Synutra has reported a fall in second quarter sales

Synutra has reported a fall in second quarter sales

Synutra, the US-listed Chinese infant formula producer, has warned its revenue and net income forecasts will be "difficult to achieve" due to lower sales in its core business, foreign exchange losses and promotional costs.

In August, the company estimated its full-year net sales would be between $450m and $500m, with its net income between $50m and $60m.

However, announcing its second-quarter results yesterday (9 November), Synutra issued a note of caution about those forecasts.

"Based on current market conditions and visibility into the second half of the year, the Company believes that its previously announced revenue and net income forecast for fiscal 2016 will be difficult to achieve, due to expected lower sales in the nutritional food segment, the $8.9m foreign exchange loss in the second quarter, and higher-than-expected discount and promotional expense ratios," Synutra said. 

"However, the company remains optimistic about its prospects for continued strong growth above the industry average for fiscal 2017 and beyond, once its French facility is fully operational. The company plans to update its financial forecast for fiscal 2016 when it releases results for the third fiscal quarter."

Second-quarter sales at Synutra were hit by lower volumes and a drop in average selling prices.

For the second quarter ended 30 September, sales fell 14.8% to US$87.3m.

Net profits also took a hit, falling to $639,000 from $11.5m, negatively impacted by foreign currency translation. 

Operating income for the period fell to $12.9m from $13.6m, as last year's figure was lifted by a gain on disposal and liquidation of subsidiaries.

Liang Zhang, chairman and CEO of Synutra, said: "Our sales in the second quarter of fiscal 2016 decreased 15% from the prior-year period as we faced intensified competitive pressure from steep discounting by our peers in the infant milk formula market, as well as several setbacks related to our niche products in the private label, specialty IMF and adult formula categories. Despite these challenging market conditions, we believe our service and quality differentiation strategy will prove successful, and we are well-positioned to benefit from larger trends in the milk formula industry over the long-term."

For the half-year period, net income fell to $8.6m from $29.9m and operating income decreased to $25.4m from $37.9m following the absence of a gain on disposal and liquidation of subsidiaries which benefited last year's result.

Net sales fell to $169.7m from $188.4m

Zhang added the company's French facility that is soon to be online was "moving ahead on schedule and on budget".

In January this year the firm started construction of a drying facility for powdered milk and fat-enriched demineralised whey in Carhaix in France. Synutra initially said the factory woould be up and running by early 2015 however a spokesperson told just-food that it faced a delay in the government approval process.

Zhang added: "We began trial operations of the drying towers in September and we expect to able to begin commercial production of whole milk powder, whey protein powder and canned formula products in the first quarter of calendar 2016."