Synutra Reports First Quarter Fiscal 2015 Financial Results

QINGDAO, China and ROCKVILLE, Md., August 9, 2014 /PRNewswire/ -- Synutra International, Inc. (Nasdaq: SYUT), ("Synutra" or the "Company"), which owns subsidiaries in China that produce, distribute and sell nutritional products for infants, children and adults, today announced financial results for the first quarter of fiscal 2015 ended June 30, 2014.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "We were pleased with our fiscal first quarter results. Despite intense market competition, a temporary disruption of operations due to the renewal of our production license and updates in our product packaging during the quarter, we achieved 21% year over year increase in revenue in our core, powdered formula segment. While our sales volume was down slightly, we focused on efficiency in our selling and promotion activities and effectively controlled the discounts we offered, which helped keep firm our average selling price. We have also successfully disposed of our Zhangjiakou subsidiary and recognized an after tax gain of $11.9 million. EPS grew 276% year-over-year to $0.31."

"We continue to invest in strategic marketing programs to connect with our end customers and build brand loyalty. As industry dynamics shift, we remain focused on producing quality products that meet our customers' needs," concluded Mr. Zhang.

Net sales were $86.0 million for the first quarter of fiscal 2015, an increase of 4.6% from $82.2 million in the first quarter of fiscal 2014. Net sales from the Company's branded powdered formula segment were $82.2 million, or 95.6% of net sales in the quarter, compared to $68.1 million, or 82.8% of net sales, in the prior year period. By volume, sales of powdered formula products were 5,680 tons in the first quarter, compared with 5,744 tons in the prior year period. The slight decrease in sales volume was offset by a 22.1% increase in average selling price. Average selling price increased from $11,852 to $14,473 per ton in the first quarter.

Net sales from Nutritional Ingredients and Supplements, which is comprised of external sales of chondroitin sulfate to third parties, was $1.7 million, or 1.9% of total net sales, compared to $6.3 million, or 7.7% of net sales, in the prior year period. This segment is primarily comprised of chondroitin sulfate materials sold to certain international pharmaceutical companies through annual supply contracts. However, as the price of raw materials for these products has significantly increased recently, the Company has suspended major orders and intends to renegotiate pricing with its customers.

Net sales from Other Products, which includes imported whole milk powder and whey protein powder sold to industrial customers, was $2.1 million, or 2.4% of net sales, in the first quarter of fiscal 2015, compared to $7.7 million, or 9.4% of net sales in the prior year period.

Gross profit was $38.8 million in the first quarter of fiscal 2015, compared to $36.1 million in the prior year period. Gross margin was 45%, an increase from 44% in the prior year. Powdered formula margin was 49%, down from 53% in the prior year period, due to the higher cost of raw milk powder and increased testing and maintenance expense on machinery during the production license renewal process.

Selling and distribution expenses were $12.6 million in the first quarter of fiscal 2015, compared with $14.8 million in the prior year period. Advertising and promotional expenses were $9.7 million in the 2015 first quarter, compared to $8.5 million in the prior year period. The combined percentage to sales of these two expenses decreased from 28.3% in last year to 25.9%, primarily reflecting improved operational efficiency in the sales management in the Company's IMF sector.

Synutra's gain on disposal and liquidation of subsidiaries was $15.0 million in the first quarter of 2015, compared to $0.4 million in the prior year period. This increase largely represents proceeds from the sale of the Company's Zhangjiakou manufacturing facility.

Income from operations was $24.3 million, an increase of 251.5% from the prior year period. Net income attributable to common stockholders was $17.9 million in the first quarter of fiscal year 2015, or $0.31 per basic share, a 275.7% increase from net income of $4.8 million, or $0.08 per basic share, in the prior year period.

Balance Sheet

As of June 30, 2014, the Company had cash and cash equivalents of $41.0 million and restricted cash of $168.6 million, including the current and non-current portions. Net account receivable decreased to $14.4 million as of June 30, 2014 from $17.8 million in the prior quarter. The Company's inventory position decreased as well to $77.3 million from $84.0 million. Total debt was $341.4 million, including $90.5 million of short-term debt and $91.3 million of long-term debt due within one year, representing a decrease of $26.6 million from last quarter.

Fiscal 2015 Financial Outlook

The Company continues to expect strong top line growth and greater operating leverage in fiscal 2015, with full year revenue growth expected to be at least 20% over fiscal 2014 results, or between $450 to $500 million, and net profit growth expected to be at least 60%, or between $50 to 60 million.

Conference Call Details

The Company will hold a conference call on Monday, August 11, 2014 at 8:00 a.m. Eastern Time to discuss the financial results. Listeners may access the call by dialing the following numbers:

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 June 30, 2014, this network comprised over 680 independent distributors and over 550 independent sub-distributors who sell Synutra products in approximately 23,000 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, particularly the progress on the new drying facility project in France; 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 our ability to meet governmental requirements, 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.