Dynex Provides Guidance on 2014 and 2015 Financial Performance


Cancellation of a Major Contract and Product Return Adversely Affects Dynex's Performance in 2014

Lincoln, England, February 2nd, 2015 - Dynex Power Inc., a leading, high power semiconductor company, today provided commentary on the cancellation of a major contract and the return of product to the company and provided guidance on the adverse impact it will have on financial performance in 2014.

In late November 2014, a customer reported a problem in equipment undergoing application tests that contained Dynex components. Following further investigation, the customer issued a notice in late December 2014 giving Dynex 90 days to resolve the issue. The component being supplied had been thoroughly tested prior to delivery and deliveries had taken place from the third quarter of 2013 through until the early October 2014. Dynex engineers were confident that a technical solution of the application problem could be found. However, in January 2015, the customer contacted Dynex to invoke their right to cancel the supply contract and have the components removed from the application. Following discussions with the customer, Dynex management has been able to gain a fuller understanding of what actions have to be taken and are now able to estimate the financial impact of the cancellation. The Company expects to sign a Settlement Agreement with the customer in the next few days. Until the Settlement Agreement is signed, the estimate of the impact of it on Dynex could change.

In addition to the impact on the 2014 results, the customer has also cancelled a related contract that had already been placed for deliveries in 2015.

In the press release accompanying the third quarter results, the Company had indicated that it expected revenue to increase significantly in the fourth quarter and the business to return to profitability. Prior to accounting for this contract cancellation, that had indeed been the case with record quarterly revenues and a strong profit for the quarter. As the table below shows, Dynex was expecting revenue for 2014 to be approximately $47.1 million with a small net profit for the year.

The cancellation of the contract results in a reduction in revenue of nearly $5 million and the loss of profit, inventory provision and provision for additional costs that the Company will have to bear will reduce net profit by approximately $5.6 million.  As a result, the Company is now forecasting a net loss for the year of $5.6 million.

Dr. Paul Taylor, President and Chief Executive Officer commented, "The whole Dynex team had been working hard and expected to achieve a strong fourth quarter and to try and ensure that we reported a net profit for the year. The contract cancellation and the resulting costs came as a surprise and are a devastation blow. The product part involved had been extensively tested and individually they are all fully compliant with the component test specification. We have been supplying that same part for use by the customer for over twelve months and had already completed the contract when we were informed that they did not work correctly in the customer's application. We believe, given time, that the technical issues involved will be resolved. However, our customer is unable to give us the time necessary to resolve the issues and has exercised its right to have the devices replaced at Dynex's expense. Nevertheless, our relationship with this customer remains good, we are working closely together with them to resolve this issue and we continue to work with them on other projects. We believe that the flow of business that we receive from them in the future will not be adversely affected by this issue other than as already reported above."

Bob Lockwood, Chief Financial Officer commented, “The contract cancellation and resulting costs have turned what had looked to be a good revenue performance and a much improved net result into a significant loss for the year. The cancellation of the contract for deliveries in 2015 will adversely affect the result we expect to achieve in 2015, but the whole Dynex team is working hard to make sure that we nevertheless return to profitability in 2015.”

Li Donglin, the Chairman of Dynex said, “The cancellation of such a major contract at such a late time has not given Dynex management any time to respond to it and has destroyed what looked like being a much better set of results in 2014. CSR Times Electric is providing its full support to the Dynex team in their efforts to recover from this cancellation so that the business can continue its return to profitability.”

About the Company

Dynex designs and manufactures high power bipolar semiconductors, high power insulated gate bipolar transistor (IGBT) modules, high power electronic assemblies and radiation hard silicon-on-sapphire integrated circuits (SOS IC’s). The company’s power products are used worldwide in power electronic applications including electric power transmission and distribution, renewable and distributed energy, marine and rail traction motor drives, aerospace, electric vehicles, industrial automation and controls and power supplies. Our IC products are used in demanding applications in the aerospace industry. Dynex Semiconductor Ltd is its only operating business and is based in Lincoln, England in a facility housing the fully integrated silicon fabrication, assembly and test, sales, design and development operations.  Dynex is majority owned by Zhuzhou CSR Times Electric Co., Ltd.

Zhuzhou CSR Times Electric Co., Ltd. is based in Hunan Province in the People's Republic of China. It is listed on the Hong Kong stock exchange. CSR Times Electric is mainly engaged in the research, development, manufacture and sales of locomotive train power converters, control systems and other train-borne electrical systems, as well as the development, manufacturing and sales of urban railway train electrical systems. In addition, CSR Times Electric is also engaged in the design, manufacturing and sales of electric components including power semiconductor devices for the railway industry, urban railway industry and non-railway purposes.

Information about Dynex Semiconductor Ltd and its products can be found at www.dynexsemi.com.

Further information on CRRC Times Electric can be found at www.timeselectric.cn/en

All monetary values expressed in this release are in Canadian Dollars unless stated otherwise.

The TSX Venture Exchange has neither approved nor disapproved of the information in this press release.

Factor Estimated Result for 2014 Prior To Contract Cancellation $’000 Impact of Contract Cancellation $’000 Forecast Result For 2014 After Contract Cancellation $’000 Previous Year $’000
Revenue 47,100 (4,950) 42,150 39,234
Cost of sales (40,700) (1,900) (42,600) (37,289)
Gross profit 6,400 (6,850) (450) 1,945
Overheads (6,100) - (6,100) (5,339)
Profit before Tax 300 (6,850) (6,550) (3,394)
Tax (250) 1,200 950 984
Net profit 50 (5,650) (5,600) (2,410)