Liang Zhang, Chairman and CEO of Synutra, commented, "We were highly encouraged with our ongoing efforts to stabilize our core branded powdered formula business and return to profitability in the fiscal fourth quarter. We believe the short-term negative impact of our price increase implemented in April 2012 has diminished as we continue to nurture and invest in our brands to garner broader trust at the retail level. ""In the fourth quarter of fiscal 2013, we were pleased to have substantially completed the 'Gold Mining' program which originally started in September 2012. First, as of March 31, 2013, the number of active retail outlets that sell our products stabilized at approximately 27,000, in line with our projection. Since these retail outlets were selected for their existing high levels of sales volume, we believe the marketing and promotional expenditures incurred by these outlets became more efficient. Second, we have deployed an effective inventory tracking system, primarily comprised of personal digital assistant (PDA) devices and cell phone applications, to the majority of our distributors and retail outlets. Over the past five months, we have gained greater visibility to distributors' varying inventory levels by helping them efficiently trace inventory distribution, preventing cross-territorial selling and providing greater logistical support. The completion of our "Gold Mining" strategy provides a strong foundation to improve channel inventory visibility, drive higher efficiency of marketing and promotion expenditures, and ensure greater operational efficiency. "
"The initiatives we've implemented in FY13 to improve our business performance has set the stage for strong improvement to our top and bottom line financial performance in FY14. We believe we can be successful delivering top line sales growth through higher average selling prices and product volume growth. By focusing on higher yielding sales outlets as well as our commitment to support our brands to a more concentrated group of distributors and retail customers, we believe we can achieve improved levels of sales, gross margin and net profit in FY14 compared to the prior year period," concluded Mr. Zhang.
Net sales decreased 1% to $72.9 million for the fourth quarter of fiscal 2013 from $73.2 million in the third quarter of fiscal 2013. Net sales from the Company's branded powdered formula segment were $61.5 million, or 84% of net sales in the quarter, compared to $62.4 million, or 85% of net sales, in the previous quarter. By volume, sales of powdered formula products were 5,661 tons in the fourth quarter, which decreased from 5,875 tons in the previous quarter. Average selling price of powdered formula products improved to $10,862 per ton from $10,620 per ton in the previous quarter.
Net sales from Other Products, which includes imported whole milk powder and whey protein powder sold to industrial customers, was $8.0 million, or 11% of net sales, in the fourth quarter of fiscal 2013, compared to $10.6 million, or 14% of net sales in the previous quarter. As explained in detail in the Company's 10-K for fiscal year 2013, Synutra incurs 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 $28.3 million in the fourth quarter of fiscal 2013, compared to $31.5 million in the previous quarter. Gross margin in the fourth quarter of fiscal 2013 was 39% compared to 43% in the previous quarter. Powdered formula margin decreased to 48% from 52% in the previous quarter. At 48%, the powdered formula segment margin is in line with the Company's historical levels.
Income from operations was $6.7 million, compared to income from operations of $362 thousand in the previous quarter. This sequential increase reflects lower sales and marketing expenses after the Gold Mining project, a $3.0 million government subsidy and a $1.0 million gain on liquidation and disposal of subsidiaries.
Selling and distribution expenses were $11.7 million, compared with $14.5 million in the previous quarter, reflecting the lower overhead at our sales team, in particular the decreased bonus for sales staff as full year fiscal 2013 sales targets were not met.
Advertising and promotional expenses were $5.7 million, compared with $9.9 million in the previous quarter, reflecting more efficient allocation of market expenses after the Gold Mining project.
General and administrative expenses were $8.2 million, compared with $7.0 million in the previous quarter.
Fiscal 2013 fourth quarter income tax expense decreased to $100 thousand from an income tax expense of $11.0 million (including income tax expense from valuation allowance of $11.1 million) in the fiscal third quarter. Considering the accumulated loss as of March 31, 2013, we recognized income tax expense of $36.5 million from valuation allowance for deferred tax assets existed at opening of fiscal 2013, and did not recognize income tax benefit for the loss incurred in fiscal 2013. As of March 31, 2013, we had deferred tax assets of $57.0 million and we had fully provided valuation allowance for it. Tax benefits relating to future reversals of the valuation allowance on deferred tax assets, if any, will be recognized as a reduction of income tax expense.
Net income attributable to common stockholders was $3.3 million in the fourth quarter of fiscal year 2013, or $0.06 per diluted share, compared with a net loss of $13.3 million, which included $11.1 million income tax expense from valuation allowance for deferred tax assets, or $(0.23) per diluted share, in the previous quarter.
Full Year Ended March 31, 2013 Financial Results
Net sales for the full year of fiscal 2013 ended March 31, 2013 decreased to $265.8 million from $342.5 million in the prior year period. Net sales from branded powdered formula products decreased to $224.4 million, or 84% of net sales, compared to $301.7 million, or 88% 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 throughout fiscal year 2013.
Net sales from Other Products, which consists mainly of sales of imported whole milk powder and whey protein sold to industrial customers, were $34.2 million, or 13% of net sales, compared to $39.7 million, or 12% of net sales, in the prior year period.
Gross profit decreased 33% to $94.6 million for full year of fiscal 2013 from $140.9 million in the prior year period. Gross margin was 36% compared to 41% for the prior year period. The gross margin decline was primarily attributable to the decline in average sales price in our Powdered Formula segment and the margin decrease in our Others segment.
Loss from operations was $14.0 million for the full year of fiscal 2013, compared to an operating income of $42.8 million in the prior year period.
Net loss attributable to common stockholders was $63.9 million for the full year of fiscal 2013, including $36.5 million income tax expense from valuation allowance for deferred tax assets, or $(1.11) per diluted share, compared to a net income of $16.7 million, or $0.29 per diluted share, in the prior year period.
Balance Sheet
As of March 31, 2013, the Company had cash and cash equivalents of $79.1 million and restricted cash of $108.3 million, including the current and non-current portion. Net account receivables decreased to $30.2 million on March 31, 2013 from $45.2 million on December 31, 2012 while the Company's sequential inventory position increased 11% to $87.7 million from $79.2 million.
