Synutra Reports Third Quarter and First Nine Months of Fiscal 2013 Financial Results
Synutra Reports Third Quarter and First Nine Months of Fiscal 2013 Financial
Results
PR Newswire
QINGDAO, China and ROCKVILLE, Md., Feb. 8, 2013
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
QoQ Change
Quarter Ended
December September
31, 30,
2012 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
14,488 14,298 190 1%
expenses
Advertising and promotion
9,910 10,186 (276) -3%
expenses
General and administrative
6,967 7,162 (195) -3%
expenses
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), 2,844 1,233 1,611 131%
net
Income tax expense (benefit) 10,971 29,018 (18,047) -62%
Net income (loss) attributable
(183) (157) (26) 17%
to the noncontrolling interest
Net income (loss) attributable
(13,270) (44,186) 30,916 -70%
to common stockholders
Income (loss) per share -
($0.23) ($0.77) (0.54) -70%
Basic and diluted
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, 6 6
respectively
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
(183) 116 (417) 358
noncontrolling interest
Net income (loss) attributable to common $ (13,270) $ 10,286 (67,155) 9,215
stockholders
Earnings (loss) per share -basic and diluted $ (0.23) $ 0.18 (1.17) 0.16
Weighted average common stock outstanding - 57,301 57,301 57,301 57,301
basic and diluted
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
(2,190) 0
subsidiaries
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
(16,375) 39,775
activities
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
216 1,818
cash equivalents
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
(4,028) (650)
accounts payable
SOURCE Synutra International, Inc.
Website: http://www.synutra.com
Contact: Synutra International, Inc., Investor Relations Department,
ir@synutra.com or 301-840-3881
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