Synutra Reports First Quarter Fiscal 2014 Financial Results

QINGDAO, China and ROCKVILLE, Md., August 9, 2013 /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 2014 ended June 30, 2013.

Mr. Liang Zhang, Chairman and CEO of Synutra, commented, "We are very pleased with our overall performance and the ongoing recovery of our core business this quarter, highlighted by our better than forecasted quarterly sales results and improved profitability during a seasonally slower period. We continued to strengthen the sales operation in our core branded powdered formula segment and also experienced significant results within our nutritional ingredients segment. As our sales organization and outlet network continued to stabilize, we experienced year-over-year as well as sequential increases to both our shipment volume and average selling price."

"We also experienced notable progress in our Nutritional Ingredients and Supplements segment, winning substantial orders that propelled us into the leading market share position of chondroitin sulfate materials in the world for the first time. Our capacity utilization in this business segment increased to approximately 70% in the first quarter and is expected to increase further in the coming quarters."

"The Chinese infant formula industry has experienced some major changes in recent months. We are closely watching and evaluating any impact this may have on Synutra, while also capitalizing on opportunities that could come with the changes. We will proactively communicate any risk factors we perceive with the investment market. With our strong supply chain, our state-of-the-art production facility, our brand equity and our solid sales operation after the Gold Mining program, we remain confident in Synutra's ability to be a leading player in the Chinese infant milk formula industry." concluded Mr. Zhang.

Financial Results for the First Quarter of Fiscal 2014 versus the Fourth Quarter of Fiscal 2013

Net sales increased 13% to $82.2 million for the first quarter of fiscal 2014 from $72.9 million in the fourth quarter of fiscal 2013. Net sales from the Company's branded powdered formula segment were $68.1 million, or 83% of net sales in the quarter, compared to $61.5 million, or 84% of net sales, in the previous quarter. By volume, sales of powdered formula products were 5,744 tons in the first quarter, which increased from 5,661 tons in the previous quarter. Average selling price of powdered formula products improved to $11,852 per ton from $10,862 per ton in the previous quarter mainly due to less discounts and rebates to distributors.

Net sales from Nutritional ingredients and supplements, which is comprised of external sales of chondroitin sulfate to third parties, was $6.3 million, or 8% of net sales, in the first quarter of fiscal 2014, compared to $3.2 million, or 4% of net sales in the previous quarter.

Net sales from Other Products, which includes imported whole milk powder and whey protein powder sold to industrial customers, was $7.7 million, or 9% of net sales, in the first quarter of fiscal 2014, compared to $8.0 million, or 11% of net sales in the previous quarter. As explained in detail in the Company's 10-K for fiscal year 2013, Synutra expects to continuously incur ancillary sales of raw milk / whey protein powder due to its production methods, and such sales may vary from quarter to quarter.

Gross profit was $36.1 million in the first quarter of fiscal 2014, compared to $28.3 million in the previous quarter. Gross margin in the first quarter of fiscal 2014 was 44% compared to 39% in the previous quarter. Powdered formula margin increased to 53% from 48% in the previous quarter. At 53%, the powdered formula segment margin reached the higher end of the Company's historical range, driven mainly by a higher average selling price.

Income from operations was $6.9 million, compared to income from operations of $6.7 million in the previous quarter.

Selling and distribution expenses were $14.8 million, compared with $11.7 million in the fourth quarter of fiscal 2013, reflecting reduced sales staff bonuses in the previous quarter as full year fiscal 2013 sales targets were not met.

Advertising and promotional expenses were $8.5 million, compared with $5.7 million in the previous quarter, reflecting increased expenses associated with the nation-wide promotional events organized in May 2013.

General and administrative expenses were $6.5 million, compared with $8.2 million in the previous quarter, reflecting less bad-debt expenses.

Fiscal 2014 first quarter income tax expense was $79 thousand compared to $100 thousand in the fourth quarter of fiscal 2013, which was mainly withholding income tax paid on intercompany services. The Company fully provided valuation allowance for the deferred tax assets as of June 30, 2013 and March 31, 2013. The Company had released the valuation allowance on deferred tax assets of $1.2 million which was equal to the income tax expense generated from this quarter's profit.

Net income attributable to common stockholders was $4.8 million in the first quarter of fiscal year 2014, or $0.08 per basic share, compared with a net income of $3.3 million, or $0.06 per basic share, in the previous quarter.

Balance Sheet

As of June 30, 2013, the Company had cash and cash equivalents of $80.9 million and restricted cash of $111.7 million, including the current and non-current portion. Net account receivables decreased to $24.7 million on June 30, 2013 from $30.2 million on March 31, 2013 while the Company's sequential inventory position decreased 9% to $79.9 million from $87.7 million. Total debt was $317.6 million, including $207.2 million of short-term debt, as compared to $312.3 million as of March 31, 2013, which included $210.1 million of short-term debt.

Conference Call Details

The Company will hold a conference call on Friday, August 9, 2013 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, 2013, this network comprised over 670 independent distributors and over 710 independent sub-distributors who sell Synutra products in approximately 27,000 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.