Synutra Reports Second Quarter and First Half Fiscal 2012 Financial Results

Branded Formula Sales Demonstrate Sustained Recovery

2Q12 Formula Sales were $79.1 million

2Q12 Gross Margin Rose to 42.4%

2Q12 Net Income was $8.5 million

09 Nov, 2011, 16:01 ET from Synutra International, Inc.

QINGDAO, China and ROCKVILLE, Md., Nov. 9, 2011 /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 second quarter and first half of fiscal 2012 ended September 30, 2011.

Mr. Liang Zhang, Chairman and CEO of Synutra, remarked, "We are pleased to return to profitability with net income of $8.5 million, an important milestone in the continued recovery of our powdered formula sales from the hormone allegations. We believe our sustained recovery is driven by the effectiveness of our consumer-centric marketing strategy, which has led to sales growth while controlling advertising and promotional costs. There is still room for improvement through margin expansion. However, we believe our three consecutive quarters of improvement demonstrate that our recovery is long term and sustainable. We are focused on quality, a topic that continues to grow in prominence among China's consumers, and we are differentiated by our end consumer-centric marketing, which strengthens our distribution reach. Over the long term, we are confident that these factors will help differentiate us among China's fragmented infant dairy market to strengthen our future growth momentum."

Formula Sale Performance

3Q11

4Q11

1Q12

2Q12

Net sales of powdered formula segment

20,722

48,318

40,163

79,109

Adjusted net sales of powdered formula segment*

20,722

48,318

56,772

62,500

Market share (CIC data)**

5.2%

4.9%

5.3%

5.1%

*   Adjusts for $16.6 million of revenue delayed from 1Q12 to 2Q12

** Market share as of the last month of the quarter

Mr. Weiguo Zhang, President and Interim CFO of Synutra, commented, "We are pleased by our steady trend of improvement, shown by our powdered formula sales adjusted for the June quarter shipment delay. As we discussed last quarter, $16.6 million of net sales were shifted from the June quarter into the September quarter. Financially, this translates into approximately $9 million of gross profit and would have lowered the net loss in the June quarter to approximately $3 million and the net income of the September quarter to approximately $2 million. Adjusted for this delay, our powdered formula sales performance has gradually but consistent improved in revenue, margins and profitability. We believe this is noteworthy as Synutra's performance is best tracked through powdered formula sales. We occasionally choose to enter into imported whole milk powder sales, when market dynamics present an opportunity to increase shareholder returns and strengthen cash flows. However, our core business, powdered formula sales, continues to climb steadily. We are encouraged by this achievement and look forward to building upon this trend of steady growth to further enhance shareholder value."

Financial Results for the Second Quarter of Fiscal 2012 versus the First Quarter of Fiscal 2012

Quarter Ended

Quarter Ended

QoQ Change

Sept 30, 2011

June 30, 2011

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

Net sales

99,053

43,757

55,296

126.4%

Cost of sales

57,054

27,678

29,376

106.1%

Gross profit

41,999

16,079

25,920

161.2%

Gross margin

42.4%

36.7%

Selling and distribution expenses

12,328

12,461

(133)

(1.1%)

Advertising and promotion expenses

8,042

7,008

1,034

14.8%

General and administrative expenses

6,672

6,579

93

1.4%

Other operating income, net

70

110

(40)

(36.4%)

Total operating expense

26,972

25,938

1,034

4.0%

Income (loss) from operations

15,027

(9,859)

24,886

(252.4%)

Operating margin

15.2%

(22.5%)

Net interest expense and other income

3,153

2,636

517

19.6%

Income tax expense (benefit)

3,257

(3,049)

6,306

(206.8%)

Net loss attributable to the noncontrolling interest

92

150

(58)

(38.7%)

Net income (loss) attributable to Synutra International, Inc. common shareholders

8,525

(9,596)

18,121

(188.8%)

Net margin

8.6%

(21.9%)

Income (loss) per share - Diluted

$0.15

($0.17)

$0.32

(188.8%)

Net sales rose to $99.1 million for the second quarter of fiscal 2012 from $43.8 million in the first quarter of fiscal 2012. Net sales from the Company's branded powdered formula segment were $79.1 million, or 79.9% of net sales in the quarter, compared to $40.2 million, or 91.8% of net sales, in the previous quarter. The increase includes $16.6 million of sales recognized in July instead of the June quarter due to shipment delays but primarily reflects the steady recovery of branded powdered formula sales. The shift in revenue mix was primarily driven by the Company's decision to enter into $16.0 million of imported whole milk powder sales as recent pricing trends allow such transactions to enhance cash flows. Net sales of the Company's Super series infant formula accounted for 56.7% of the volume of sales and 68.2% of the net sales of the powdered formula segment for the second quarter of fiscal year 2012 compared to 58.4% of the volume of sales and 70.4% of the net sales of the powdered formula segment in the previous quarter. By volume, sales of powdered formula products increased 79.8% to 8,115 tons in the fiscal second quarter from 4,513 tons in the previous quarter.

Net sales from Other Products, which generally consists of imported whole milk powder and raw milk sold to industrial customers, was $19.7 million, or 19.9% of net sales, in the second quarter of fiscal 2012, compared to $3.1 million, or 7.0% of net sales in the previous quarter.

Gross profit was $42.0 million in the second quarter of fiscal 2012, compared to $16.1 million in the previous quarter. Gross margin in the second quarter of fiscal 2012 was 42.4%, compared to 36.7% in the previous quarter. As sales volume continues to grow and selling costs decrease as a percentage of net sales, the Company expects margins to continue to strengthen but at a more gradual pace to converge towards a long term normalized range.

Income from operations was $15.0 million compared to a loss from operations of $9.9 million in the previous quarter. Total operating expenses were $27.0 million, compared to $25.9 million in the previous quarter, reflecting the Company's focus on a consumer-centric marketing strategy that leads to lower advertising and promotional expenses. Selling and distribution expenses were $12.3 million, compared to $12.5 million in the previous quarter. Advertising and promotional expenses increased 14.8% to $8.0 million, compared to $7.0 million in the previous quarter. General and administrative expenses were $6.7 million compared to $6.6 million in the previous quarter.

Net income attributable to Synutra International, Inc. common stockholders was $8.5 million in the second quarter of fiscal year 2012, or $0.15 per diluted share, compared with a net loss of $9.6 million, or $0.17 per diluted share, in the previous quarter.

First Half Ended September 30, 2011 Financial Results

Net sales for the first half ended September 30, 2011 increased 14.3% to $142.8 million from $125.0 million in the prior year period. Net sales from branded powdered formula products increased 2.4% to $119.3 million, or 83.5% of net sales, in the first half ended September 30, 2011, from $116.5 million, or 93.2% of net sales, in the prior year period.

Net sales from Other Products, which consist mainly of imported whole milk powder and raw milk sold to industrial customers, were $22.8 million, or 15.9% of net sales, in the first half of fiscal 2012, compared to $7.4 million, or 5.9% of net sales, in the prior year period.

Gross profit was $58.1 million in first half of fiscal 2012, an increase of 5.1% from $55.3 million in the prior year period. Gross margin was 40.7% in the first half of fiscal 2012 compared to 44.2% in the prior year period.

Operating income was $5.2 million in the first half of fiscal 2012, compared to an operating loss of $9.8 million in the prior year period. Net loss was $1.1 million in the first half of fiscal 2012, or $0.02 per diluted share, compared with a net loss of $11.1 million, or $0.20 per diluted share, in the prior year period.

Balance Sheet

As of September 30, 2011, the Company had cash and cash equivalents of $36.7 million and restricted cash of $63.1 million, including current and non-current portion.

Conference Call Details

The Company will hold a conference call on Thursday, November 10, 2011 at 8:00 am 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:

+1 (646) 254-3515

Conference ID:

20852220

The replay will be accessible through November 16, 2011 by dialing the following numbers:

United States Toll Free:

+1 (866) 214-5335

International:

+1 (718) 354-1232

Conference ID:

20852220

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 September 30, 2011, this network comprised over 670 independent distributors and over 900 independent sub-distributors who sell Synutra products in over 72,000 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 Statements of Income

Three Months Ended September 30,

Six Months Ended September 30,

2011

2010

2011

2010

(in thousands except earnings per share data)

Net sales

$

99,053

$

41,202

$

142,810

$

124,989

Cost of sales

57,054

32,306

84,732

69,732

Gross profit

41,999

8,896

58,078

55,257

Selling and distribution expenses

12,328

12,211

24,789

24,837

Advertising and promotion expenses

8,042

14,654

15,050

24,656

General and administrative expenses

6,672

8,370

13,251

14,446

Impairment of goodwill

-

0

-

1,440

Other operating income, net

70

238

180

311

Income (loss) from operations

15,027

(26,101)

5,168

(9,811)

Interest expense

3,872

2,113

7,284

4,775

Interest income

612

137

923

245

Other income, net

107

58

572

225

Income (loss) before income tax expense (benefit)

11,874

(28,019)

(621)

(14,116)

Income tax expense (benefit)

3,257

(6,797)

208

(3,002)

Net income (loss)

8,617

(21,222)

(829)

(11,114)

Net income attributable to the noncontrolling interest

92

(66)

242

(64)

Net income (loss) attributable to Synutra International, Inc. common stockholders

$

8,525

$

(21,156)

$

(1,071)

$

(11,050)

Earnings (loss) per share - basic

$

0.15

$

(0.37)

$

(0.02)

$

(0.20)

Earnings (loss) per share - diluted

$

0.15

$

(0.37)

$

(0.02)

$

(0.20)

Weighted average common share outstanding - basic

57,301

57,301

57,301

55,651

Weighted average common share outstanding - diluted

57,301

57,301

57,301

55,651

Synutra International, Inc.

Consolidated Balance Sheets

September 30, 2011

March 31, 2011

(in thousands, except share par value)

ASSETS

Current Assets:

Cash and cash equivalents

$

36,653

$

48,741

Restricted cash

42,291

37,690

Accounts receivable, net of allowance

41,216

46,021

Inventories

73,625

67,372

Due from related parties

7,451

13,708

Income tax receivable

230

259

Receivable from assets disposal

1,768

1,714

Prepaid expenses and other current assets

12,207

11,562

Deferred tax assets

21,642

20,922

Total current assets

237,083

247,989

Property, plant and equipment, net

113,887

109,811

Land use rights, net

6,213

6,096

Intangible assets, net

3,162

3,140

Restricted cash

20,819

-

Other assets

4,855

4,022

Deferred tax assets

28,446

27,646

TOTAL ASSETS

$

414,465

$

398,704

LIABILITIES AND EQUITY

Current Liabilities:

Short-term debt

$

118,651

$

124,281

Long-term debt due within one year

67,664

38,131

Accounts payable

52,635

52,923

Due to related parties

1,832

2,330

Advances from customers

4,785

4,890

Other current liabilities

25,563

25,913

Total current liabilities

271,130

248,468

Long-term debt

53,410

62,722

Deferred revenue

4,466

4,456

Capital lease obligations

5,700

5,540

Other long-term liabilities

1,675

1,592

Total liabilities

336,381

322,778

Equity:

Synutra International, Inc. shareholders' equity

Common stock, $.0001 par value: 250,000 authorized; 57,301 and 57,301 issued and outstanding at June 30, 2011 and March 31, 2011, respectively

6

6

Additional paid-in capital

135,440

135,440

Accumulated deficit

(89,428)

(88,357)

Accumulated other comprehensive income

31,130

28,204

Total Synutra common stockholders’ equity

77,148

75,293

Noncontrolling interest

936

633

Total equity

78,084

75,926

TOTAL LIABILITIES AND EQUITY

$

414,465

$

398,704

-

-

SOURCE Synutra International, Inc.



RELATED LINKS

http://www.synutra.com