Touch panel maker TPK has announced net loss of NT$19.4 billion (US$600 million), or loss per share of NT$55.15 for the third quarter of 2015.
The operating loss was primarily attributable to one-off asset impairment charges on loss-making business units, idle and obsolete fixed assets, long-term investments and other miscellaneous assets. Total impairment charges amounted to NT$18.965 billion. Excluding one-time charges, TPK's net income in the third quarter of 2015 was NT$164 million, or EPS of NT$0.47.
"The touch industry is going through rapid consolidation at an unprecedented pace. The company has undergone intensive restructuring in the past year and we have achieved our initial goals. While our core business remains solid, the overall operating results were dwindled by our unprofitable businesses and under-utilized assets," said Michael Chung, CEO of TPK. "To regain our competitiveness, we decided to proactively address this issue by kitchen-sinking unproductive assets to relieve our operational burdens. We will refocus on our technology-centric core competencies, optimize customer and product composition and operate with strict discipline in executing our capital expenditure plan. TPK will continue to lead the industry in technology advancement and operational efficiency. We are committed to provide better services to our strategic customers and, at the same time, maximize return for our stakeholders."
Consolidated revenues in the third quarter were NT$34.235 billion, up 44.2% quarter-on-quarter, and up 5% versus the same period last year. Revenue growth is mainly due to new product launches as well as seasonal demand related to year-end holidays. Driven by increased production and positive changes in product mix, gross profit reached NT$2.997 billion, an increase of 497.7% compared with the previous quarter. Gross margin improved to 8.8% from 2.1% in the second quarter of 2015. Within the cost-of-goods-sold items, raw material costs were NT$24.3 billion, up from NT$17.8 billion in the previous quarter. Labor cost amounted to NT$2.9 billion, up 33.8% on quarter Depreciation expenses totaled NT$2.2 billion, a 14.3% on-quarter increase.
Total operating expenses totaled NT$1.8 billion, up from NT$1.6 billion a quarter earlier, mainly due to increased sales-related expenses as a result of higher shipments. On a percentage basis, operating expenses were 5.3% of total revenues, down from 6.8% in the second quarter, reflecting our effective control on expenses despite strong ramp up in production volume. As of the third quarter, total number of employees was 42,429, up from 37,967 in the previous quarter.
Net interest expenses for the quarter totaled NT$104 million. The company recorded NT$153 million in foreign exchange losses, mainly caused by unexpected RMB depreciation. Loss from long-term investment, primarily Cando Technology, totaled NT$50 million. Excluding one-time impairment charges, net income for the third quarter of 2015 was NT$164 million, equal to earnings per share (EPS) of NT$0.47.
TPK said its capital expenditures during the third quarter were NT$854 million. For the first three quarters of 2015, total capital expenditures were NT$3.6 billion, in line with its annual capex plan. As of September 30, 2015, The company had cash and cash equivalent of NT$27.2 billion. Total bank borrowings totaled NT$53.2 billion, of which NT$40.5 billion was short-term bank loans, NT$6.9 billion was current portion of long-term loans and NT$5.8 billion was long-term bank loans. In addition, there were NT$7.2 billion in current portion of convertible bond, which has been fully redeemed in October 30 2015, and NT$7.8 billion was from convertible bond due 2020. Total unused bank facilities amount to NT$53.6 billion.
The total charge on asset impairment amounted to NT$18.965 billion, equal to approximately 12.5% of company's total assets, in which fixed asset accounted for NT$18.2 billion, representing approximately 25.3% of company's total fixed assets, which consisted of uncompetitive production lines related to cover glass (CG) and film sensors. Impairment charge on these assets amounted to NT$2.1 billion. Going forward, TPK will increase the outsourcing allocation of these two components to reduce operating loss.
Idle and obsolete assets were also a factor including under-utilized front-end sensor fabs and obsolete backend lamination equipment. Total charges were NT$16.1 billion. Among these charges, impairment amount associated with the Ping-tan 5.5G fab was NT$4.5 billion, representing approximately 40% of the company's total book value.
TPK added its net worth became NT$30.5 billion as of September 30, 2015, equivalent to book value per share of NT$87.36. Total depreciation expenses in the fourth quarter of 2015 is estimated at NT$2.3 billion, which is reduced by approximately NT$800 million post write-offs, and equivalent to savings of around NT$2.00 EPS. The company estimates that there may be a significant reduction of depreciation expenses for 2016 in an approximate amount of NT$3.2 billion, which will be equivalent to EPS of roughly NT$7.90. In addition to decrease in depreciation expenses, the company foresees that its operation loss will likely decrease going forward, with limited impact on the company's future revenues. This one-time impairment charge has no impact on the Company's cash position nor operation. It is expected that the company's operating cash flow should improve after downsizing unprofitable business units.
With respect to the company's financial structure, TPK's board of directors today approved the plan to mandate Bank of China for the issuance of RMB denominated bonds up to RMB2 billion. The company also entered into a Strategic Partnership Agreement with Bank of China to strengthen mutual collaboration in the future.
In order to mitigate the potential impact on share price and protect shareholders value, TPK's BOD also approved the share buyback plan of up to 20 million shares with a price range between NT$64 and NT$135.
TPK also announced revenues for the month of October 2015 reached NT$14.051 billion, a 9.1% on-month increase, and up 8.8% versus previous year.
