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% Grossprofit 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) December31,2012 March31,2012 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 Commonstock,$.0001parvalue:250,000authorized;57,301and57,301 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) ThreeMonthsEndedDecember31, NineMonthsEndedDecember31, 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 Grossprofit 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)beforeincometaxexpense(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 tocommon $ (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) NineMonthsEndedDecember31, 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-termdebt 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, firstname.lastname@example.org or 301-840-3881
Synutra Reports Third Quarter and First Nine Months of Fiscal 2013 Financial Results
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