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Synutra Q4 net sales increase 11.6%

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Synutra International
Synutra International   Q4 net sales were $110.2 million

Synutra International announced financial results for the fourth quarter and full year of fiscal 2015 ended March 31, 2015. Q4 net sales were $110.2 million, an increase of 11.6% from $98.7 million in Q4 2014.


Net sales from the company's Nutritional Food segment, which includes branded powdered formula as well as branded baby and adult food products, were $105.1 million, or 95.4% of net sales, in the fourth quarter. This represents an increase of 18.8% over the prior year period's sales of $88.4 million, or 89.6% of net sales.

This increase was primarily driven by a 12.6% increase in average selling price, supported by a 5.5% increase in milk formula sales by volume over the prior year period. Sales of powdered formula products increased to 7,356 tons in the fourth quarter, compared to 6,974 tons in the prior year period. Average selling price was $14,283 per ton, compared to $12,682 per ton in the prior year period.

Net sales from the Nutritional Supplement segment were $4.6 million, or 4.1% of net sales, compared to $4.1 million, or 4.1% of net sales, in the prior year period. This segment is primarily comprised of chondroitin sulfate ingredients sold to certain international pharmaceutical companies.

Net sales from Other Business, which includes imported whole milk powder and whey protein powder sold to industrial customers, were $0.6 million, or 0.5% of net sales, in the fourth quarter of fiscal 2015, compared to $6.2 million, or 6.3% of net sales, in the prior year period.

The decrease in sales from Other Business was primarily due to less unusable raw materials available to be sold in bulk to industrial customers due to the use of infant-grade whole milk powder, which contains a higher percentage of powder that can go directly into the company's final milk formula products under its dry-mixing production method.

Gross profit was $54.2 million in the fourth quarter of fiscal 2015, compared to $38.2 million in the prior year period. Gross margin was 49.2%, an increase from 38.7% in the prior year. This increase was primarily due to the increased contribution to total net sales from the Nutritional Food segment and supported by the increased gross margin of that segment.

Gross margin for the Nutritional Food segment was 51.4%, an increase from 44.8% in the prior year period, primarily due to the higher average selling price of powdered formula products.

Selling and distribution expenses were $14.5 million in the fourth quarter of fiscal 2015, compared to $13 million in the prior year period. Advertising and promotional expenses were $10.9 million in the fourth quarter, compared to $3.9 million in the prior year period.

These two expenses combined accounted for 23.1% of sales, compared to 17.1% in the prior year period. The increase is primarily attributable to a $4.7 million one-time government subsidy to promotional expenses which the company received in the fourth quarter of fiscal 2014.

Income from operations was $16.6 million, an increase of 19.4% over the prior year period. Included in this number is a non-recurring impairment charge, mainly to the assets of the company's baby and adult food business, of $5.8 million. Net income increased 145.5% to $24.3 million from $9.9 million in the prior year period.

Included in net income is a $7.5 million tax benefit, which mainly includes a non-recurring $11.3 million reversal of allowances on deferred tax assets, partially offset by a tax provision on actual income of $3.8 million in the fourth quarter. Net income attributable to common stockholders was $24.1 million in the fourth quarter of fiscal year 2015, or $0.42 per basic share, a 138.7% increase from net income of $10.1 million, or $0.18 per basic share, in the prior year period.

Excluding the non-recurring items, non-GAAP net income attributable to common stockholders for the fourth quarter was $18.6 million, or $0.33 per basic share.

Full year financial results

Net sales for fiscal 2015 ended March 31, 2015 were $413.9 million, an increase of 11.7% from $370.5 million in the prior year. Net sales from the Nutritional Food segment increased by 23.0% to $386.8 million, or 93.4% of net sales, compared to $314.5 million, or 84.9% of net sales, in the prior year.

Gross profit was $189.6 million, an increase of 23.5% from $153.5 million in the prior year. Gross margin was 45.8%, compared to 41.4% for the prior year. Gross margin for the Nutritional Food segment was 48.7%, compared to 49.5% in fiscal 2014.

Income from operations was $73.7 million, compared to $41.6 million in the prior year. Included in income from operations was a non-recurring gain on disposal of subsidiaries of $15.3 million and a non-recurring impairment charge on long-lived assets of $5.8 million.

Net income was $72 million, an increase of 137.4% over $30.3 million in the prior year. One-time items that impacted net income, other than the non-recurring items mentioned above, include a tax expense on the disposal gains of $3.1 million and a reversal of valuation allowances on deferred tax assets of $11.3 million.

Adjusted for all non-recurring items both above and below the operating line, non-GAAP net income for fiscal 2015 was $54.4 million, an increase of 75.3% compared to the prior year. Net income attributable to common stockholders was $69.5 million, or $1.21 per basic share, compared to $30.9 million, or $0.54 per basic share, in the prior year.

As of March 31, 2015, the company had cash and cash equivalents of $85.2 million and restricted cash of $224.7 million, including the current and non-current portions. Net accounts receivable decreased to $15.4 million as of March 31, 2015 from $17.8 million as of December 31, 2014. The company's inventory position increased to $87.8 million from $84 million.

Total debt was $420.7 million, including $145.6 million of short-term debt and $130.4 million of long-term debt due within one year, representing an increase of $34 million from last quarter.

The increase in debt was primarily due to a higher portion of the company's borrowings being collateralized with cash, thus the simultaneous increase in restricted cash and total debt. Net debt, which is total debt net of cash and restricted cash, increased by $0.3 million from last quarter to $ 110.8 million.

For fiscal 2016 the company expects continued growth momentum in the Nutritional Food segment, mainly driven by powdered formula products, and greater operating leverage as sales expand. The company expects full year sales growth for the Nutritional Food segment to be 10-15% over fiscal 2015 results.

Total net sales are expected to be between $450 and 500 million, as there can be more variance from the sales of bulk packaged milk and whey powder in the Other Business segment. The company expects to incur income tax expense consistent with the statutory rate of 25% in fiscal 2016 compared to the income tax benefit recorded in fiscal 2015 due to the reversal of valuation allowances of deferred tax assets.

As such the company expects net income for fiscal 2016 to be between $50 and 60 million, in line with $72 million and $54.4 million for GAAP and non-GAAP net income in fiscal 2015, respectively.

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