Dynex Power Announces Third Quarter Financial Results 2014
Significant year-over-year improvement, with profit expected in fourth quarter
Lincoln, England, November 20th, 2014 - Dynex Power Inc., a leading, high power semiconductor company, today announced its financial results for the third quarter and nine months ended September 30th, 2014.
The average rate of the Canadian Dollar against Sterling has weakened by approximately 12% between the third quarter of 2013 and the third quarter of 2014 and by approximately 15% between the first nine months of 2013 and the first nine months of 2014. These changes have had a significant impact on the figures presented above.
The 9% increase in revenue from $9.5 million in the third quarter of 2013 to $10.4 million in the third quarter of 2014 was less than might be expected given the weaker Canadian Dollar. In Sterling terms, revenue declined by 3%. The decline in Sterling terms was more than accounted for by a decline in sales of IGBT die.
On a year to date basis, revenue rose by 22%. Three-quarters of this increase was a result of the weakening of the Canadian Dollar. The rest of the improvement came from stronger sales of bipolar, IGBT and assembly products, partially offset by weaker sales of integrated circuits and services.
The gross margin of 11.3% in the third quarter of 2014 was substantially in excess of the 1.2% reported in the corresponding quarter of last year. The gross margin was below the range targeted by management and reflected lower revenue than had been expected. For the year to date, the gross margin was 11.3% compared to 6.8% in the corresponding period last year, below the range targeted by management.
Sales and marketing and administration expenses represented 12.0% of revenue in the third quarter and 11.6% of revenue for the year to date compared to 9.6% and 10.4% in the corresponding periods of 2013. These costs have been on a steadily reducing percentage for a number of years. The increases in 2014 reflect weaker revenue than had been expected. Dynex continues to expect these ratios to improve in conjunction with healthier market conditions.
There was a credit of $265,000 to research and development in the third quarter of 2014 and a net cost for the year to date of $501,000 compared to costs of $363,000 in the corresponding quarter of 2013 and $914,000 for the corresponding year to date. These reductions were brought about by a credit to research and development costs in the third quarter related to support received from the UK Government’s Regional Growth Fund. Management believes that the gross expenditure on research and development is a better indication of the Group’s commitment to product development. Gross expenditure on research and development rose to 15.5% of revenue in the third quarter of 2014 and 15.4% for the year to date compared to 14.3% of revenue in the corresponding quarter and 14.2% for the corresponding year to date.
As a consequence of these changes, Dynex reported a loss before tax in the quarter of $222,000, compared to $1.3 million in the corresponding quarter of last year. For the year to date, a loss before tax of $1.3 million was recorded compared to $2.1 million in the corresponding period of last year. The loss before tax for the quarter represents a further reduction in pre tax losses as the Group returns towards profitability. However, the pace of the return to profitability is slower than management had anticipated.
At the end of the third quarter, the Company’s order book stood at $23.0 million, approximately 6% lower than at the end of the second quarter.
Revenue is expected to increase significantly in the fourth quarter and the Company expects to return to profitability.
Dr. Paul Taylor, President and Chief Executive Officer commented, “To reflect an increasing focus on product reliability and quality, our parent company, CSR Times Electric, further tightened the specification during the third quarter for the new die product that Dynex is supplying for use in the Chinese rail applications. In order to meet this tightened specification, Dynex was required to make more process adjustments to the die. Deliveries of this product to CSR Times Electric continued to be suspended whilst this adjustment was taking place, and as a result Dynex recorded no significant revenue from sales of die to CSR Times Electric in the quarter. Accordingly, Dynex was unable to achieve the recovery anticipated in the third quarter. Sample lots of the new die have been approved and deliveries have recommended. However, as this is a new product, initial yields will be lower than normal and this will have an adverse impact on die revenue and on profitability in the fourth quarter. That said, management still expects a return to profitability in the fourth quarter”
Bob Lockwood, Chief Financial Officer commented, “Although the suspension of die sales to CSR Times Electric in the third quarter prevented Dynex from returning to profitability, nevertheless the net loss was significantly reduced when compared both to the corresponding quarter of last year and the preceding quarter of this year. On a year to date basis, revenue is higher than last year despite the die suspension and reflects increased revenue from bipolar products, IGBT modules and assemblies. The good performance in these areas gives management increased confidence that, as die deliveries to CSR Times Electric recommence, the business will return to profitability. We expect this to come about in the fourth quarter.”
Li Donglin, the Chairman of Dynex said, “Dynex’s results continue to move in the right direction albeit more slowly than we would like. I remain confident that the business will return to profitability soon.”
On October 27th, 2014, the Group’s immediate parent company, Zhuzhou CSR Times Electric Co., Ltd, which is quoted on the Stock Exchange of Hong Kong Limited and CSR Corporation, which is an indirect parent company of Zhuzhou CSR Times Electric Co., Ltd and which is quoted on the Shanghai Stock Exchange and the Stock Exchange of Hong Kong Limited both requested that trading in their shares be suspended pending the release of an announcement containing inside information of the company. As at the date of this press release, the shares of both companies remain suspended. The Board of Directors of Dynex Power Inc has no knowledge of the matters that caused CSR Corporation or Zhuzhou CSR Times Electric Co., Ltd to request that trading in their shares be suspended.