Synutra International has said that false media allegations over the safety of its products had “significantly” hurt its second quarter.
The Chinese infant formula company said net sales reached US$41.2m in the second quarter of fiscal 2011, compared to $65.3m in the second quarter of fiscal 2010. Loss from operations was $26.1m in the quarter, compared to a loss of $16.3m lsat year.
Liang Zhang, chairman and CEO of Synutra, said: “The second quarter of fiscal 2011 was very challenging for Synutra. The premature development allegations, which drove a considerable decline in our market share, left a deep and lasting impact on our business. We are proud, though, of our response to this very difficult situation. We took the initiative to reach out to the proper authorities to verify the quality of our products and stem further consumer panic, we mobilised our sales team and call centre to handle customer concerns and we have provided our distributors with more discounts and promotional activities to maintain the strength of our distribution channels. We also directly confronted the source of these erroneous media reports, Phoenix Satellite Television, who then issued a formal public apology.”
Zhang continued: “Today, we are cautiously optimistic about our ongoing recovery. Following the melamine crisis, our management team demonstrated that they are capable of returning Synutra to profitability. We are confident that through the dedication and commitment of this same team, Synutra will rebuild its market presence and recapture its previous long-term growth momentum.”
Net sales for the first half increased 10.9% to $125m. Operating loss was $9.8m in the first half of fiscal 2011, compared to an operating loss of $26.9m in the prior year period. Net loss was $11.1m in the first half, compared with a net loss of $24.0m last year.
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In August, the China-based media reported allegations that the company’s infant formula products were linked to hormone-triggered premature development in infants in the Hubei province of China. On 15 August 2010, China’s Ministry of Health announced after testing samples of the company’s products that there was no link between Synutra’s infant milk powder products and premature development in infants. Phoenix TV, one of the original media firms that aired the allegations, delivered a formal public apology for promulgating false claims against Synutra.
The company said sales had been “significantly impacted by these allegations”, with market share falling to 4.8% in August 2010 from 6.6% in July 2010 and sales volume falling significantly on a year over year basis in August and September.
