Syngenta 2012 Half Year Results: Sustained sales and earnings growth

BASEL, Switzerland, July 26, 2012 /PRNewswire/ --

• Sales $8.3 billion, up 7 percent; up 10 percent at constant exchange rates (CER)¹
• Strong northern hemisphere performance
• Corn seed sales up 47 percent
  • trait milestones reached, royalty recognition
  • strong underlying growth
• EBITDA up 15 percent at CER
• Net income $1.5 billion, up 5 percent
• Earnings per share² $17.17, up 10 percent

¹ Growth at constant exchange rates
² Excluding restructuring and impairment; EPS on a fully-diluted basis.
³ Net income to shareholders of Syngenta AG (equivalent to diluted earnings per share of $16.31).

Mike Mack, Chief Executive Officer, said:

"In the first half of 2012 we continued implementation of our integrated strategy while again delivering double digit top line growth.  Sales were strong in the key northern hemisphere season despite a cold start in Europe followed by heavy rain in the second quarter.  An excellent performance in North America reflected early plantings and widespread optimism for the season coupled with strong demand for our resistance management offers.  Our technology investments in corn traits resulted in market share gains in Latin America and royalty income from third parties.  We continued to invest in growing the business globally while delivering a substantial increase in underlying profitability.

"Weather conditions in Europe and more recently North America have resulted in sharp increases in crop prices.  This has again brought to the fore the volatility frequently confronting growers.  The challenge of food production is essentially a global one, but grower responses are driven by a multitude of local influences and considerations.  The breadth of our toolbox allows us not only to respond to but also inform the choices being made daily in farms around the world.  The need for technology in agriculture was never greater than it is today, and we believe that our integrated strategy can enhance the value of that technology for customers and shareholders alike."

Financial highlights 1^st Half 2012

Sales $8.3 billion

Sales increased by 10 percent at constant exchange rates.  Sales volume increased by six percent and prices were four percent higher.  Reported sales growth was seven percent owing to the appreciation of the dollar against most currencies.

EBITDA $2.3 billion

At constant exchange rates EBITDA increased by 15 percent and the EBITDA margin (CER) was 29.1 percent (H1 2011: 27.9 percent).  The increase in underlying profitability reflects the operational leverage from volume growth, price increases and higher trait royalty recognition, accompanied by cost savings largely from the integrated business model of $85 million.  This more than offset the impact of higher raw material costs and a net $80 million charge for the settlement of US litigation relating to the herbicide atrazine.

The reported margin was 27.4 percent including a negative currency impact of $202 million.

Net financial expense and taxation

Net financial expense of $84 million was slightly higher than in 2011 ($67 million) reflecting an increase in the cost of balance sheet hedging.  The tax rate was 16 percent; for the full year a rate in the range of 17 to 18 percent is expected.

Net income $1.5 billion

Net income including restructuring and impairment was up five percent.  Earnings per share, excluding restructuring and impairment, increased by 10 percent to $17.17.

Cash flow and balance sheet

Free cash flow of $(34) million reflected a seasonal build-up of working capital in line with strong sales growth.  Average trade working capital as a percentage of sales was further reduced to 36 percent from 37 percent in the first half of 2011. Fixed capital expenditure including intangibles was $239 million (H1 2011: $193 million); for the full year 2012 capital expenditure in the range of $650 to $700 million is expected.

Dividend and share repurchase

A dividend of CHF 8.00 per share (2011: CHF 7.00) was paid on May 2, representing a total payout of $791 million.  In February the company announced its plan to repurchase shares for an amount of around $200 million in 2012.  Of this amount $4 million was purchased in the first half.

On July 10 the company canceled 636,750 shares relating to repurchases made in 2011.  The current number of shares in issue is 93,126,149.

Business Highlights 1^st Half 2012

Integrated sales performance

• Sales $7.8 billion, up 11%⁽¹⁾
• Volume +7%, price +4%
• EBITDA $2.2 billion (H1 2011: $2.1 billion)
• EBITDA margin⁽¹⁾ 29.9% (H1 2011: 28.8%)

(1) At constant exchange rates

Europe, Africa and the Middle East: The main areas of growth were the CIS, the emerging markets of Central and South East Europe, and France.  In the first quarter the portfolio was well positioned to benefit from increased planting of spring crops following winter kill on more than seven million hectares of cereals.  In France, a change in the law on credit terms moved sales from the fourth quarter of 2011 into the first quarter; in addition, there was good underlying growth in CALLISTO^® on corn and in fungicides, particularly AMISTAR^® and ALTO^®. Growth continued in the second quarter although at a slower rate, owing to the fact that spring crops demand less crop protection; in addition, heavy rainfall in many countries inhibited growers' ability to spray.  However the CIS, in particular, continued to perform strongly, with the ongoing intensification of agriculture and a sharp increase in corn herbicide usage in Ukraine.

North America: The success of integrated offers to combat insect and weed resistance is apparent in the strength of crop protection sales, which was sustained throughout the season.  Growth in seeds, which in the first quarter was constrained by lower royalty income, benefited in the second quarter from the recognition of around $200 million in revenue relating to the licensing agreement with Pioneer, announced in 2010, for Syngenta's proprietary MIR604 corn rootworm trait.  This was accompanied by good underlying growth in corn; soybean seed sales were lower due to an expected acreage shift and to the ongoing transition to second generation herbicide tolerance technology.

Latin America: Sales advanced modestly in the low season despite the effect on crop protection applications of severe drought in Argentina and southern Brazil early in the year.  Seeds sales were driven by market share gains and by the expansion of second season corn.  Syngenta's leading trait offer including AGRISURE^®VIPTERA^® is well placed to benefit from increasing GM penetration.  Sales of sunflower seeds are expanding rapidly in Argentina.  In Brazil, the PLENE^® sugar cane plant at Itapolis was formally opened in May and commercial sales are underway.

Asia Pacific: Excluding the impact of range rationalization in India and Japan and the withdrawal of GRAMOXONE^® in South Korea, sales were up three percent.  China and the emerging South East Asia markets showed good growth across the business; sales in Australasia were lower owing to cold and wet conditions.  Corn seed sales grew strongly and are increasingly being marketed as part of a complete first 45-day solution for small-scale growers.

Lawn and Garden performance

• Sales $436 million, 5% lower⁽¹⁾
• EBITDA $58 million (H1 2011: $66 million)
• EBITDA margin⁽¹⁾ 13.9% (H1 2011: 14.1%)

(1) At constant exchange rates

Performance in the first half of the year reflected the continuing weakness of the economic environment in Europe and the USA.  The flowers and consumer segments were most affected; turf and landscape sales were slightly higher.  The business strategy of delivering innovative solutions for professional horticulturalists and consumers, combined with a rationalization of the product range to focus on high value genetics and chemistry, is expected to result in a significant improvement in the full year EBITDA margin over the next three years to around 20 percent.

In June Syngenta announced the disposal of the Fafard peat unit to Sun Gro Horticulture Ltd with immediate effect.  Fafard had sales of $88 million in 2011.

Crop pipelines: In May the first in a series of crop updates focused on Cereals and Corn.  Increased pipeline targets for these two crops support the combined total sales target for our eight key crops of over $22 billion post-2015.  View the presentation using the link below: Cereals and Corn Webcast Presentation.  These targets comprise growth in the existing portfolio and the launch of new products, with an increasing emphasis on integrated offers reflecting our new R&D and crop team structure.

New partnerships: Under a global agreement signed in April, Syngenta and Novozymes will jointly commercialize the Novozymes technology JumpStart^®, a seed-applied biological which increases phosphate uptake in the soil.  A six year global license and research agreement with Devgen will enable the joint development of new biological insect control solutions based on RNA interference (RNAi) technology.  Under a barley breeding collaboration with Intergrain, Syngenta will gain exclusive commercialization rights for all new barley varieties, and exclusive rights to commercialize existing varieties in the Intergrain portfolio outside Australia.

Integration update: All 19 territories are now commercially integrated, enabling the sales force to offer a combined portfolio to the customer.  The centralization of support services is already reaping cost efficiencies, and these will accelerate with the ongoing realization of cost savings from the new business model.  The global crop teams are fully established and are working alongside the regional and R&D teams to develop new crop-based offers.

Performance metrics: Our aim is to gain an average 0.5 percent market share annually across the combined business over the next five years.  We target a group EBITDA margin in the range of 22-24 percent by 2015 and aim to continue to deliver Cash Flow Return on Investment in excess of 12 percent.  We target a continuous increase in the dividend as the primary form of cash return to shareholders.  We will also execute share buybacks on a tactical basis.

Outlook

Mike Mack, Chief Executive Officer, said:

"After a strong first half volume performance in the northern hemisphere and the achievement of targeted price increases, the focus of our business is now Latin America where the outlook is positive given record soybean prices, our leadership position and advances in our integrated portfolio.  Currency headwinds are likely to diminish in the second half and we will realize further cost savings.  For the full year, we expect an increase in EBITDA margin at constant exchange rates and substantial free cash flow generation."

Crop Protection

Selective herbicides:  major brands AXIAL^®, CALLISTO^® family, DUAL^®/BICEP^® MAGNUM,  FUSILADE^®MAX, TOPIK^®

Both North America and Europe registered double digit growth throughout the season.  The corn herbicide portfolio grew strongly in the USA reflecting its success in managing resistant weeds as well as higher corn acres.  Sales of the CALLISTO^® family also expanded across Europe, most notably in France.  AXIAL^® in cereals grew strongly in all regions, with the largest contribution coming from Canada, where increased acreage coincided with low channel inventories at the start of the season.

Non-selective herbicides:  major brands GRAMOXONE^®, TOUCHDOWN^®

Growth was driven by TOUCHDOWN^®, which registered volume growth of close to 30 percent in both North and Latin America.  In North America, sales reflected higher US corn acres and a shortage of generic glyphosate which encouraged a shift to branded products.  Similarly in Latin America, growth reflected good product positioning as well as higher soybean acres in the 2011/12 season.

Fungicides:  major brands ALTO^®, AMISTAR^®, BRAVO^®, REVUS^®, RIDOMIL GOLD^®, SCORE^®, TILT^®, UNIX^® 

Fungicides achieved modest growth despite a first quarter decline in Latin America owing to drought.  Although wet weather in Europe in the second quarter prevented some applications, overall sales were higher thanks to a strong performance by AMISTAR^® and ALTO^® in France. The new product SEGURIS^® (isopyrazam) is growing rapidly on wheat in the UK, with sales up by around 50 percent, and has now been launched in several other countries.  Fungicide adoption in South East Asia drove good growth in the Asia Pacific region, despite a decline in Australasia.

Insecticides: major brands ACTARA^®, DURIVO^®, FORCE^®, KARATE^®, PROCLAIM^®, VERTIMEC^®

Excluding the impact of range rationalization in Japan and India, sales were up eight percent, driven by a very strong performance in North America.  A mild winter and early dry weather in the USA created heavy insect pressure in a number of areas.  Sales of FORCE^® increased by almost 70 percent in the USA as grower awareness of corn rootworm resistance increased and the benefits of soil-based insecticides gained renewed recognition.

Seed care: major brands AVICTA^®, CRUISER^®, DIVIDEND^®, MAXIM^®, VIBRANCE^TM

Sales grew strongly led by CRUISER^®, which continued to expand in all regions.  Growth in North America reflected a strong performance on spring cereals, while in Latin America there is increasing recognition of the vigor effect.  Emerging market adoption continues to increase (Russia, China).  Sales of the nematicide AVICTA^® quadrupled in Latin America, where the product is sold as part of the integrated soybean offer.  VIBRANCE™, first launched in Argentina in 2011, received a US registration.

Seeds

Corn & Soybean: major brands AGRISURE^®, GARST^®, GOLDEN HARVEST^®, NK^®

Growth in sales was driven by corn and included around $200 million in additional royalty income in North America.  Excluding this amount sales rose by 12 percent globally and by five percent in North America, where the trait portfolio continues to develop: in June registration was received for a refuge-in-a-bag offer which will be launched at the end of the year.  Latin America sales were also up strongly reflecting the launch of new trait combinations and successful expansion in the second season corn market.  In Europe growth was driven by the expansion of corn acres and of the portfolio in the CIS and South East Europe.

Diverse Field Crops:  major brands NK^® oilseeds, HILLESHOG^® sugar beet

Growth in the first quarter was driven by the move to spring crops, particularly in the emerging markets of eastern Europe, which favored Syngenta's leading sunflower portfolio.  A slower second quarter performance was partly due to withdrawal from the sorghum business in North America.

Vegetables: major brands DULCINEA^®, ROGERS^®, S&G^®

In 2012 the Vegetables business has experienced some effect from the difficult economic environment particularly in Europe, with consumers reining back expenditure on premium fresh produce.  In North America, however, the processing market has recovered from a period of over-supply and fresh produce sales are benefiting from strong demand for miniature watermelons.

Announcements and Meetings

Syngenta is one of the world's leading companies with more than 26,000 employees in over 90 countries dedicated to our purpose: Bringing plant potential to life.  Through
world-class science, global reach and commitment to our customers we help to increase crop productivity, protect the environment and improve health and quality of life.  For more information about us please go to www.syngenta.com.

Cautionary Statement Regarding Forward-Looking Statements

This document contains forward-looking statements, which can be identified by terminology such as 'expect', 'would', 'will', 'potential', 'plans', 'prospects', 'estimated', 'aiming', 'on track' and similar expressions. Such statements may be subject to risks and uncertainties that could cause the actual results to differ materially from these statements. We refer you to Syngenta's publicly available filings with the U.S. Securities and Exchange Commission for information about these and other risks and uncertainties. Syngenta assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other factors. This document does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer, to purchase or subscribe for any ordinary shares in Syngenta AG, or Syngenta ADSs, nor shall it form the basis of, or be relied on in connection with, any contract there for.

SOURCE Syngenta