Dynex Power Announces Third Quarter Results for 2010
Lincoln, England, November 5th, 2010 – Dynex Power Inc., a leading specialist high power semiconductor company, today announced results for the third quarter of 2010.
As anticipated, third quarter revenue declined. Reported revenue was 13% lower than the corresponding quarter of last year, with declines reported by all four product groups. The performance was adversely affected by the weakness of Sterling, a softer market for high power semiconductors and the operational disruption from the current capital expenditure programme which is being undertaken to increase capacity and enhance manufacturing capability.
In formulating the Company's 2010 financial plans, management anticipated that the combination of weak economic conditions and the disruption from the transformational capital expenditure programme would negatively impact financial performance in the third and fourth quarters of 2010 as well as the first quarter of 2011. However, management did not anticipate the sharp decline in the Sterling Dollar exchange rate. Virtually all the decline was as a result of an 11% reduction in the value of Sterling against the Canadian dollar. Measured in Sterling terms, the revenue of the UK business was just 3% lower than in the corresponding quarter of last year.
Year to date revenue was 8% lower than in the same nine-month period last year, more than accounted for by the year over year currency fluctuation. In Sterling terms, revenue of the UK business rose by 4%. The Power Electronic Assemblies Group was the strongest performer, reporting growth of 30% even when measured in Canadian dollars. There was a 7% decrease in revenue reported by the Bipolar Discrete Group, although growth was achieved in Sterling terms. Significant decreases were reported in Power Modules and Integrated Circuit revenues. Nevertheless, management was pleased with the Company’s revenue performance in the challenging economic environment.
The gross profit margin for the third quarter of 2010 was 17.1% compared to 20.3% in the corresponding quarter of 2009. The year to date gross profit margin was 21.0% compared to 24.0% last year. The decline in gross margins was attributable to the additional depreciation relating to the first new 6 inch IGBT line and the costs of running test batches through the new line. Similar costs will arise in the fourth quarter, temporarily impacting the gross margin. Management expects the new line to begin producing revenue early in 2011.
Dynex reported earnings before income taxes of $394,000 in the quarter and $2.1 million for the year to date, compared to $823,000 for the third quarter and $3.0 million for the year to date in 2009. Management believes that this is a creditable result given the weakness of Sterling, the additional costs related to the new 6 inch IGBT line and the tougher market environment currently being encountered.
The book to bill ratio was at its highest level in the eighteen months and Dynex’s order book increased from $20.5 million to $21.4 million during the quarter. The order book at the end of September represents just over 6 months revenue at current levels.
Following the exhaustion of UK tax losses last year, tax has been provided for on UK earnings at the statutory tax rate of 28%. However, the Company will be able to defer this tax charge and so there will be no cash tax payments in the UK this year.
Dr Paul Taylor, President and Chief Executive Officer said, “It was good to see an improvement in the book to bill ratio, but it is still too early to be certain that our markets will see steady growth. Management focus remains on the installation and commissioning of the new IGBT lines and on qualifying our products for use in CSR Times Electric applications. These developments will continue to negatively impact our performance for one or two more quarters. However, we continue to make good progress and are well prepared to generate strong growth in earnings once our expansion and product qualification programmes are completed and the high power semiconductor market recovers.”
Bob Lockwood, Chief Financial Officer, added, “The level of earnings in the third quarter was again pleasing given the operational disruptions and additional costs associated with our IGBT expansion. In addition, the full tax charge in 2010 impacts on reported earnings compared to last year. We remain committed to controlling our costs through this difficult period, as reflected in our expense ratio for the year to date of 14.0% compared to 14.1% for the same period last year. Looking forward, revenue is expected to be at or slightly above the third quarter level. This should enable the business to remain profitable for the balance of the year, despite the impact of the work being done to position the company for growth in 2011 and beyond.”
Li Donglin, Chairman of Dynex and General Manager of CSR Times Electric, said, “These continue to be challenging times for Dynex, with the disruption caused by expansion, the need to qualify their products for use by CSR Times Electric and the continuing global soft market conditions caused by the economic recession. However, I remain pleased with the way Dynex is performing during this difficult time. The management and the employees are managing to balance these different demands and I look forward to seeing improved performance in 2011.”
A conference call for analysts and interested listeners will be held Wednesday, November 10th at 11:00 a.m. (ET). The call-in numbers for participants are 888 231 8191 and 647 427 7450. The conference ID number is 22620734.
A replay of the call will be available on Wednesday, November 10th until Wednesday, November 17th, 2010. To access the replay, call 416 849 0833 or 800 642 1687 enter pass code number 22620734, and then press the pound (#) key.
In commenting on its expectations, the Company cautioned existing and potential shareholders about relying on the Company’s expectations in that the Company’s expectations contain forward looking statements and assumptions which are subject to the risks and uncertainties of the markets and the future, which could cause actual results to differ materially from expectations, and which are each difficult and subjective to forecast. Certain of those risks and uncertainties are discussed in the Management’s Discussion and Analysis for the quarter ended September 30th, 2010 and include, among other things, risks and uncertainties relating to: the level of worldwide demand for power semiconductors and power semiconductor assemblies; the level of investment in power electronic equipment, electrification of transport systems, alternative power generation and high quality power transmission and distribution; the worldwide demand for and supply of silicon; and fluctuations in exchange rates between Canadian Dollars, Sterling, US dollars and Euros. As a consequence of these and other risks and uncertainties, shareholders and potential investors must make their own independent judgments about the accuracy and reliability of the Company’s expectations. Dynex disclaims any intention or obligation to update or revise any forward looking statement whether as a result of new information, future events or otherwise.