Synutra Reports Third Quarter and First Nine Months of Fiscal 2013 Financial Results

Feb 08, 2013, 16:30 ET from Synutra International, Inc.

QINGDAO, China and ROCKVILLE, Md., Feb. 8, 2013 /PRNewswire/ -- 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 third quarter and first nine months of fiscal 2013ended December 31, 2012.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "Our fiscal third quarter results reflected the beginning of recovery from the sales slowdown attributable to the retail price increase implemented in our fiscal first quarter. The modest sequential revenue growth was driven by higher consumption of branded infant formula products in the winter months as compared to the summer months, as well as increased sales orders from distributors in anticipation of the Chinese New Year holiday in early February. Sales orders measured in tons increased by 28% to 5,875 tons from 4,605 tons in the fiscal second quarter and gross margin increased to 43%, a sequential improvement largely due to the reduction of lower-margin industrial sales in our revenue mix, less free products provided to distributors and a change in the redemption policy in our customer loyalty program."

"We believe the retail price increase we implemented in 2012 on our branded infant formula products are gaining broader consumer acceptance at the retail level and we continue to improve operational efficiency in our business.  As discussed last quarter, in light of a maturing infant formula market in China along with intensified competition among multinational and domestic infant formula brands in China, we shifted our strategy from focusing on rapid brand expansion to a focus on the better management of our sales channels and retail outlets.  We made clear progress in recent months implementing the "Gold Mining" program, adjusting our sales management approach to focus on margins instead of quantity, and with increased attention on store yield and efficiency.  At the end of our fiscal third quarter, the number of retail outlets served decreased significantly from approximately 63,000 to 27,000.  In tandem with these changes, our sales force is becoming more streamlined, better equipped, and ready to take on the competitive challenges of today's infant formula market.  This adjustment will serve us well in the long-term, improving the overall health of our sales channel system and improving greater operating efficiency and profitability."

"Moving forward, we expect sustained levels of growth in China's infant formula for the foreseeable future and believe the operating adjustments we recently implemented will better position Synutra for long-term success in China's branded infant formula category.  Further, we are well positioned in our nutritional ingredient and supplements segment for rapid growth. Our shipment of chondroitin sulfate to third-party customers increased significantly in the first nine months of our fiscal year over our prior period and we expect this category to contribute more meaningfully to our revenue performance in the coming quarters.  We are pleased to expect a return to profitability in our fiscal fourth quarter and believe we have improved our growth prospects for our shareholders," concluded Mr. Zhang.

Formula Sale Performance

4Q12

1Q13

2Q13

3Q13

Net sales of powdered formula segment

82,549

50,455

50,090

62,390

Market share (CIC data)*

5.1%

4.9%

4.7%

4.9%

* CIC is the Commercial Information Center of China. Market share data reflect 3-month average of the quarter

Financial Results for the Third Quarter of Fiscal 2013 versus the Second Quarter of Fiscal 2013

             Quarter Ended

QoQ Change

December 31,

2012

September 30,

2012

 (in USD 000's except per

share and percentage data)

Net sales

73,228

66,100

7,128

11%

Cost of sales

41,717

48,626

(6,909)

-14%

Gross profit                                    

31,511

17,474

14,037

80%

Gross margin

43.0%

26.4%

Selling and distribution

   expenses

14,488

14,298

190

1%

Advertising and promotion

   expenses

9,910

10,186

(276)

-3%

General and administrative

   expenses

6,967

7,162

(195)

-3%

Other operating income, net

216

80

136

170%

Total operating expense

31,149

31,566

(417)

-1%

Income (Loss) from operations

362

(14,092)

14,454

-103%

Operating margin

0.7%

-21.3%

Interest income, interest

   expense and other income (loss),

   net

2,844

1,233

1,611

131%

Income tax expense (benefit)

10,971

29,018

(18,047)

-62%

Net income (loss) attributable

   to the noncontrolling interest

(183)

(157)

(26)

17%

Net income (loss) attributable

   to common stockholders

(13,270)

(44,186)

30,916

-70%

Income (loss) per share -

   Basic and diluted

($0.23)

($0.77)

(0.54)

-70%

Net sales increased 11% to $73.2 million for the third quarter of fiscal 2013 from $66.1 million in the second quarter of fiscal 2013. Net sales from the Company's branded powdered formula segment were $62.4 million, or 85% of net sales in the quarter, compared to $50.1 million, or 76% of net sales, in the previous quarter.  By volume, sales of powdered formula products were5,875 tons in the third quarter which increased from 4,605 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 $10.6 million, or 14% of net sales, in the third quarter of fiscal 2013, compared to $14.6 million, or 22% of net sales in the previous quarter. This decrease was due to sales of imported milk powder to industrial customers of $6.1 million in the third quarter of fiscal 2013, compared to $12.1 million in the previous quarter.

Gross profit was $31.5 million in the third quarter of fiscal 2013, compared $17.5 million in the previous quarter. Gross margin in the third quarter of fiscal 2013increased to 43% compared to 26% in the previous quarter. The increase is primarily attributed to the decrease in the lower-margin industrial sales of whole milk powder and whey protein powder in the net sales mix. Powdered formula margin increased to 52% from 43% in the previous quarter. The sequential increase in powdered formula margins was due to a change in the redemption policy of our customer loyalty program and the decrease in free products provided to distributors in the fiscal quarter ended December 31, 2012.

Income from operations was $362 thousand, compared to loss from operations of $14.1 million in the previous quarter. Total operating expenses were $31.1 million, compared with $31.6 million in the previous quarter. 

Selling and distribution expenses were $14.5 million, compared with $14.3 million in the previous quarter.

Advertising and promotional expenses were $9.9 million, compared with $10.2 million in the previous quarter. 

General and administrative expenses were $7.0 million, compared with $7.2 million in the previous quarter.

Fiscal 2013 third quarter income tax expense decreased to $11.0 million from an income tax expense of $29.0 million in the fiscal second quarter.  The income tax expense for the fiscal third quarter and previous quarter includes a $11.1 million and $25.4 million charge from an increase in the valuation allowance for deferred tax assets attributable to certain PRC subsidiaries, respectively.  As of December 31, 2012 the net balance of our deferred tax assets is nil.

Net loss attributable to common stockholders, including the $11.1 million of valuation allowance for deferred tax assets, was $13.3 million in the third quarter of fiscal year 2013, or $(0.23) per diluted share, decreased from a net loss of $44.2 million, including $25.4 million of valuation allowance for deferred tax assets, or $(0.77) per diluted share, in the previous quarter.

First Nine Months Ended December 31, 2012 Financial Results Net sales for the first nine months of fiscal 2013 ended December 31, 2012 decreased to $192.9 million from $257.2 million in the prior year period. Net sales from branded powdered formula products decreased to $162.9 million, or 84% of net sales, compared to $219.1 million, or 85% of net sales in the prior year period. The decrease was primarily due to the significant purchases by distributors prior to our retail price increase effective April 1, 2012, and the short-term impact on orders as we implemented the Gold Mining program as noted above.

Net sales from Other Products, which consists mainly of sales of imported whole milk powder and whey protein sold to industrial customers, were $26.2 million, or 14% of net sales, compared to $37.0 million, or 14% of net sales, in the prior year period.

Gross profit decreased 37% to $66.3 million for first nine months of fiscal 2013 from $105.4 million in the prior year period. Gross margin was 34% compared to 41% for the prior year period. The gross margin decline was primarily attributable to increased cost of whey protein powder and inventory write-down for imported Super series.

Loss from operations was $23.3 million for the first nine months of fiscal 2013, compared to an operating income of $26.6 million in the prior year period.

Net loss attributable to Synutra International, Inc. common stockholders was $67.2 million for the first nine months of fiscal 2013, including $36.5 million of valuation allowance for deferred tax assets, or $(1.17) per diluted share, compared to a net income of $9.2 million, or $0.16 per diluted share, in the prior year period.

Balance Sheet As of December 31, 2012, the Company had cash and cash equivalents of $41.7 million and restricted cash of $82.0 million, including the current and non-current portion.  Net account receivables decreased from $47.1 million on September 30, 2012 to $45.2 million on December 31, 2012, while our sequential inventory position increased 3% to $79.2 million from $77.2 million.

Fiscal 2013 Business Outlook Mr. Liang Zhang concluded, "For the full year of fiscal 2013, we currently expect revenue in the range of approximately $275 to 280 million and a net loss of approximately $65 to 67 million, including $36.5 million of valuation allowance for deferred tax assets.  In the fiscal fourth quarter, we expect revenue of approximately $82 to 87 million and a net profit of $1 to 3 million."  

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 Monday, February 11, 2013 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:

86670804

A webcast and replay 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 December 31, 2012, this network comprised over 660 independent distributors and over 690 independent sub-distributors who sell Synutra products in approximately27,000 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) 

December 31, 2012

March 31, 2012

ASSETS

Current Assets:

Cash and cash equivalents

$

41,743

$

64,793

Restricted cash

70,663

30,425

Accounts receivable, net of allowance

45,203

38,753

Inventories

79,193

75,499

Due from related parties

6,656

12,262

Income tax receivable

35

227

Receivable from assets disposal

-

1,037

Prepaid expenses and other current assets

14,975

16,320

Deferred tax assets

-

17,827

Total current assets

258,468

257,143

Property, plant and equipment, net

132,177

134,902

Land use rights, net

10,863

10,198

Intangible assets, net

4,379

4,377

Restricted cash

11,328

21,019

Other assets

1,063

1,367

Deferred tax assets

0

18,907

TOTAL ASSETS

$

418,278

$

447,913

LIABILITIES AND EQUITY

Current Liabilities:

Short-term debt

$

111,872

$

86,614

Long-term debt due within one year

44,641

40,831

Accounts payable

47,510

70,927

Due to related parties

1,661

1,655

Advances from customers

11,780

5,991

Other current liabilities

57,509

40,560

Total current liabilities

274,973

246,578

Long-term debt

97,513

92,745

Deferred revenue

4,184

4,377

Capital lease obligations

7,850

4,726

Other long-term liabilities

7,582

2,395

Total liabilities

392,102

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 September 30, 2012 and March 31, 2012,

   respectively

6

6

Additional paid-in capital

135,440

135,440

Accumulated deficit

(138,775)

(71,620)

Accumulated other comprehensive income

29,148

32,201

Total common stockholders' equity

25,819

96,027

Noncontrolling interest

357

1,065

Total equity

26,176

97,092

TOTAL LIABILITIES AND EQUITY

$

418,278

$

447,913

 

 

 Synutra International, Inc. 

 Consolidated Statements of Operations 

 (Dollars in thousands, except per share data) 

 (Unaudited) 

 Three Months Ended December 31, 

 Nine Months Ended December 31, 

2012

2011

2012

2011

Net sales

$

73,228

$

114,362

$

192,914

$

257,172

Cost of sales

41,717

67,078

126,628

151,810

Gross profit                                           

31,511

47,284

66,286

105,362

Selling and distribution expenses

14,488

12,619

41,903

37,408

Advertising and promotion expenses

9,910

7,588

26,900

22,638

General and administrative expenses

6,967

7,365

21,986

20,616

Other operating income, net

216

1,721

1,181

1,901

Income (loss) from operations

362

21,433

(23,322)

26,601

Interest expense

4,021

3,841

11,511

11,125

Interest income

604

481

1,681

1,404

Other income, net

573

(509)

2,666

63

Income (loss) before income tax expense (benefit)

(2,482)

17,564

(30,486)

16,943

Income tax expense

10,971

7,162

37,086

7,370

Net income (loss)

(13,453)

10,402

(67,572)

9,573

Net income (loss) attributable to the 

   noncontrolling interest

(183)

116

(417)

358

Net income (loss) attributable to common      stockholders

$

(13,270)

$

10,286

(67,155)

9,215

Earnings (loss) per share -basic and  diluted

$

(0.23)

$

0.18

(1.17)

0.16

Weighted average common stock outstanding -    basic and diluted

57,301

57,301

57,301

57,301

 Synutra International, Inc. 

 Consolidated Statements of Cash Flows 

 (Dollars in thousands) 

 (Unaudited) 

 Nine Months Ended December 31, 

2012

2011

 Operating activities: 

 Net income (loss) 

$

(67,572)

$

9,573

 Adjustments to reconcile net income (loss) to net

    cash provided by (used in) operating activities: 

 Depreciation and amortization 

10,340

8,611

 Bad debt expense 

1,140

6,709

 Deferred income tax 

36,550

7,191

 Foreign currency translation gain on disposal of

    subsidiaries 

(2,190)

0

 Other                                                                                      

(321)

354

 Changes in assets and liabilities: 

 Accounts receivable 

(6,714)

(14,103)

 Inventories 

(3,671)

15,629

 Due from related parties 

5,594

3,884

 Other assets 

(747)

(15,498)

 Accounts payable 

(19,343)

595

 Due to related parties 

(226)

1,535

 Advances from customers 

5,780

1,351

 Income tax receivable 

191

(29)

 Other liabilities 

24,814

13,973

 Net cash provided by (used in) operating

    activities 

(16,375)

39,775

 Investing activities: 

 Acquisition of property, plant and equipment 

(10,547)

(10,565)

 Change in restricted cash 

(30,340)

(9,849)

 Proceeds from assets disposal 

1,817

405

 Payment to minority shareholder 

(386)

0

 Net cash used in investing activities 

(39,456)

(20,009)

 Financing activities: 

 Proceeds from short-term debt                                                     

221,533

157,951

 Repayment of short-term debt 

(196,681)

(194,439)

 Proceeds from long-term debt 

58,503

60,494

 Repayment of long-term debt 

(50,087)

(48,555)

 Payment on capital lease obligations 

(703)

0

 Net cash provided by (used in) financing activities 

32,565

(24,549)

 Effect of exchange rate changes on cash and

   cash equivalents 

216

1,818

 Net change in cash and cash equivalents 

(23,050)

(2,965)

 Cash and cash equivalents, beginning of period 

64,793

48,741

 Cash and cash equivalents, end of period 

41,743

45,776

 Supplemental cash flow information: 

 Interest paid 

9,997

10,855

 Income taxes paid 

539

82

 Non-cash investing and financing activities: 

 Purchase of property, plant and equipment by

   accounts payable 

(4,028)

(650)

 

SOURCE Synutra International, Inc.



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