Synutra Reports Second Quarter and First Half Fiscal 2013 Financial Results

 Synutra Reports Second Quarter and First Half Fiscal 2013 Financial Results

PR Newswire

QINGDAO, China and ROCKVILLE, Md., Nov. 9, 2012

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 30^th. 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          (157)        (77)          (80)     104%
noncontrolling interest
Net loss attributable to common       (44,186)     (9,699)       (34,487) 356%
stockholders
Income (loss) per share – Basic and   ($0.77)      ($0.17)       (0.60)   356%
diluted

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 1^st 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     6                  6
outstanding at September 30, 2012 and
March 31, 2012, respectively
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   Six Months Ended
                                      September 30,        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       (15,325)     11,874   (28,004)   (621)
expense (benefit)
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     (157)        92       (234)      242
the noncontrolling interest
Net income (loss) attributable to   $ (44,186)  $  8,525    (53,885)   (1,071)
common stockholders
Earnings (loss) per share - basic   $ (0.77)    $  0.15     (0.94)     (0.02)
and diluted
Weighted average common stock         57,301       57,301   57,301     57,301
outstanding - basic and diluted



SOURCE Synutra International, Inc.

Website: http://www.synutra.com
Contact: Synutra International, Inc., Investor Relations Department,
+1-301-840-3881, ir@synutra.com
 
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