Light Science Technologies Holding — Helping grow more with less

The group launched its first CEA products in July 2021. These LED horticultural lights for glasshouse and polytunnel growers save significant amounts of energy compared with traditional horticultural lights and are probably unique in being reusable and recyclable. A slimline variant for vertical farms followed in June 2022. That month also saw the launch of the group’s smart sensor system with associated software for use in outdoor agricultural environments, vertical farms, polytunnels and glasshouses. The system is potentially unique in combining sensors measuring several parameters in a single compact product. In addition, the group is working with major UK salad grower Zenith Nurseries on a novel system combining crop monitoring and production. This could potentially be deployed in the majority of Zenith’s nurseries by 2026 and generate up to £13m in sales.

The CEA division has recently started work on several paid-for customer trials, including one at a vertical farm R&D facility and one with a major UK manufacturer of preserves, marmalades and associated products. These could potentially result in product orders collectively worth c £3m over the next 12 months, which contribute to a sales pipeline of quoted work across both divisions of over £61m.

Our scenario analysis shows that converting 60% of the existing CEA pipeline and delivering on the Zenith contract could generate annual CEA revenues of £31.4m and £4.6m group EBITDA. This is only a small proportion of the global market, which we calculate could be worth c £2.9bn in the UK alone. Announcements about new contract awards are therefore catalysts to crystallise shareholder value.

Light Science Technologies Holdings (LSTH) has two complementary divisions: Light Science Technologies (LST), which is developing products for the CEA market, and UK Circuits (UKC), which is an established contract electronics manufacturer.

LST was founded in 2019 to exploit the opportunities for technology products and solutions in the CEA market. It launched its reusable, recyclable luminaires in July 2021 and its smart sensor system for use in outdoor agricultural environments as well as vertical farms, polytunnels and glasshouses in June 2022. It is working with major UK salad grower Zenith Nurseries on an intelligent crop production and management system, which could potentially be deployed in the majority of Zenith’s nurseries by 2026. LST is located in Derbyshire, England, where it designs and tests equipment for the CEA market and carries out trials for customers to determine the optimal growing conditions for specific crops. Together with the holding company, which is also located at the Derbyshire site, it employs around 20 people. Revenues are still modest (£33k in FY21), but LST intends to grow revenues through a combination of non-recurring sales relating to horticultural light installations and recurring revenues from replacement luminaires and a combined sensor and software package which is being sold on a three-year subscription basis.

UKC was founded in 1997. It is a contract electronics manufacturer with a 20,000 sq ft facility located in Manchester, England. It has more than 50 employees servicing over 70 clients in the UK and elsewhere, including Rentokil Pest Control, Cloud Electronics, Calex Electronics and Sensonics. The company serves a wide range of markets including audio, lighting, automotive, rail, aerospace, telecoms, industrial sensors, CEA and defence. It provides a complete package including the design of products and circuit boards, prototyping, component procurement, circuit board population, placing the populated board in an enclosure, optionally with a control panel, connecting the board to the enclosure, testing, packing and shipping. From a strategic viewpoint, UKC is important because as well as being a profitable (£7.4m revenues and £0.9m EBIT excluding management charges in FY21) and growing business in its own right, it designs and manufactures the electronics for the group’s CEA products.

LSTH listed on AIM in October 2021. At the time it raised £3.9m (net) at 10p/share. The group employs around 80 people. The funds raised are being used to accelerate the group’s growth, primarily its CEA operations, by expanding the laboratory facilities and investing in marketing campaigns, product design, tooling and development. Part of the proceeds have been used to increase the manufacturing capacity at UKC.

LST has three products at different stages of commercial readiness. It is currently engaged with growers based in the UK, mainland Europe and North America. In addition to working directly with growers, it partners with the companies that manage the construction of CEA farms to growers, for example the electrical contractors who install horticultural lights for growers.

Product portfolio

nurturGROW: LST’s initial product for the CEA market is the nurturGROW range of reusable luminaires incorporating LEDs. These luminaires are suitable for use in vertical farms and glasshouses and for medicinal horticulture. LED lights have become the most popular type of horticultural lights over the past few years because they are more efficient than high-pressure sodium (HPS) lights with regards to the percentage of electrical energy that is converted to light energy. The company estimates that a grower replacing HPS lights in a greenhouse with LST luminaires would save over 40% of their ongoing energy costs, giving a payback period of less than 2.9 years at the current market price of electricity. Given the expected increase in energy costs for businesses over the next 12 months, this payback period should reduce.

LED lights produce much less heat than HPS lights so they can be placed closer to plants and can therefore be used in smaller spaces. Moreover, the light produced by LEDs can be tuned so that the wavelengths emitted match the requirements of specific types of plants (see Exhibit 3). Tuning is not possible with HPS lights, which only emit fixed wavelength light. Moreover, the wavelengths that HPS lights emit are restricted to the yellow (570–590nm), orange (590–630nm) and red (630–750nm) part of the colour spectrum. LED lights can emit a much wider range of wavelengths.

LST has designed its patented luminaires so that a single platform design can be tailored to output more than 1,000 spectral variations. A luminaire can be configured to emit either a single or multiple wavelengths. The company works with customers to choose which wavelength will optimise plant growth, as well as advising on how much light is needed, which will determine how many lights are required and where they should be placed. Once a lighting plan has been agreed with a grower, LST can also install and maintain the complete lighting system.

LST’s lighting products are unusual because the luminaires are available in a very wide range of lengths, which means that the area in a greenhouse or other installation that is in shadow is minimised. Typically, each LED luminaire requires its own driver, but LST’s luminaires are designed so that up to eight lights may be used with a single driver, giving a significant reduction in capital equipment costs.

LST’s lighting products are also highly unusual in that 90% of the components forming the luminaires are recyclable. In addition, the patent pending, modular design enables users to easily replace and upgrade the electronics inside the luminaire. This means that only the electronics inside the luminaires need to be changed if the grower decides to change to crops preferring a different spectrum of light or if the LEDs wear out or are replaced by next-generation, more efficient variants. This is significant because the mechanical part of the products is designed to last for 25 years, while the LED board typically lasts at least five years. LST expects to generate a recurring revenue stream from supplying replacement electronics. Being able to replace just one part saves on both material and labour costs. LST estimates that replacing just the internal electronics results in up to a 33% saving in capital expenditure for a grower over the lifetime of the luminaire. LST was awarded the ‘Best Sustainability Initiative’ at the 2021 Vertical Farming World Awards for the product range.

LST does not appear to have sacrificed performance to achieve these sustainability credentials. Results from an in-house trial (see Exhibit 4) show that one of LST’s mid-power luminaires produces a higher light output and is more efficient and longer-lasting than a comparable product from a key competitor.

LST launched its standard luminaire range, which is more suitable for glasshouse and polytunnel growers, in July 2021. It launched a slimline tuneable version, which is more suitable for vertical farms, in June 2022. Management believes that this is unique. Being tuneable means that growers can use different light wavelengths at different stages of plant growth. There were no luminaire sales during H221 so the group could qualify for Enterprise Investment Scheme tax relief.

SensorGROW SaaS: LST’s sensor system enables farmers to monitor the nine cardinals of plant life: air speed, carbon dioxide levels, humidity, light, oxygen, air pressure, soil, temperature and water pH levels in real time. Data gathered by the sensor are relayed to LST’s associated software application, giving the grower detailed information about the environment in which their crops are growing and enabling them to make adjustments before there is any adverse impact on crop development. The software also detects any significant variations in cardinals and alerts the grower and LST’s maintenance team if this occurs. In the medium term, the software will incorporate artificial intelligence (AI) techniques to anticipate what adjustments to specific cardinals are required to optimise the growing environment.

The sensor and associated software are provided on a subscription model, creating a recurring revenue stream. LST was awarded a £0.2m grant from the UK Research and Innovation (UKRI) agency to assess the viability of the device. LST has submitted patent applications relating to the sensor product.

SensorGROW was launched in June 2022 and is intended for use outdoors in fields as well as vertical farms, polytunnels and glasshouses. LST has signed contracts with a number of growers to deploy the product on a three-month trial basis. These contracts provide for an automatic roll into a three-year subscription on successful completion of the trial.

advanceGROW: in June 2021, LST was awarded a contract potentially worth up to £13.8m with major UK salad grower Zenith Nurseries to develop an intelligent crop production and management system that integrates nurturGROW lighting and sensorGROW sensor technology with semi-automatic crop husbandry equipment from third parties for sowing and harvesting crops and tilling the soil. The new system, which is called advanceGROW, is designed for soil-based growing inside polytunnels and glasshouses. It fits across a standard sized glasshouse and moves above the crops providing supplementary lighting and collecting actionable data. The project is being supported by a £0.6m grant from UKRI.

The initial phase was completed successfully in September 2022, triggering milestone revenue of £51k. This phase included the development of the advanceGROW cloche lighting and sensor system, the delivery of three rolling cloches to Zenith Nurseries and a demonstration that yields can be increased to 18 cuts/annum.

Since starting on the project, Zenith Nurseries has decided to grow a higher proportion of its crops in polytunnels, where they can be protected during very hot summers like the one experienced in CY22. As a result, rather than wait for a complete system including semi-automatic husbandry equipment to be available before rolling out the cloche, Zenith is to install rolling cloches with just the lighting and sensor functionality in some new polytunnels. This phase is scheduled to start in H1 CY23 and generate potential revenues of c £1.9m.

Given this change in Zenith’s priorities, the phasing of further trials, including those incorporating semi-automated crop husbandry tools on the same tracks as the lighting system, is likely to be different from the original plan. However, the total potential value of the project and completion date are unchanged, with Zenith rolling out the system, assuming the development is successful, to the majority of its nurseries by the end of CY26. This would involve the delivery of 806 rolling cloches and six semi-automated crop husbandry devices.

advanceGROW is intended to improve grower productivity by increasing the number of times salad crops can be harvested in a year and enabling plants to be grown on the soil areas which would otherwise be taken up by the tracks of harvesting vehicles or picker paths. Management estimates that this increases the amount of productive area in a polytunnel by 28%. In addition, the new product potentially provides a way of mitigating labour shortages, cutting the number of pathogens accidentally brought into polytunnels on workers’ clothing and footwear and reducing exports by extending the growing period in the UK. It also provides an opportunity for using UVC lighting to control pests. Management estimates that the technology gives access to 4,000 industrial growers in the UK with more than 300 types of vegetable and salad crops.

Laboratory support

LST’s laboratory facilities in Derbyshire, England, were opened in 2021. The laboratory has reach-in grow chambers so that it can run up to 12 concurrent trials in which plants are grown in an environment where temperature, humidity and carbon dioxide levels are carefully controlled, as well as equipment for determining the exact wavelength and intensity requirements for optimal plant growth, measuring the rate of plant photosynthesis and identifying macronutrients and contaminants in plants. It enables LST’s scientists not only to make recommendations on specific spectral requirements when selling luminaires, which strengthens customer relationships, but also to provide recommendations on other growing parameters as a monetisable consultancy service. The laboratory also has equipment such as a 22-metre-long light tunnel housing a spectral photo goniometer for testing the specification of its luminaires.

Food technology analysts Forward Fooding included LST in its 2021 list of the top 500 companies in food technology, awarding the company a sustainability score of 87.7 out of 100. We note that LST meets three of the United Nations’ Sustainable Development Goals: ending hunger, achieving food security and improved nutrition and promoting sustainable agriculture; protecting, restoring and promoting sustainable use of terrestrial ecosystems; and taking urgent action to combat climate change and its impacts.

Being in the same group as UKC is a key differentiator for LST. UKC has been working with lighting manufacturers for around 20 years, and designed and manufactured the group’s first LED horticultural lights in response to a customer commission four years ago. It now designs and manufactures the electronics for the luminaires and assembles the complete lights for LST. Since it has been involved in the assembly of LEDs since the very first high-power LEDs were produced by Lumileds, it is very familiar with the assembly and handling techniques required. Three of its surface mount technology (SMT) placement machines are unusual in being able to process circuit boards up to 1.2 metres long, covering the full range of luminaire lengths that LST supplies. It also has considerable experience in designing circuit boards and assembling sensor technology from servicing several markets, including advanced pest control products for Rentokil. This expertise is being built on in the development of LST’s sensorGROW and nurturGROW products, the electronics for which will initially be manufactured by UKC.

LST’s technology is suitable for all types of controlled agricultural environments from high-tech vertical farming to advanced glasshouses and outdoor applications such as polytunnels. The CEA market is growing rapidly, being driven by concerns about food security linked to the effects of climate change and stretched logistics chains; concerns about food miles; scarcity of arable land in western Europe; young, affluent consumers switching away from processed foods to diets rich in fruit and vegetables; and governments subsidising a shift to more automated methods of food production through initiatives such as the UK’s Farming Transformation Fund (see below).

According to a report published by Market Data Forecast in January 2022, the European vertical farming market is predicted to grow from US$0.85bn in 2021 to US$2.31bn in 2026, a CAGR of 22%. Another report published by Market Data Forecast in January 2022 predicted that the European grow light market would rise from US$0.78bn in 2021 to US$1.17bn in 2026, a CAGR of 8.5%. A report from Mordor Intelligence predicts that the global horticultural lights market would climb from US$2.7bn in 2020 to US$7.6bn by 2026 (ie a CAGR of 19.5% over the forecast period). The vertical farming market is a subset of the larger indoor farming market. A report published by ResearchandMarkets in October 2021 predicted that Europe's indoor farming market would increase to US$23.26bn by 2028 (ie a CAGR of 10.4% from 2021 to 2028).

Competitive position in CEA market

Major lighting manufacturer Signify (LIGHT.AS), which was formed through the spin-off of Philips’ (PHIA.EN) lighting division, offers a range of LED lights under the Philips brand for use in vertical farms and glasshouses. The lights may be combined with a control system that enables growers to create and run custom light recipes on dimmable and colour-controllable modules and can be linked to a climate control or greenhouse management system. Signify can also provide growers with light recipes for specific crops. GE Lighting, which was acquired by Savant Systems in May 2020, also offers ranges of LED horticultural lights. These larger, generalised commercial and domestic lighting manufacturers do not complement equipment sales with laboratory or on-site services. In contrast, pure-play LED grow light manufacturer Valoya provides customers with light plans, while Heliospectra (HELIO.STO), which is also focused on the CEA market, backs up its range of grow lights and integrated control system with crop trials, light planning services, installation, cultivation training and lab services. This is similar to LST but focused on the Scandinavian region rather than the UK. Unlike LST, Heliospectra does not have any in-house manufacturing capability. None of the competitors mentioned offer luminaires which are recyclable and reusable.

As noted above, having design and manufacturing capability within the group is a key differentiator. Otherwise, since the CEA division is still small, it would probably struggle to get third parties to turn around design iterations and manufacture product for it in a timely fashion. For example, it makes it more practical to offer such a comprehensive range of lights of differing lengths.

UKRI invested in the development of LST’s sensorGROW product because it identified a gap in the market. SensorGROW is different from other products because it integrates sensors measuring several parameters in a single compact product. We have identified a potential competitor to sensorGROW, the Grow Sensor, which allegedly measures carbon dioxide, humidity, temperature, light and vapour pressure differentials, and is paired with a probe measuring soil moisture, temperature and electrical conductivity. However, it is not clear what level of commercial readiness this product is at.

UK electronic contract manufacturing market benefiting from reshoring

According to Grand View Research, the UK electronic contract manufacturing and design services market was worth $5.9bn in 2019 and is predicted to grow with a CAGR of 7.7% between 2021 and 2028.

Competitive position

The UK electronic contract manufacturing and design market is highly fragmented with few obvious differentiators between competitors. UKC is considering expanding into the medical and defence markets by extending its services to additional markets by securing the additional quality-related accreditations required in each market. The ongoing investment in automation, which includes an additional two SMT machines to bring the total to eight, and in-line optical test equipment for improving efficiency and enhancing yield, is intended to help the company gain these accreditations.