Light Science Technologies Holdings PLC (AIM:LST) CEO Simon Deacon talked with Proactive's Stephen Gunnion about the company's 30% revenue growth, profitability milestones, and innovations driving margin expansion.
Deacon highlighted growth across all divisions, particularly the controlled environment agriculture (CEA) segment, which saw a 250% increase. He attributed profitability improvements to efficiency gains and the high-margin nature of products in the passive fire protection and CEA segments. Deacon noted that the group's pipeline for CEA projects now exceeds £50 million, with significant contributions from environmental sensors and light recipe technology.
Stephen Gunnion: Simon, very good to speak with you. You’ve reported revenue growth of roughly 30%. In which division have you seen particular growth?
Simon Deacon: We’ve seen growth in all the divisions. We saw contract electronics manufacturing grow by 5%. The controlled environment agriculture (CEA) division grew by 250%. And the new start-up passive fire protection division has grown and contributed £1.8 million in this financial year. So, we’re really seeing a spread across the board, but the biggest growth was in controlled environment agriculture, I’m pleased to say. But I’m also pleased to say there’s a bit of a leveling up going on in contribution through the divisions.
Stephen Gunnion: You also became profitable in the second half of the year, Simon, and you reduced your losses substantially. How did you achieve that?
Simon Deacon: Management really focused on more efficiencies within the group, through the contract electronics side and the manufacturing side, but also in passive fire protection and the CEA divisions. So, what we’re seeing is more revenue, and the products we sell within the CEA division have more margin on them, as does passive fire protection.
So, as we grow revenue in those divisions, we’re seeing higher overall margins for the group, which is really pleasing because it drops down onto the bottom line and generates that cash and net profitability.
Stephen Gunnion: Can you talk about what’s driven the margin growth that you’ve reported?
Simon Deacon: The real growth is driven by passive fire protection. What we’re seeing is a huge demand. We’re in the news every day with cladding needing replacement, cavities needing filling, and protection being put in them.
There are 11 in the UK alone that are over 18 meters tall, and the government is now pushing for them to be completed earlier — by 2029. So, there’s a real big push, which is driving strong growth and strong margins in passive fire protection.
In controlled environment agriculture (CEA), where growth was slower in the past, we’re now seeing a £50 million pipeline start to convert for the group. This includes innovations like light recipes and environmental control, which reduce waste and increase yields. The sensors are also breaking through, providing live-streaming data, which is essential for optimizing performance.
Stephen Gunnion: You mentioned that growing traction in CEA. How would you maximize growth in this market?
Simon Deacon: Maximising growth means going global. For example, our largest order a few months ago was in Europe, with a French company building an extension and refurbishment. We’re also seeing activity in Germany.
We expect to expand globally through partnerships. Our focus is on markets like the Americas, the Middle East, and Australia. This summer, we also signed a partnership in South Africa. Partnerships are the quickest way to enter a market because they provide access to an established customer base at a low cost, which is key to spreading our technology and products.
Stephen Gunnion: The announcement mentions that a pest control client has discontinued a product line, and that may have an effect on revenue. How will this impact the business moving forward?
Simon Deacon: We’re used to working with customers over long periods. This particular pest control client has been with us for over ten years. Production lines and products naturally come to the end of their life—that’s to be expected.
We still manufacture many other production lines for them, and they have numerous products. Additionally, in the contract electronics side, we’re seeing a shift toward reshoring back to UK manufacturing due to global energy uncertainties. We expect to produce more for them in the future because of our long-term relationship, so I’m not worried. This kind of change is just normal day-to-day business for us.
Stephen Gunnion: What does your cash runway look like moving into 2025?
Simon Deacon: I’m pleased to say it’s improving. The availability of cash has increased compared to our half-year results. We now have £1.9 million in cash, which is growing due to the profitability we achieved in the second half of this year.
We expect this trend to continue into 2025 and beyond. I’m really pleased to say that we’ve turned the corner. We’re growing as a company across all three divisions, putting us in a very strong position for the start of 2025.
Stephen Gunnion: And how can investors expect the portfolio and the sales mix to evolve into 2025?
Simon Deacon: I’d like to see more levelling up across the divisions. A lot of our revenue still predominantly comes from the contract electronics side, but I expect the controlled environment agriculture (CEA) segment to continue growing.
We have a strong £50 million pipeline, as I mentioned earlier, and I see this bringing in more from light recipes, environmental controls, and sensors. Sensors, in particular, have a growing market, as they generate recurring revenue.
In the passive fire protection segment, margins are strong, and there’s a significant amount of work to be done, as I mentioned earlier. Over time, I expect CEA and passive fire protection to level up with contract electronics, which will push overall margins higher. This should lead to increasing gross margins and stronger contributions to the bottom line.