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Synlait Milk flags faster growth in 2014 as Fonterra cuts guidance

Synlait Milk [NZX: SML], the milk processor which joined the NZX in July, says earnings will beat guidance next year on cheaper raw milk prices and growing demand for its products. That contrasts with Fonterra Cooperative Group, which today slashed its guidance in the face of a margin squeeze.

International demand is favouring Synlait's milk powder and anhydrous milk fat products, while recent announcements mean the season's milk price won't be as high as expected, the company said in a statement. Because of that, Synlait said first-half and annual earnings will probably beat forecasts in 2014. It predicted profit of $19.6 million on sales of $524 million in its prospectus.

"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," chief executive John Penno said. "This is likely to mean Synlait's earnings for the half and full FY14 will be ahead of forecast."

The announcement comes hot on the heels of Fonterra slashing forecast 2014 earnings before interest and tax of $500 million to $600 million, down from normalised EBIT of $1 billion in 2013 as rampant milk prices put a squeeze on its margins. The company cut its forecast dividend by two-thirds to 10 cents, and held the forecast payout to farmers to $8.30 a kilogram of milksolids, dashing expectations of a hike.

Penno said Synlait's policy is to pay its contract suppliers a fair market price. In September, the company raised its forecast payout to farmers to $8/kgMS from $7 /kgMS.

Synlait's shares climbed 5.3 percent to $3.95, almost 80 percent higher than its $2.20 offer price.

In contrast, units in the Fonterra Shareholders' Fund, which grants investors rights to the company's dividend stream, slumped below their $5.50 offer price for the first time since it listed in November last year, and closed the day down 5.7 percent at $5.75.

Synlait will provide updated guidance early next year.

(BusinessDesk)

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