisions
At 1 January 2021 and 31 December 2021
Net book value at 31 December 2021
Net book value at 31 December 2020
£m
21.2
0.6
21.8
(11.4)
10.4
9.8
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 30 to the consolidated financial statements
on pages 121 and 122.
4. Intangible assets
Cost
At 1 January 2021
Additions
At 31 December 2021
Depreciation
At 1 January 2021
Charge for the year
At 31 December 2021
Net book value at 31 December 2021
Net book value at 31 December 2020
Additions in the year relate to capitalisation of expenses for software.
Software
£m
–
0.2
0.2
–
–
–
–
0.2
–
Notes to the Company financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 128
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.
8. Debtors
Amounts owed by subsidiary undertakings <1 year
Amounts owed by subsidiary undertakings >1 year
Other debtors
A sensitivity analysis has been carried out in note 24 to the consolidated financial statements, and is
considered to not be materially different for the results of the Company only.
Foreign currency risk
The Company holds monetary assets and liabilities in currencies other than UK Sterling. The majority
of these relate to intercompany balances which provide a natural hedge elsewhere in the Group.
9. Creditors
The Company’s exposure to foreign currency risk to third parties was as follows:
Currency cash
Gross balance sheet exposure
Amounts falling due within one year:
Amounts owed to subsidiary undertakings
Accruals and deferred income
Other creditors
2021
$m
(17.0)
(17.0)
2020
$m
(9.2)
(9.2)
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
The PSP relating to employees and Directors of the Company is disclosed on page 79 in the Directors’
Remuneration Report and in note 16 to the consolidated financial statements.
10. Provisions
At 1 January
Usage
Release
At 31 December
Details on assumptions and inputs used in the calculation of share-based payment amounts are
disclosed in note 16 to the consolidated financial statements.
The contingent liability for the Company in relation to litigation by Sanmina Corporation is disclosed in
note 27 to the consolidated financial statements.
Following the disposal of the Dialight A/S business in September 2019, a provision was established for
the maximum amount that may be payable by the Company in respect of future warranty claims relating
to historical sales by the business sold, in accordance with the Sale and Purchase Agreement. A claim
for £0.2m was received in accordance with the sale contract and paid in 2021. The date for further
claims has expired and the remaining provision has been released.
2021
£m
20.3
25.9
0.3
46.5
2020
£m
24.0
25.6
0.3
49.9
2021
£m
2020
£m
0.4
0.7
0.5
1.6
2021
£m
0.4
(0.2)
(0.2)
–
0.4
0.8
0.5
1.7
2020
£m
0.4
–
–
0.4
Notes to the Company financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 129
11. Borrowings
Borrowings are described in full in note 23 to the consolidated financial statements.
12. Called up share capital
Allotted and fully paid
Ordinary shares of 1.89 pence each
Shares classified as liabilities
Shares classified in shareholder funds
2021
Number
2021
£m
2020
Number
2020
£m
32,610,025
0.6 32,562,466
0.6
0.6
During the year, 47,559 shares were issued (2020: 23,301) in order to satisfy the requirement for
shares that vested as part of the PSP scheme (note 16 to the consolidated financial statements).
There were no proceeds in 2021 (2020: nil). The ordinary shares issued in the year have the same
rights as the other shares in issue.
14. Pensions
The Company operates a defined contribution plan and a defined benefit pension arrangement
called the Roxboro UK Executive Pension Fund (the “Executive Fund”). The Executive Fund provides
benefits based on final salary and length of service on leaving. The Executive Fund is closed to new
members. The following disclosures exclude any allowance for defined contribution funds operated
by the Company.
The Executive Fund is subject to the “Statutory Funding Objective” under the Pensions Act 2004.
An actuarial valuation of the Executive Fund is carried out at least once every three years to determine
whether the Statutory Funding Objective is met. As part of the process the Company must agree with
the Trustees of the Executive Fund the contributions to be paid to address any shortfall against the
Statutory Funding Objective.
0.6
–
0.6
0.6
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 2020. For the full detail refer to note 16 of the consolidated financial statements.
Recognised assets for defined benefit arrangements
During the year, the Company purchased 0.2 million shares on the open market for £0.7m, which are
being held in an employee benefit trust to settle share options in the future. This decreased the amount
of shares in issue and has no impact on diluted earning per share (see note 11 to the consolidated
financial statements.)
13. Capital and reserves
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.
Present value of funded obligations
Fair value of plan assets
Recognised asset for defined benefit arrangements
Plan assets consist of the following:
Other distributable reserve
During the year, the Company purchased 0.2 million shares on the open market for £0.7m, which are
being held in an employee benefit trust to settle share options in the future.
Bonds
The assets do not include any investments in shares of the Company.
2021
£m
(2.9)
3.1
0.2
2021
£m
3.1
2020
£m
(3.1)
3.3
0.2
2020
£m
3.3
Notes to the Company financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 130
14. Pensions (continued)
Movements in the present value of defined benefit obligations
Liability for defined benefit obligations
The principal assumptions at the balance sheet date (expressed as weighted averages) are:
Liabilities at 1 January
Interest cost
Benefits paid
Changes in financial assumptions
Liabilities at 31 December
Movements in fair value of plan assets
Assets at 1 January
Interest on assets
Employer contributions
Benefits paid
Return on plan assets less interest
Assets at 31 December
Expense recognised in the profit and loss account
Interest on obligation
Interest on plan assets
Discount rate at 31 December
Future pension increases
Inflation – RPI
Inflation – CPI
UK scheme
(% per annum)
2021
2020
1.8
3.5
3.6
2.9
1.1
3.0
3.1
2.3
For its UK pension arrangements, the Group has for the purpose of calculating its liabilities as at
31 December 2021, used SAPS S2NA mortality tables based on year of birth (as is published by
the Institute and Faculty of Actuaries). The UK mortality tables are based on the latest mortality
investigations and reflect an industry-wide recognition that life expectations have improved.
The average life expectancy of an individual currently aged 45 years and retiring at age 65 years is
21.5 years for males and 24.8 years for females. For individuals currently aged 65 years the average
life expectancy is 20.5 years for males and 23.7 years for females.
15. Related party transactions
During the period, the Company received no management fees or interest on intercompany loans
(2020: £nil) from subsidiaries that are not wholly owned. At 31 December 2021 a total of £nil was owed
to the Company by those subsidiaries (2020: £0.1m).
2021
£m
3.1
–
(0.1)
(0.1)
2.9
2021
£m
3.3
–
0.1
(0.1)
(0.2)
3.1
2021
£m
–
–
–
2020
£m
2.9
0.1
(0.1)
0.2
3.1
2020
£m
3.1
0.1
–
(0.1)
0.2
3.3
2020
£m
0.1
(0.1)
–
Notes to the Company financial statements continuedfor the year ended 31 December 2021Dialight plc Annual Report and Accounts 2021 131
Five-year summary (unaudited)
Revenue
Research and development cash expenditure
Underlying profit/(loss) from
operating activities
Non-underlying items
Profit/(loss) from operating activities
Finance charges
Profit/(loss) before taxation
Cash generated by/(used in) operations
Net (debt)/cash
Shareholders’ funds
* after adding back £10.2m of unaudited costs related to insourcing
Statistical information
2021
£m
131.6
4.9
4.5
(2.4)
2.1
(1.4)
0.7
6.0
(15.7)
60.2
Prepared under IFRS
2020
£m
2019
£m
119.0
151.0
4.6
8.1
(6.4)
(2.4)
(8.8)
(1.3)
(10.1)
10.5
(11.4)
57.3
5.2*
(6.3)
(11.3)
(1.2)
(12.5)
3.5
(16.5)
67.8
2018
£m
169.6
7.3
8.0
(0.4)
7.6
(0.2)
7.4
(7.4)
(2.9)
85.1
2017
£m
181.0
6.9
9.7
(6.4)
3.3
(0.3)
3.0
13.1
12.8
76.1
Basic earnings/(loss) per ordinary share – pence
Dividends per share – pence
Underlying operating margin
9.0
n/a
3.4%
(24.0)
n/a
(5.4)%
(49.8)
n/a
3.3%
16.4
n/a
4.7%
4.8
n/a
5.4%
Dialight plc Annual Report and Accounts 2021 132
Directory and shareholder information
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.
Registered office, contact details
and communications
Company Secretary and Registered Office.
Registered in England and Wales
Company number: 2486024
Company Secretary: Richard Allan
Registered office
Leaf C, Level 36, Tower 42,
25 Old Broad Street
London EC2N 1HQ
Contact details:
Email (Company Secretary):
dsecretary@dialight.com
Email (investor relations): ir@dialight.com
Web: www.dialight.com
Website
Shareholders are encouraged to visit our
website, www.dialight.com, which contains
information about Dialight. Any information on
or linked from the website is not incorporated
by reference into the Annual Report and
Accounts unless expressly stated in this
Annual Report. There is a section designed
specifically for investors at www.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.
2022 Financial calendar
Annual General Meeting: Thursday 19 May 2022
Half Yearly Financial Report: Monday
1 August 2022
Any amendments to these dates will be notified
on the Company’s website (www.dialight.com).
Trademarks
The following registered trademarks of the
Dialight Group appear in this document:
“DIALIGHT”, “VIGILANT”, “PROSITE” and
“DUROSITE”.
Forward-looking statements
Certain sections of this Annual Report contain
forward-looking statements that are subject to
risk factors associated with, amongst other
things, the economic and business circumstances
occurring from time to time in the countries and
sectors in which the Company and its subsidiaries
and associates operate. It is believed that the
expectations reflected in the Annual Report are
reasonable, but they may be affected by a wide
range of variables which could cause actual
results to differ materially from those
currently anticipated.
Dealing service
Equiniti offers “Shareview Dealing”– a service
which allows you to sell your Dialight plc shares
or add to your holding if you are a UK resident.
You can deal in your shares on the internet or
by telephone. For more information about this
service and for details of their rates, log on to
www.shareview.co.uk/dealing or telephone 0345
603 7037 between 8.30am and 4.30pm, Monday
to Friday. If you wish to deal, you will need your
account/shareholder reference number which
appears on your share certificate. Alternatively,
if you hold a share certificate, you can also use
any bank, building society or stockbroker offering
share dealing facilities to buy or sell shares. If you
are in any doubt about buying or selling shares,
you should seek professional financial advice.
Advisers
Financial advisers
Investec Bank plc
30 Gresham Street
London EC2V 7QP
Auditors
KPMG LLP
15 Canada Square
London E14 5GL
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
Dialight plc Annual Report and Accounts 2021 Leaf C, Level 36
Tower 42
25 Old Broad Street
London EC2N 1HQ
+44 (0)20 3058 3541
info@dialight.com
www.dialight.com
Registered in England and Wales
Company number: 2486024