Dynex Power Inc. - Second Quarter Results in Line with Expectations

Company Prepares for Growth in 2011

    
    Listing:  TSX Venture Exchange
    Symbol:   DNX
    

LINCOLN, England, Aug. 11 /CNW Telbec/ - Dynex Power Inc., a leading specialist high power semiconductor company, today announced results for the second quarter of 2010.

Summary financial information in Canadian dollars for the three and six months ended June 30th, 2010 is as follows:

    
    -------------------------------------------------------------------------
                              June 30,     June 30,         YTD          YTD
                                 2010         2009         2010         2009
                                $'000        $'000        $'000        $'000
    -------------------------------------------------------------------------
    Revenue                     9,233        9,722       19,665       20,725
    Gross Margin                1,893        2,035        4,444        5,314
    Earnings before Tax           549          568        1,697        2,213
    Net Earnings                  389          725        1,175        1,890
    No. of Common Shares-
     average               80,418,571   40,194,834   80,405,074   40,194,834
    Earnings per Share in
     Dollars-diluted             0.00         0.02         0.01         0.05
    -------------------------------------------------------------------------
    

Sales remained robust in the second quarter, but reported revenue was 5% lower than the corresponding quarter of last year as a result of a 15% decline in the value of Sterling against the Dollar. Measured in Sterling terms, sales increased 12% over the corresponding quarter of 2009. Revenues from the Power Electronic Assemblies Group and the Power Modules Group were higher than the corresponding quarter of last year despite the currency movement. Revenue from the Bipolar Discrete Group was lower in Dollar terms but was higher than last year when measured in Sterling. The Integrated Circuit Group experienced an anticipated decline, reflecting the fact that this is no longer a core business. Overall, revenue was in line with expectations.

Year to date revenue was 5% lower than in the same six-month period last year, more than accounted for by the 15% decline in the value of Sterling. The Power Electronic Assemblies Group was the strongest performer, reporting growth even when measured in Dollars. There was a 6% decrease in revenue reported by the Bipolar Discrete Group, although growth had been achieved in Sterling revenue. 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 second quarter of 2010 was 20.5% compared to 20.9% in the corresponding quarter of 2009. The year to date gross profit margin was 22.6% compared to 25.6% last year. The decline in gross margins was caused by 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 next two quarters, temporarily depressing the gross margin. It is expected that the line will begin producing revenue early in 2011.

Dynex reported earnings before income taxes of $549,000 in the quarter and $1.7 million for the year to date.,compared to $568,000 for the second quarter and $2.2 million for the year to date in 2009. Given the weakness of Sterling, the additional costs related to the new 6 inch IGBT line and the tougher market environment currently being encountered, management was pleased with this level of earnings.

Dynex's order book contracted during the quarter reflecting the tougher market conditions now being encountered. However, the order book at the end of June remains strong with an equivalent to 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%. The Company will be able to defer this tax charge and so there will be no tax payments being made in the UK this year.

Dr Paul Taylor, President and Chief Executive Officer said, "Management is focussed on the installation and commissioning of the new IGBT lines and on qualifying our products for use in CSR Times Electric applications. This initiative, in concert with the softer market for our products, is currently affecting our performance. However, we are making good progress and are well prepared to respond with a strong growth in earnings once our expansion and product qualification programmes are completed and the high power semiconductor market returns to growth."

Bob Lockwood, Chief Financial Officer, added, "The level of earnings in the second quarter was pleasing, given the weaker market and the disruptions and additional costs being experienced in the business. A foreign exchange loss and a full tax charge also impacted on earnings. We remain committed to controlling our costs through this difficult period, as reflected in our expense ratio of 12.3%. This was the second lowest quarterly ratio ever reported by the Company and is testimony to the effort we are putting into cost control. Looking forward, revenue is expected to continue at levels similar to or just below those seen in the second quarter. This should enable the business to continue reporting quarterly profits 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 are challenging times for Dynex, with the disruption caused by expansion, the need to qualify their products for use by CSR Times Electric and the softer market conditions. However, I am pleased with the way Dynex is performing during this time. Balancing these different demands will remain difficult for the rest of 2010 but I look forward to seeing improved performance in 2011."

Forward-looking Statements

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 June 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.

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. Its 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.

Press announcements and other information about Dynex are available at www.dynexsemi.com.

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

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

    
    DYNEX POWER INC.
    Consolidated Statements of Earnings and Deficit (Unaudited)
    -----------------------------------------------------------
    Quarters Ended June 30th, 2010 and 2009
    -------------------------------------------------------------------------
                             3 months     3 months          YTD          YTD
                             Jun 30th     Jun 30th     Jun 30th     Jun 30th
                                 2010         2009         2010         2009
                         ----------------------------------------------------
    Revenue               $ 9,232,568  $ 9,722,367  $19,665,367  $20,725,091
    Cost of sales           7,339,515    7,687,471   15,221,365   15,410,635
    -------------------------------------------------------------------------
    Gross margin            1,893,053    2,034,896    4,444,002    5,314,456
    -------------------------------------------------------------------------
    Expenses
    General and admin-
     istration                646,025      725,963    1,647,320    1,650,138
    Sales and marketing       238,354      225,804      450,699      518,557
    Research and development  229,371      234,385      561,359      490,304
    Interest expense           20,848      125,336       68,951      261,932
    -------------------------------------------------------------------------
                            1,134,598    1,311,488    2,728,329    2,920,931
    -------------------------------------------------------------------------
    Earnings before other
     income (expenses) and
     income taxes             758,455      723,408    1,715,673    2,393,525
    -------------------------------------------------------------------------
    Other income (expenses)
    Interest and other
     income                    69,968       80,765      129,709      119,387
    Foreign exchange loss    (279,066)    (235,936)    (148,155)    (300,169)
    -------------------------------------------------------------------------
                             (209,098)    (155,171)     (18,446)    (180,782)
    -------------------------------------------------------------------------
    Earnings before income
     taxes                    549,357      568,237    1,697,227    2,212,743
    Income taxes             (160,208)     156,997     (521,837)    (322,821)
    -------------------------------------------------------------------------
    NET EARNINGS              389,149      725,234    1,175,390    1,889,922
    DEFICIT, BEGINNING OF
     PERIOD                (2,969,230)  (6,004,456)  (3,755,471)  (7,169,144)
    -------------------------------------------------------------------------

    DEFICIT, END OF
     PERIOD               $(2,580,081) $(5,279,222) $(2,580,081) $(5,279,222)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    DYNEX POWER INC.
    Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
    ------------------------------------------------------------------
    Quarters Ended June 30th, 2010 and 2009
    -------------------------------------------------------------------------
                             3 months     3 months          YTD          YTD
                             Jun 30th     Jun 30th     Jun 30th     Jun 30th
                                 2010         2009         2010         2009
    -------------------------------------------------------------------------

    Net earnings          $   389,149  $   725,234  $ 1,175,390  $ 1,889,922
    -------------------------------------------------------------------------
    Other Comprehensive
     income (loss), net
     of tax:
    Unrealized foreign
     exchange gain (loss)
     on translating
     financial statements
     of self-sustaining
     foreign operations       917,876      541,355   (1,708,325)     670,789
    -------------------------------------------------------------------------
    OTHER COMPREHENSIVE
     INCOME (LOSS)            917,876      541,355   (1,708,325)     670,789
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME
     (LOSS)               $ 1,307,025  $ 1,266,589  $  (532,935) $ 2,560,711
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    DYNEX POWER INC.
    Consolidated Statements of Accumulated Other Comprehensive Loss and
     Deficit (Unaudited)
    -------------------------------------------------------------------
    As at June 30th, 2010 and December 31st, 2009
    -------------------------------------------------------------------------
                                                       Jun 30th     Dec 31st
                                                           2010         2009
                                                   --------------------------
    Accumulated other comprehensive loss,
     beginning of period                            $(1,853,191) $(1,380,101)
    Other comprehensive loss                         (1,708,325)    (473,090)
    -------------------------------------------------------------------------
    Accumulated other comprehensive loss             (3,561,516)  (1,853,191)

    Deficit                                          (2,580,081)  (3,755,471)
    -------------------------------------------------------------------------
    TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS
     AND DEFICIT                                    $(6,141,597) $(5,608,662)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    DYNEX POWER INC.
    Consolidated Balance Sheets (Unaudited)
    ---------------------------------------
    As At June 30th, 2010 and December 31st, 2009
    -------------------------------------------------------------------------
                                                       Jun 30th     Dec 31st
                                                           2010         2009
                                                   --------------------------
    CURRENT ASSETS
    Cash                                            $ 3,246,561  $22,942,550
    Accounts receivable                               6,035,016    6,439,200
    Inventories                                       8,385,658    8,872,155
    Amounts owing from parent company                 1,011,292      218,568
    Income tax recoverable                               56,040       96,413
    Prepaid expenses and deposits                       521,316      794,170
    -------------------------------------------------------------------------
                                                     19,255,883   39,363,056
    PROPERTY, PLANT & EQUIPMENT                      19,772,483   17,420,677
    -------------------------------------------------------------------------
                                                    $39,028,366  $56,783,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CURRENT LIABILITIES
    Accounts payable and accrued liabilities        $ 3,606,001  $ 4,964,864
    Short-term loan                                   1,589,800   16,273,732
    Amounts owing to parent company                     218,225      955,026
    Current portion of long-term debt                     7,453       24,921
    Current portion of obligation under capital
     leases                                             108,210      113,602
    Current portion of deferred revenue                 469,535    1,174,803
    -------------------------------------------------------------------------
                                                      5,999,224   23,506,948
    LONG-TERM DEBT                                            -          942
    OBLIGATION UNDER CAPITAL LEASES                     419,431      512,935
    LONG-TERM DEFERRED REVENUE                          829,947      949,290
    FUTURE INCOME TAXES                                 870,428      380,756
    -------------------------------------------------------------------------
                                                      8,119,030   25,350,871
    SHAREHOLDERS' EQUITY
    Share capital                                    37,050,933   37,041,524
    Deficit                                          (2,580,081)  (3,755,471)
    Accumulated other comprehensive loss             (3,561,516)  (1,853,191)
    -------------------------------------------------------------------------
                                                     30,909,336   31,432,862
    -------------------------------------------------------------------------
                                                    $39,028,366  $56,783,733
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    DYNEX POWER INC.
    Consolidated Statements of Cash Flows (Unaudited)
    -------------------------------------------------
    Quarters Ended June 30th, 2010 and 2009
    -------------------------------------------------------------------------
                             3 months     3 months          YTD          YTD
                             Jun 30th     Jun 30th     Jun 30th     Jun 30th
                                 2010         2009         2010         2009
                          ---------------------------------------------------
    OPERATING
    Net earnings          $   389,149  $   725,234  $ 1,175,390  $ 1,889,922
    Items not affecting
     cash
      Amortization            363,797      149,407      641,826      270,417
      Gain on disposal of
       property, plant and
       equipment              (29,797)     (35,219)     (62,071)     (69,829)
      Future income taxes     159,008            -      519,466            -
      Non-cash interest           270        1,771          901        3,825
      Provision for
       inventory
       obsolescence          (196,643)     422,577      143,628      478,558
    Changes in non-cash
     operating working
     capital                  900,965    1,124,949     (699,507)    (410,671)
    -------------------------------------------------------------------------
                            1,586,749    2,388,719    1,719,633    2,162,222
    -------------------------------------------------------------------------
    FINANCING
    Shares issued for cash      9,409            -        9,409            -
    Cost of share issue           (42)           -     (308,069)           -
    Increase in amounts
     owing to parent company        -            -            -    2,521,141
    Decrease in amounts
     owing to parent company (920,356)    (779,425)  (1,473,358)  (1,064,030)
    Increase in short-term
     loans                  1,541,100    6,375,250    1,541,100    6,375,250
    Decrease in short-term
     loans                          -   (1,123,314) (15,790,230)  (2,198,850)
    Payments on capital
     leases                   (23,587)      (9,761)     (61,170)     (36,734)
    Decrease in long-term
     debt                      (5,936)  (1,197,265)     (17,921)  (1,210,245)
    -------------------------------------------------------------------------
                              600,588    3,265,485  (16,100,239)   4,386,532
    -------------------------------------------------------------------------
    INVESTING
    Proceeds of disposal
     of property, plant
     and equipment                  -            -       14,280          263
    Purchase of property,
     plant and equipment   (2,580,379)  (2,496,530)  (4,764,580)  (2,931,153)
    -------------------------------------------------------------------------
                           (2,580,379)  (2,496,530)  (4,750,300)  (2,930,890)
    -------------------------------------------------------------------------

    Effect of foreign
     currency translation
     on cash                   27,726      (97,945)    (565,083)     (78,712)
    -------------------------------------------------------------------------

    NET (DECREASE) INCREASE
     IN CASH                 (365,316)   3,059,729  (19,695,989)   3,539,152
    Cash, beginning of
     period                 3,611,877      884,061   22,942,550      404,638
    -------------------------------------------------------------------------
    CASH, END OF PERIOD   $ 3,246,561  $ 3,943,790  $ 3,246,561  $ 3,943,790
    -------------------------------------------------------------------------
    

%SEDAR: 00010667E

SOURCE Dynex Power Inc.

For further information: For further information: Dr. Paul Taylor, President and Chief Executive Officer, or Bob Lockwood, Finance Director and Chief Financial Officer, Dynex Power Inc., Tel: +44 1522 500 500, Email: investorrelations@dynexsemi.com


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