QINGDAO, China and ROCKVILLE, Md., Nov. 9,
2012 /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 second
quarter of fiscal 2013 ended September 30,
2012.
Mr. Liang Zhang, Chairman and CEO
of Synutra, commented, "Our fiscal second quarter financial results
were impacted by a slowdown in sales stemming from the price
increase implemented on our infant formula products in the
beginning of our fiscal first quarter as our customers have taken
advantage of purchasing products at pre-increase pricing
levels. On a sequential basis, our inventory position in the
second quarter decreased 11% to $77
million from $86 million in
the fiscal first quarter. Sales orders measured in tons
increased 5% to 4,605 tons from approximately 4,380 tons in our
fiscal first quarter."
"Since September, we began to adjust our sales and distribution
channels to ensure channel inventory control and streamline our
retail network for better efficiency. These actions were
based on our assessment of the current market environment for our
products which reflects heightened competition and increased levels
of cross-territory selling among certain distributors. As
part of this effort, we will focus on top-performing distributors
and retail outlets, regain control of the marketing dollars with
each of our distributors, and gradually exit from relationships
with low performing retailers. Our objective is to implement
uniform retail-end pricing and distributor discounts. We expect to
reduce our current number of company-authorized retail outlets by
over half, to about 25,000, by January
2013. Additionally, we are setting up an inventory tracking
system, which will go beyond the distributors to gain better
visibility at the retail level. We aim to complete the system by
early 2013."
"In the short term, these efforts have compounded the negative
effects of the price increase and the seasonal slow-down in the
second fiscal quarter ended September
30th. As we expected, distributors have prudently
slowed down their orders resulting in low sales volume. We also
estimate we may incur expenses in terminating relationships with
certain outlets. However, in the two months since the
implementation of the sales channel adjustment, we have seen stable
sales orders and reduced selling cost, and we expect to gain
transparency through our sales channel going forward. We
expect sales in our fiscal third quarter to be in a similar range
to our second quarter level with sales expected to pick up in the
fiscal fourth quarter and produce quarterly profitability by the
end of the fiscal year. We believe the successful implementation of
this strategy will lay a solid foundation for strengthening the
management of our sales channel and achieving greater sales volume
in the long term."
"Over the next year, our efficiency enhancements in the main
lines of our infant formula product segment are expected to put us
back on solid footing and lay the foundation for continued growth
in the coming quarters. We are also excited about the
prospects of our nutritional ingredient and supplements segment,
where we are uniquely positioned to capture new customers in new
geographic regions."
Formula Sale Performance
|
|
|
|
|
|
|
|
|
|
|
3Q12
|
4Q12
|
1Q13
|
2Q13
|
Net sales
of powdered formula segment
|
99,843
|
82,549
|
50,455
|
50,090
|
Market
share (CIC data)*
|
5.6%
|
5.1%
|
4.9%
|
4.7%
|
* Market share data reflect 3-month average of the
quarter
Financial Results for the Second Quarter of
Fiscal 2013 versus the
First Quarter of Fiscal
2013
|
|
Quarter
Ended
|
|
QoQ
Change
|
|
Sep 30,
2012
|
Jun 30,
2012
|
|
|
|
(in USD 000's except per share and
percentage data)
|
|
|
|
|
|
Net
sales
|
66,100
|
53,586
|
|
12,514
|
23%
|
|
|
|
|
|
|
Cost of
sales
|
48,626
|
36,285
|
|
12,341
|
34%
|
Gross
profit
|
17,474
|
17,301
|
|
173
|
1%
|
Gross
margin
|
26.4%
|
32.3%
|
|
|
|
|
|
|
|
|
|
Selling
and distribution expenses
|
14,298
|
13,117
|
|
1,181
|
9%
|
Advertising and promotion expenses
|
10,186
|
6,804
|
|
3,382
|
50%
|
General
and administrative expenses
|
7,162
|
7,857
|
|
(695)
|
-9%
|
Other
operating income, net
|
80
|
885
|
|
(805)
|
-91%
|
Total
operating expense
|
31,566
|
26,893
|
|
4,673
|
17%
|
|
|
|
|
|
|
Loss from
operations
|
(14,092)
|
(9,592)
|
|
(4,500)
|
47%
|
Operating margin
|
-21.3%
|
-17.9%
|
|
|
|
|
|
|
|
|
|
Net
interest expense and other income
|
1,233
|
3,087
|
|
(1,854)
|
-60%
|
Income tax
expense (benefit)
|
29,018
|
(2,903)
|
|
31,921
|
--
|
Net loss
attributable to the noncontrolling interest
|
(157)
|
(77)
|
|
(80)
|
104%
|
|
|
|
|
|
|
Net loss
attributable to common stockholders
|
(44,186)
|
(9,699)
|
|
(34,487)
|
356%
|
|
|
|
|
|
|
Income
(loss) per share – Basic and diluted
|
($0.77)
|
($0.17)
|
|
(0.60)
|
356%
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased 23% to $66.1
million for the second quarter of fiscal 2013 from
$53.6 million in the first quarter of
fiscal 2013. Net sales from the Company's branded powdered formula
segment were $50.1 million, or 76% of
net sales in the quarter, compared to $50.5
million, or 94% of net sales, in the previous quarter.
The sales of branded powdered formula continued to reflect 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
typical during the hot summer months. Net sales of the
Company's Super series infant formula for the second quarter were
46% of the volume of sales and 63% of the net sales of the powdered
formula segment compared to 55% of the volume of sales and 71% of
the net sales of the powdered formula segment in the previous
quarter. By volume, sales of powdered formula products were 4,605
tons in the second quarter which increased from 4,380 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 $14.6 million, or 22% of net
sales, in the second quarter of fiscal 2013, compared to
$1.0 million, or 2% of net sales in
the previous quarter. This increase was due to sales of imported
milk powder of $12.1 million in the
second quarter of fiscal 2013, compared to $0.2 million in the previous quarter.
Gross profit was $17.5 million in
the second quarter of fiscal 2013, compared $17.3 million in the previous quarter. Gross
margin in the second quarter of fiscal 2013 decreased to 26%
compared to 32% in the previous quarter mainly due to the negative
gross margin for the sales of surplus imported milk powder as the
Company purchased this product at a higher price than the lower
current market price. Powdered formula margin increased to
43% from 37% in the previous quarter. The sequential increase in
powdered formula margins was due to higher distribution levels of
free products and an inventory provision for aged imported Super
products in the previous quarter.
Loss from operations was $14.1
million, compared to loss from operations of $9.6 million in the previous quarter. Total
operating expenses increase 17% to $31.6
million from $26.9 million in
the previous quarter.
Selling and distribution expenses increased 9% to $14.3 million from $13.1
million in the previous quarter.
Advertising and promotional expenses increased 50% to
$10.2 million from $6.8 million in the previous quarter, primarily
due to increased levels of promotional gifts provided in the
quarter and higher advertising expenses in several of the Company's
product areas.
General and administrative expenses decreased 9% to $7.2 million from $7.9
million in the previous quarter.
Fiscal 2013 second quarter income tax expenses increased to
$29.0 million compared to an income
tax benefit of $2.9 million in the
fiscal first quarter. The income tax expense for the fiscal
second quarter includes a $25.4
million charge from an increase in the valuation allowance
for deferred tax assets attributable to net operating loss
carryforwards of certain PRC subsidiaries and a $3.6 million charge from the derecognition of the
income tax benefit for the loss incurred for the fiscal first
quarter.
Net loss attributable to common stockholders was $44.2 million in the second quarter of fiscal
year 2013, or $(0.77) per diluted
share, compared to a net loss of $9.7
million, or $(0.17) per
diluted share, in the previous quarter.
First Half Ended September 30,
2012 Financial Results
Net sales for the first half of fiscal 2013 ended September 30, 2012 decreased to $120.0 million from $142.8
million in the prior year period. Net sales from branded
powdered formula products decreased to $100.5 million, or 84% of net sales, compared to
$119.3 million, or 84% of net sales
in the prior year period. The decrease was primarily due to the
short-term impact of the price increase.
Net sales from Other Products, which consists mainly of imported
whole milk powder and whey protein sold to industrial customers,
were $15.6 million, or 13% of net
sales, compared to $22.8 million, or
16% of net sales, in the prior year period.
Gross profit decreased 40% to $34.8
million for first half of fiscal 2013 from $58.1 million in the prior year period. Gross
margin was 29% compared to 41% for the prior year period.
Loss from operations was $23.7
million for the first half of fiscal 2013, compared to an
operating income of $5.2 million in
the prior year period.
Net loss attributable to Synutra International, Inc. common
stockholders was $53.9 million for
the first half of fiscal 2013, or $(0.94) per diluted share, compared to a net loss
of $1.1 million, or $(0.02) per diluted share, in the prior year
period.
Balance Sheet
As of September 30, 2012, the
Company had cash and cash equivalents of $74.5 million and restricted cash of $74.2 million, including the current and
non-current portion. The Company's sequential inventory position
decreased 10.7% to $77.1 million from
$86.4 million.
Fiscal 2013 Business Outlook
Mr. Liang Zhang concluded, "Based
on slower than anticipated sales in the first half of our fiscal
year as well as the planned reduction of our distributor base, we
are modifying our full fiscal year outlook. For the full year
of fiscal 2013, we currently expect revenue in the range of
approximately $300 to $350 million
and a net loss of approximately $30 to $50
million, primarily due to the $29
million charge related to the valuation allowance on
deferred tax assets this quarter as well as a net loss before
income tax of approximately $1 to $20
million. With the successful implementation of our sales
channel adjustment, revenue growth in our fiscal second half is
expected to be greater than the first half. Consequently, we
expect to achieve some operating leverage and a return to
profitability in the last quarter of our fiscal year."
"Over the longer-term, we expect continued growth in our
business. We continue to expect significant annualized growth
in China's dairy industry for the
foreseeable future and we believe we have meaningful opportunities
to expand our market position with our existing product line as
well as develop new products for new markets."
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, November 12, 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:
|
38467130
|
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 September 30, 2012, this network comprised over
680 independent distributors and over 730 independent
sub-distributors who sell Synutra products in over 63,000 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)
|
|
|
September 30, 2012
|
March
31, 2012
|
ASSETS
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash and
cash equivalents
|
$
|
74,521
|
$
|
64,793
|
Restricted
cash
|
|
62,978
|
|
30,425
|
Accounts
receivable, net of allowance
|
|
47,075
|
|
38,753
|
Inventories
|
|
77,174
|
|
75,499
|
Due from
related parties
|
|
7,453
|
|
12,262
|
Income tax
receivable
|
|
35
|
|
227
|
Receivable
from assets disposal
|
|
-
|
|
1,037
|
Prepaid
expenses and other current assets
|
|
17,881
|
|
16,320
|
Deferred
tax assets
|
|
7,653
|
|
17,827
|
Total
current assets
|
|
294,770
|
|
257,143
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
129,749
|
|
134,902
|
Land use
rights, net
|
|
10,007
|
|
10,198
|
Intangible
assets, net
|
|
4,363
|
|
4,377
|
Restricted
cash
|
|
11,229
|
|
21,019
|
Other
assets
|
|
3,059
|
|
1,367
|
Deferred
tax assets
|
|
3,425
|
|
18,907
|
TOTAL
ASSETS
|
$
|
456,602
|
$
|
447,913
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Short-term
debt
|
$
|
155,755
|
$
|
86,614
|
Long-term
debt due within one year
|
|
50,725
|
|
40,831
|
Accounts
payable
|
|
45,473
|
|
70,927
|
Due to
related parties
|
|
1,888
|
|
1,655
|
Advances
from customers
|
|
6,263
|
|
5,991
|
Other
current liabilities
|
|
40,504
|
|
40,560
|
Total
current liabilities
|
|
300,608
|
|
246,578
|
|
|
|
|
|
Long-term
debt
|
|
98,746
|
|
92,745
|
Deferred
revenue
|
|
4,213
|
|
4,377
|
Capital
lease obligations
|
|
7,680
|
|
4,726
|
Other
long-term liabilities
|
|
6,166
|
|
2,395
|
Total
liabilities
|
|
417,413
|
|
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
|
|
(125,505)
|
|
(71,620)
|
Accumulated other comprehensive income
|
|
28,726
|
|
32,201
|
Total
common stockholders' equity
|
|
38,667
|
|
96,027
|
Noncontrolling interest
|
|
522
|
|
1,065
|
Total
equity
|
|
39,189
|
|
97,092
|
TOTAL
LIABILITIES AND EQUITY
|
$
|
456,602
|
$
|
447,913
|
|
|
|
|
|
Synutra International,
Inc.
|
Consolidated Statements of
Operations
|
(Dollars in thousands, except per share
data)
|
(Unaudited)
|
|
|
Three Months Ended September
30,
|
|
Six Months Ended September
30,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
Net
sales
|
$
|
66,100
|
$
|
99,053
|
$
|
119,686
|
$
|
142,810
|
Cost of
sales
|
|
48,626
|
|
57,054
|
|
84,911
|
|
84,732
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
17,474
|
|
41,999
|
|
34,775
|
|
58,078
|
|
|
|
|
|
|
|
|
|
Selling
and distribution expenses
|
|
14,298
|
|
12,328
|
|
27,415
|
|
24,789
|
Advertising and promotion expenses
|
|
10,186
|
|
8,042
|
|
16,990
|
|
15,050
|
General
and administrative expenses
|
|
7,162
|
|
6,672
|
|
15,019
|
|
13,251
|
Other
operating income, net
|
|
80
|
|
70
|
|
965
|
|
180
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
(14,092)
|
|
15,027
|
|
(23,684)
|
|
5,168
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
3,934
|
|
3,872
|
|
7,490
|
|
7,284
|
Interest
income
|
|
590
|
|
612
|
|
1,077
|
|
923
|
Other
income, net
|
|
2,111
|
|
107
|
|
2,093
|
|
572
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income tax expense (benefit)
|
|
(15,325)
|
|
11,874
|
|
(28,004)
|
|
(621)
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
29,018
|
|
3,257
|
|
26,115
|
|
208
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
(44,343)
|
|
8,617
|
|
(54,119)
|
|
(829)
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to the noncontrolling interest
|
|
(157)
|
|
92
|
|
(234)
|
|
242
|
|
|
|
|
|
|
|
|
|
Net income
(loss) attributable to common stockholders
|
$
|
(44,186)
|
$
|
8,525
|
|
(53,885)
|
|
(1,071)
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share - basic and diluted
|
$
|
(0.77)
|
$
|
0.15
|
|
(0.94)
|
|
(0.02)
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock outstanding - basic and diluted
|
|
57,301
|
|
57,301
|
|
57,301
|
|
57,301
|
SOURCE Synutra International, Inc.