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Synutra Reports Financial Results for the Fourth Quarter and Full Year Fiscal 2010

Thursday, June 10, 2010 Corporate News J E 4
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-- 4Q10 Net Sales Up 13.4% to $82.4 Million from the Prior Year Period

QINGDAO, China and ROCKVILLE, Md., June 9 /PRNewswire-Asia/ -- Synutra International, Inc. (Nasdaq: SYUT), a leading infant formula company in China and a producer, marketer and seller of nutritional products for infants, children and adults, today announced financial results for the fourth quarter and fiscal year ended March 31, 2010.

    Fourth Quarter Fiscal 2010 Financial Highlights
    -- Net sales up 13.4% to $82.4 million from $72.7 million in the prior
       year period
    -- Gross profit increased 69.1% to $38.9 million from $23.0 million in the
       prior year period
    -- Gross margin up substantially to 47.2% from 31.7% in the prior year
       period
    -- Operating income increased to $11.8 million from an operating loss of
       $19.4 million in the prior year period
    -- Net income increased to $9.1 million, or $0.17 per diluted share, from
       a net loss of $17.2 million, or ($0.32) per diluted share, in the prior
       year period

Mr. Liang Zhang, Chairman and CEO of Synutra stated, "We are very pleased with our fiscal fourth quarter financial results, which demonstrate a return to growth and profitability and the initial success of the significant operational improvements we implemented over the past year. Today's results also demonstrate a more normalized market environment for our infant formula products. We believe our market position is gaining strength and that there are also strong signs of recovery in the end market.

"We were also able to lower the risk profile of our Company with additional progress on two fronts. First, the improvement in our liquidity position led to the removal of the 'going concern' emphasis expressed in the prior year's audit. Second, after appropriately addressing past legal actions in China, our motion to dismiss the outstanding product liability lawsuit in the U.S. was granted."

Fourth Quarter Fiscal 2010 Financial Results

Net sales were $82.4 million in the fourth quarter of fiscal 2010, a 13.4% increase from $72.7 million in the fourth quarter of fiscal 2009. Net sales from the Company's branded powdered formula segment were $69.8 million, or 84.7% of net sales in the quarter, up slightly from $69.2 million, or 95.2% of net sales in the prior year period. On a sequential basis, net sales from the branded powdered formula segment improved 74.1% from $40.1 million in the third quarter of fiscal year 2010. Net sales of the Company's Super series infant formula accounted for approximately 56.6% of the volume of sales and 68.9% of the net sales for the segment for the fourth quarter of fiscal year 2010.

Net sales from Other products, which mainly consist of the surplus milk powder to industrial customers, was $11.6 million, or 14.1% of net sales in the fourth quarter of fiscal 2010, up from $3.2 million, or 4.4% of net sales in the prior year period, and was down 79.5% sequentially from $56.5 million, or 58.4% of total sales in the third quarter of fiscal 2010.

Gross profit increased 69.1% to $38.9 million in the fourth quarter of fiscal 2010, from $23.0 million in the prior year period. Gross margin in the fourth quarter of fiscal 2010 was 47.2%, up from 31.7% in the prior year period.

Operating income was $11.8 million in the fourth quarter of fiscal 2010, compared with an operating loss of $19.4 million in the prior year period. Selling and distribution expenses increased 7.4% to $11.5 million in the fourth quarter of fiscal 2010 from $10.8 million in the prior year period. Advertising and promotion expenses decreased 78.1% to $6.6 million in the fourth quarter of fiscal 2010 from $30.2 million in the prior year period. The decrease primarily reflects a shift in the Company's marketing strategy from a historical reliance on aggressive advertising and promotional campaigns to increased consumer focused promotional and educational activities in communities, medical facilities and healthcare clinics. General and administrative expenses increased 45.2% to $9.5 million in the fourth quarter of fiscal 2010 from $6.5 million in the prior year period. The increase primarily reflects the incurrence of $3.0 million in bad debt allowance in the fourth fiscal quarter as the Company strengthened its distribution network following the melamine contamination incident by extending credit terms to help the recovery of distributors and strategically terminated select distributor relationships.

Net income was $9.1 million, or $0.17 per diluted share in the fourth quarter of fiscal 2010, compared with a net loss of $17.2 million or ($0.32) per diluted share in the prior year period.

Full Year Ended March 31, 2010 Financial Results

Net sales for the fiscal year ended March 31, 2010 decreased 6.6% to $291.9 million from $312.5 million in the prior fiscal year. Net sales from branded powdered formula products decreased 31.8% to $194.4 million, or 66.6% of net sales in the fiscal year ended March 31, 2010, from $284.8 million, or 91.1% of net sales in the prior fiscal year.

Net sales from Other products, which consist mainly of the surplus milk powder to industrial customers, were $95.2 million, or 32.6% of net sales in the fiscal year 2010, compared to $27.4 million, or 8.8% of net sales in the prior fiscal year. The change in revenue mix primarily reflects the impact from the melamine contamination incident on the Company's branded powdered formula segment.

Gross profit was $83.4 million in fiscal year 2010, which increased 56.1% from $53.4 million in the prior fiscal year. Gross margin increased to 28.6% in fiscal year 2010 from 17.1% in the prior year period.

Operating loss was $23.9 million in fiscal year 2010, compared to an operating loss of $125.9 million in the prior fiscal year. Net loss was $24.6 million in fiscal year 2010, or ($0.46) per diluted share, compared with a net loss of $100.5 million, or ($1.86) per diluted share in the prior year.

Balance Sheet

As of March 31, 2010, the Company had cash and cash equivalents of $48.7 million and restricted cash of $33.4 million.

Conference Call Details

The Company will hold a conference call on June 10, 2010 at 8:00 am Eastern Time to discuss the financial results. Listeners may access the call by dialing the following numbers:

    United States toll free:  +1 (877) 312-8817
    International:            +1 (253) 237-1180
    Conference ID:            77338127


    The replay will be accessible through June 17, 2010 by dialing the
following numbers:

    United States toll free:  +1 (800) 642-1687
    International:            +1 (706) 645-9291
    Conference ID:            77338127

A webcast of the conference call will be available through the Company's IR website at http://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 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 30 provinces and provincial-level municipalities in China. As of March 31, 2010, this network comprised over 540 independent distributors and over 1000 independent sub-distributors who sell Synutra products in over 71,000 retail outlets. Additional information about Synutra International, Inc. can be found at http://www.synutra.com .

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 the Company's products; adverse effects associated with the melamine contamination incident; 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 the "Item 1. Business," "Item 1A. Risk Factors," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and other sections in Synutra's Form 10-K filed with the Securities and Exchange Commission on June 9, 2010. 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.

    FOR FURTHER INFORMATION:

     Synutra International, Inc.
     Investor Relations Department
     Email: ir@synutra.com
     Tel:   +1-301-840-3888




    Synutra International, Inc.
    CONSOLIDATED STATEMENTS OF INCOME (unaudited)
    In USD thousands, except per share data

                                            Three   Three    Twelve   Twelve
                                           Months   Months   Months   Months
                                            Ended   Ended    Ended     Ended
                                            March   March    March    March
                                          31, 2009 31, 2010 31, 2009 31, 2010

    Net sales                               72,699  82,411   312,528  291,886
    Cost of sales                           49,669  43,472   259,086  208,476

    Gross profit                            23,030  38,939    53,442   83,410

    Selling and distribution expenses       10,750  11,543    44,178   43,989
    Advertising and promotion expenses      30,163   6,606   115,478   33,854
    General and administrative expenses      6,538   9,493    25,455   24,509
    Impairment loss (reversal) from assets
     disposal                                   --     (80)       --    5,894
    Other operating income, net              4,987     396     5,790      894

    Income (loss) from operations          (19,434) 11,773  (125,879) (23,942)

    Interest expense                         2,413   2,386     4,857    8,603
    Interest income                           (153)    246       341    1,850
    Other income (expense), net                205      10      (580)  (1,081)

    Income (loss) before income tax
     expense (benefit)                     (21,795)  9,643  (130,975) (31,776)

    Income tax expense (benefit)            (4,608)    593   (30,386)  (6,904)

    Net income (loss)                      (17,187)  9,050  (100,589) (24,872)

    Net loss attributable to the
     noncontrolling interest                    16      28        40      257

    Net income (loss) attributable to
     Synutra International, Inc. common
     shareholders                          (17,171)  9,078  (100,549) (24,615)

    Earning (loss) per share-basic           (0.32)   0.17     (1.86)   (0.46)
    Earning (loss) per share-diluted         (0.32)   0.17     (1.86)   (0.46)

    Weighted average common share
     outstanding-basic                      54,001  54,001    54,001   54,001
    Weighted average common share
     outstanding-diluted                    54,001  54,187    54,001   54,001




    Synutra International, Inc.
     CONSOLIDATED BALANCE SHEETS (unaudited)
     In USD thousands, except per share data

                                             March 31, 2009     March 31, 2010
    ASSETS
    Current Assets:
    Cash and cash equivalents                       37,736             48,693
    Restricted cash                                 84,338             33,384
    Accounts receivable, net of allowance
     of $1,452 and $4,355, respectively             23,826             26,013
    Inventories                                    114,724             52,134
    Due from related parties                         2,463              8,111
    Income tax receivable                            1,476                523
    Receivable from assets disposal                     --              5,879
    Prepaid expenses and other current
     assets                                         13,436              8,209
    Deferred tax assets                             16,276             33,390

    Total current assets                           294,275            216,336

    Property, plant and equipment, net             144,481            110,037
    Land use rights, net                             6,374              5,996
    Intangible assets, net                           3,136              3,394
    Goodwill                                         1,435              1,437
    Receivable from assets disposal                     --              4,404
    Other assets                                     4,406              3,575
    Deferred tax assets                             18,464              4,178

    TOTAL ASSETS                                   472,571            349,357

    LIABILITIES AND EQUITY

    Current Liabilities:
    Short-term debt                                224,647             98,069
    Long-term debt due within one year                  --             61,194
    Accounts payable                               112,968             49,947
    Due to related parties                           5,172              2,670
    Advances from customers                          5,448              9,375
    Product recall provision                         4,547                 --
    Other current liabilities                       21,925             22,674

    Total current liabilities                      374,707            243,929

    Long-term debt                                   8,777             41,018
    Deferred revenue                                 4,681              4,688
    Capital lease obligations                        5,254              5,372
    Other long-term liabilities                      1,756              1,419

    Total liabilities                              395,175            296,426

    Equity:
    Synutra International, Inc.
     shareholders' equity
    Common stock, $.0001 par value:
     250,000 authorized; 54,001 and 54,001
     issued and outstanding at March 31,
     2009 and 2010, respectively                         5                  5
    Additional paid-in capital                      76,607             76,607
    Accumulated deficit                            (23,674)           (48,289)
    Accumulated other comprehensive income          23,921             24,015

    Total Synutra common shareholders'
     equity                                         76,859             52,338

    Noncontrolling interest                            537                593

    Total equity                                    77,396             52,931

    TOTAL LIABILITIES AND EQUITY                   472,571            349,357

SOURCE Synutra International, Inc.

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