Synlait Milk to beat targets

Last updated 18:29 11/12/2013

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Canterbury dairy processor Synlait Milk says it now expects to beat its financial targets, based on milk powder accounting for a large part of its product mix.

The Synlait guidance late today came after Fonterra said it was holding its forecast milk price at $8.30 a kilogram of milksolids rather than raising the milk price, as had been expected, despite soaring demand for milk powder.

Fonterra is limited in how much advantage it can take of rising international milk prices driven higher by Chinese demand because its milk powder facilities are at capacity.

At the same time cheese and casein prices are not rising in line with milk powder as they often do.

Synlait managing director John Penno said product mixes impacted on the different milk processing companies' earnings.

"We now expect the company will benefit from both earnings growth in our value-added categories, a favourable product mix, and lower than expected milk prices," Penno said.

"This is likely to mean Synlait's earnings for the half and full FY14 will be ahead of forecast."

Synlait's profit forecast for the 2014 financial year is $19.67 million.

The market anticipated the higher earnings for Synlait with Synlait's shares rising 20 cents to close at $3.95 yesterday, much higher than the $2.20 price investors paid for the shares when the company listed on the NZX.

Penno said Synlait would let the season run a bit longer and give a full financial update early in the new year. It was still early in the season. Prices were volatile and expected to stay that way.

Price differences between dairy products on world markets were larger than usual "and continue to favour Synlait's milk powder and AMF (anhydrous milk fat) dominant product mix".

"The company expects that ongoing demand, particularly from China, will mean that this will be maintained for much of the current season," Penno said.

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- Fairfax Media

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