Synutra International, the Chinese-based nutrition group, said it expects to make a net loss for the second quarter as a result of the company’s product recall in September.
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The dairy producer said that due to the product recall linked to the Chinese melamine scandal, its net loss for the fiscal quarter ended 20 September is expected to be around US$49.7m, compared to net income of $9.8m for the same period in the previous year.
The company said it also expects to incur a gross loss of $26.7m versus a gross profit of $46.6m in 2007.
Synutra estimates the cost of the product recall at $77.4m, which includes cost of sales, selling and distribution, of which $38m was recorded as a product recall provision.
This amount includes the replacement cost of the recalled products of $36m, the write-down and write-off of affected inventory of $39.5m, and logistical expenses associated with the recall of $1.9m.
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By GlobalDataThe company said it has completed the recall of all eight lots of its U-Smart products found to be contaminated with melamine following testing by the Chinese government in September. It has recalled its Ustrong series, adult formula products and rice powder products, as well as certain Stage 4 Super products, although “none were found to be contaminated with melamine”.
“We experienced a net loss for the quarter primarily due to the negative impact of the estimated costs related to our product recall efforts,” said Synutra chairman and CEO Liang Zhang.
“While we acknowledge the significant short-term costs attendant to our product recall efforts, we believe that our overall efforts are consistent with our core Company values and the company’s long-term financial success.”
