2014

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

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.



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