Delays and Write-Offs Negatively Impact Dynex

May 01, 2017 by Jeff Shepard

Dynex Power Inc. today announced its financial results for the year ended December 31st, 2016. Revenue for the year of $40.5 million was 13% lower than in the preceding year. Two thirds of this decrease was a result of a strengthening of the Canadian Dollar against Sterling. In Sterling terms revenue had fallen by approximately 5%. The fall in Sterling revenue reflected a number of customer orders that had been expected to be met before the year end but which the Company had been unable to ship in December.

The Group reported a gross profit of $2.1 million for the year equivalent to 5.2% of revenue compared to a gross profit of $4.7 million, equivalent to 10.1% of revenue, last year. The fall in gross profit margin reflected the failure of goods to be shipped before the year end and an inventory write off of approximately $2 million. Write offs related to the last of the integrated circuit inventory, where the Company does not see any prospect of future sales, and to IGBT die types for which the Company no longer believes there is any demand.

Expenses increased from $4.4 million in 2015 to $8.0 million in 2016. The largest element of this increase related to net research and development costs which rose by $ 2.1 million. Because of the cost sharing agreement with the majority shareholder and some additional support from the UK Government, research and development had generated a net surplus in 2015. This was a one-off situation that was not expected to continue.

Approximately $800,000 of the increase related to additional staff costs. Additional staff had been required to support the implementation of a new business ERP system and additional staff had been taken on to strengthen the sales and marketing function. Some reductions in staff costs will take place in the administration area following the successful go-live of the new system early in 2017. A further $600,000 of the increase related to executive recruitment and termination costs of senior executives.

Dynex recorded a loss before tax of $6.0 million in 2016 compared to a profit before tax of $270,000 in 2015. The Company accounted for a tax recovery of $1.0 million, leaving a loss after tax of $4.9 million compared to a profit after tax of $166,000 in the preceding year.

New orders received in 2016 totaled $37.4 million resulting in a book to bill ratio of 0.9 times. The order book rose from $13.4 million at the end of 2015 to $14.0 million at the end of 2016. The order book at the end of 2015 represented approximately 18 weeks of sales.

Clive Vacher, the newly appointed President and Chief Executive Officer commented, "The performance of the Company in 2016 was not where it needs to be to satisfy stakeholders. In the three months since I joined the Company, I have been involved with the Management Team in assessing the strengths and weaknesses of the organization and developing a plan to build on those strengths and eliminate the weaknesses. The plan initiates changes in five main areas and these changes are more fully set out in my letter to shareholders attached to the annual financial results. I am determined to return the Company to profitability in 2017 and to build a platform for growth and improved financial performance."

Bob Lockwood, Chief Financial Officer commented, "The results for 2016 are deeply disappointing. The failure to deliver customer orders on time, the write-off of inventories and the increase in the net cost of research and development all contributed to the poor result. But the continued support from CRRC Times Electric and the recovery plan set out by our new CEO gives me great confidence that the business will return to profitability in 2017 and will flourish in the years to come. "

Mr Liu Ke'an, Chairman of Dynex and General Manager of CRRC Times Electric, commented "The recent performance of Dynex has been unacceptable. I am delighted to have seen the plan Clive and the Management Team have put forward to return the business to profitability and he has the full backing of the Board for this plan."