Synutra Reports First Quarter Fiscal 2013 Financial Results

QINGDAO, China and ROCKVILLE, Md., Aug. 9, 2012 /PRNewswire-Asia/ -- Synutra International, Inc. (NASDAQ: SYUT), ("Synutra" or the "Company"), which owns subsidiaries in China that produce, market and sell nutritional products for infants, children and adults, today announced financial results for the first quarter of fiscal 2013 ended June 30, 2012.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "Our results were lower than anticipated in our fiscal first quarter.  With the 15% price increase implemented on April 1st, 2012 for our infant formula products, our distributors and sub-distributors have taken advantage of purchasing products at pre-increase pricing levels, resulting in reduced levels of purchase orders during our fiscal 2013 first quarter. The weak sales orders have also been exaggerated by a seasonal sales slow-down we typically experience during the hot summer months. We believe it will take another quarter for our customers to work through their inventories before we expect higher levels of ordering activity to return in our fiscal second half.  As our sales growth accelerates in the back half of the year, we expect to see greater operating leverage related to the price increase that will have a positive impact on our financial performance." 

"We continue to make a concerted effort to enhance our direct communications with customers to expand our market position. This interaction is reinforced through our customer support call centers, store promotions activity and local and national television advertising spots.  We are also focused on enhancing the yield of our present distribution system through proper resource and incentive allocation for our top-grossing brand series as well as strengthening our sales efforts.  China's dairy industry continues to offer compelling growth characteristics and the expansion of our market position is possible over the long term by ensuring the highest product quality, raising our brand visibility and enhancing the productivity of our distribution system."

"We have solid opportunities to expand our market position in powdered milk formulas and generate strong revenue and profit growth in the second half of our fiscal year.  Building on our capabilities in dietary supplement ingredients, we are also cultivating other nutritional supplement product opportunities, including chondroitin sulfate sodium products for joint health, within the current fiscal year.  We remain confident that our high quality products and strong management capabilities will result in long-term growth for our shareholders."

Formula Sale Performance


2Q12

3Q12

4Q12

1Q13

Net sales of powdered formula segment

79,109

99,843

82,549

50,455

Market share (CIC data)*

5.1%

5.6%

5.1%

4.9%

* Market share data reflect 3-month average of the quarter

Financial Results for the First Quarter of Fiscal 2013 versus the Fourth Quarter of Fiscal 2012


Quarter Ended


QoQ Change


Jun 30, 2012

Mar 31, 2012




 (in USD 000's except per share and percentage data)






Net sales

53,586

85,367


(31,781)

-37%







Cost of sales

36,285

49,808


(13,523)

-27%

Gross profit

17,301

35,559


(18,258)

-51%

Gross margin

32.3%

41.7%










Selling and distribution expenses

13,117

13,813


(696)

-5%

Advertising and promotion expenses

6,804

5,804


1,000

17%

General and administrative expenses

7,857

3,332


4,525

136%

Other operating income, net

885

3,583


(2,698)

-75%

Total operating expense

26,893

19,366


7,527

39%







Income (loss) from operations

(9,592)

16,193


(25,785)

-159%

Operating margin

-17.9%

19.0%










Net interest expense and other income

3,087

2,602


485

19%

Income tax expense (benefit)

(2,903)

6,140


(9,043)

-147%

Net income (loss) attributable to the noncontrolling interest

(77)

(71)


(6)

-8%







Net income (loss) attributable to common stockholders

(9,699)

7,522


(17,221)

-229%

Net margin

-18.1%

8.8%










Income (loss) per share – Basic and diluted

($0.17)

$0.13


($0.30)

-229%


Net sales decreased to $53.6 million for the first quarter of fiscal 2013 from $85.4 million in the fourth quarter of fiscal 2012. Net sales from the Company's branded powdered formula segment were $50.5 million, or 94% of net sales in the quarter, compared to $82.5 million, or 96.7% of net sales, in the previous quarter.  The sequential decrease primarily reflects the short-term impact of the 15% price increase on infant formula products implemented on April 1st in addition to the seasonal sales slow down of the hot summer months.  Net sales of the Company's Super series infant formula for the first quarter were 55% of the volume of sales and 71% of the net sales of the powdered formula segment compared to 65% of the volume of sales and 75% of the net sales of the powdered formula segment in the previous quarter. By volume, sales of powdered formula products decreased 40% to 4,380 tons in the first quarter from 7,301 tons in the previous quarter.

Net sales from Other Products, which includes imported whole milk powder and whey protein powder sold to industrial customers, was $1.0 million, or 2% of net sales, in the first quarter of fiscal 2013, compared to $2.7 million, or 3% of net sales in the previous quarter.

Gross profit decreased to $17.3 million in the first quarter of fiscal 2013 from $35.6 million in the previous quarter primarily related to the decrease in quarterly sales. Gross margin in the first quarter of fiscal 2013 decreased to 32% compared to 42% in the previous quarter. Powdered formula margin decreased to 37% from 46% in the previous quarter. The decrease in powdered formula margins reflected increased free products and inventory write-down, partially offset by the increase in average selling price

Loss from operations was $9.6 million, compared to income from operations of $16.2 million in the previous quarter. Total operating expenses increase 39% to $26.9 million from $19.4 million in the previous quarter. 

Selling and distribution expenses decreased 5% to $13.1 million from $13.8 million in the previous quarter.

Advertising and promotional expenses increased 17% to $6.8 million from $5.8 million in the previous quarter, primarily due to the Company's efforts to increase promotional activities to end customers.

General and administrative expenses increased 136% to $7.9 million from $3.3 million in the previous quarter, which was mainly due to a decrease of office rental expenses caused by a modification to the lease agreement of the company's Beijing headquarters in the previous quarter.

Net loss attributable to common stockholders was $9.7 million in the first quarter of fiscal year 2013, or $(0.17) per diluted share, compared to a net income of $7.5 million, or $0.13 per diluted share, in the previous quarter.

As of June 30, 2012, the Company had cash and cash equivalents of $68.1 million and restricted cash of $53.1 million, including the current and non-current portion.

Fiscal 2013 Business Outlook

Mr. Liang Zhang concluded, "For the full year of fiscal 2013, we are adjusting our full year outlook to reflect the slower than anticipated sales in the first quarter and second quarters with stronger levels of growth and profitability expected in the fiscal 2013 second half.  We currently expect our FY2013 revenue to grow to approximately $380 million to $400 million and achieve profitability of approximately $50 to $57 million.  Although we are working through a challenging period in the fiscal first half, we continue to be encouraged with our opportunities in the second half of our fiscal year."

These forecasts reflect the Company's current and preliminary view on the market and operational conditions, which are subject to change.

Conference Call Details

The Company will hold a conference call on Friday, August 10, 2012 at 8:00 a.m. Eastern Time to discuss the financial results. Listeners may access the call by dialing the following numbers:

United States Toll Free:            

+1 (855) 500-8701

International:                            

+65 6723-9385

Conference ID:                                    

99691814

The replay will be accessible through August 17, 2012 by dialing the following numbers:

United States Toll Free:            

+1 (866) 214-5335

International:                            

+ 61 2-8235-5000

Conference ID:                                    

99691814

A webcast of the conference call will be available through the Company's IR website at www.synutra.com.

About Synutra International, Inc.

Synutra International, Inc. (Nasdaq: SYUT) is a leading infant formula company in China. It principally produces, markets and sells its products through its operating subsidiaries under the "Shengyuan" or "Synutra" name, together with other complementary brands. It focuses on selling premium infant formula products, which are supplemented by more affordable infant formulas targeting the mass market as well as other nutritional products and ingredients. It sells its products through an extensive nationwide sales and distribution network covering all provinces and provincial-level municipalities in mainland China. As of June 30, 2012, this network comprised over 650 independent distributors and over 800 independent sub-distributors who sell Synutra products in over 66,000 retail outlets.

Forward-looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Synutra International, Inc. and its industry. All statements other than statements of historical fact in this release are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as "anticipate," "believe," "continue," "estimate," "expect," "intend," "is/are likely to," "may," "plan," "should," "will," "aim," "potential," "continue," or other similar expressions. The forward-looking statements included in this press release relate to, among others, Synutra's goals and strategies; its future business development, financial condition and results of operations; the expected growth of the nutritional products and infant formula markets in China; market acceptance of Synutra's products; the safety and quality of Synutra's products; Synutra's expectations regarding demand for its products; Synutra's ability to stay abreast of market trends and technological advances; competition in the infant formula industry in China; PRC governmental policies and regulations relating to the nutritional products and infant formula industries, and general economic and business conditions in China. These forward-looking statements involve various risks and uncertainties. Although Synutra believes that the expectations expressed in these forward-looking statements are reasonable, these expectations may turn out to be incorrect. Synutra's actual results could be materially different from the expectations. Important risks and factors that could cause actual results to be materially different from expectations are generally set forth in Synutra's filings with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this press release. Synutra International, Inc. undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 Synutra International, Inc. 





 Consolidated Balance Sheets 





 (Dollars and shares in thousands, except per share data) 





 (Unaudited) 







June 30, 2012


March 31, 2012

ASSETS





Current Assets:





Cash and cash equivalents

$

68,083

$

64,793

Restricted cash


43,638


30,425

Accounts receivable, net of allowance


36,709


38,753

Inventories


86,410


75,499

Due from related parties


11,946


12,262

Income tax receivable


3,673


227

Receivable from assets disposal


-


1,037

Prepaid expenses and other current assets


23,390


16,320

Deferred tax assets


12,857


17,827

Total current assets


286,706


257,143






Property, plant and equipment, net


132,553


134,902

Land use rights, net


10,091


10,198

Intangible assets, net


4,368


4,377

Restricted cash


9,486


21,019

Other assets


2,075


1,367

Deferred tax assets


23,693


18,907

TOTAL ASSETS

$

468,972

$

447,913






LIABILITIES AND EQUITY





Current Liabilities:





Short-term debt

$

128,177

$

86,614

Long-term debt due within one year


43,060


40,831

Accounts payable


58,950


70,927

Due to related parties


1,778


1,655

Advances from customers


6,032


5,991

Other current liabilities


33,915


40,560

Total current liabilities


271,912


246,578






Long-term debt


97,406


92,745

Deferred revenue


4,289


4,377

Capital lease obligations


6,741


4,726

Other long-term liabilities


2,267


2,395

Total liabilities


382,615


350,821






Commitments and contingencies










Equity:





Common stockholders' equity





Common stock, $.0001 par value: 250,000 authorized; 57,301 and 57,301 issued and outstanding at June 30, 2012 and March 31, 2012, respectively


6


6

Additional paid-in capital


135,440


135,440

Accumulated deficit


(81,319)


(71,620)

Accumulated other comprehensive income


31,205


32,201

Total common stockholders' equity


85,332


96,027

Noncontrolling interest


1,025


1,065

Total equity


86,357


97,092

TOTAL LIABILITIES AND EQUITY

$

468,972

$

447,913

 

 Synutra International, Inc. 





 Consolidated Statements of Operations 





 (Dollars in thousands, except per share data) 





 (Unaudited) 







 Three Months Ended June 30, 



2012


2011






Net sales

$

53,586

$

43,757

Cost of sales


36,285


27,678






Gross profit


17,301


16,079






Selling and distribution expenses


13,117


12,461

Advertising and promotion expenses


6,804


7,008

General and administrative expenses


7,857


6,579

Impairment of goodwill


-


-

Impairment loss from assets disposal


-


-

Other operating income, net


885


110






Loss from operations


(9,592)


(9,859)






Interest expense


3,556


3,412

Interest income


487


311

Other income (expense), net


(18)


465






Loss before income tax benefit


(12,679)


(12,495)






Income tax benefit


(2,903)


(3,049)






Net loss


(9,776)


(9,446)






Net income (loss) attributable to the noncontrolling interest


(77)


150






Net loss attributable to common stockholders

$

(9,699)

$

(9,596)






Loss per share - basic and diluted

$

(0.17)

$

(0.17)






Weighted average common stock outstanding - basic and diluted


57,301


57,301

 



 

 

SOURCE Synutra International, Inc.



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