Brazilian Real Devaluation Hits Syngenta Results

Syngenta, which is set to be acquired by ChemChina, reported that the strong dollar and a volatile currency environment in Brazil contributed to an 11%-decline in sales last year to $13.4 billion.

Full-year net income including restructuring and impairment was $1.34 billion (2014: $1.62 billion). The charge for restructuring and impairment before taxes at $388 million was higher than the previous year ($206 million) mainly due to charges relating to cost savings programs ($267 million vs $142 million in 2014).

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Fourth-quarter sales, excluding lawn and garden, fell 14% to $3 billion from $3.5 billion a year ago, hurt by sharp declines in Latin America, Asia Pacific and Europe, Africa and the Middle East. On a full-year basis, excluding lawn and garden, sales declined 12% to $12.8 billion from $14.4 billion in 2014.

In North America, volume growth was strong in the quarter, driven by the success of Acuron, a newly launched herbicide that provides corn farmers with an effective solution to combat weed resistance. Sales in the quarter also included trait revenues of $145 million from the licensing agreement with KWS and Limagrain announced in October. The deliberate reduction in glyphosate volumes and lower glyphosate prices reduced full-year sales by 4%. In the USA, ongoing low commodity prices negatively affected the demand for crop enhancement applications. In Canada, sales were lower owing to dry weather conditions and high channel inventories of Seedcare products.

In Latin America, market conditions deteriorated in the second half of the year, with the sharp depreciation of the Real as well as tight credit conditions for growers in both Brazil and Argentina. Despite this Elatus performed well in its second year in Brazil, Syngenta said, demonstrating the continuing customer demand for new technology. The fourth quarter also included $55 million in trait revenue from the KWS and Limagrain agreement. In 2015 the company implemented a change in contractual sales terms for crop protection products in Brazil, which caused a timing change in sales recognition. The full year effect was a $239 million increase in sales. The deliberate reduction in glyphosate volumes and lower glyphosate prices reduced sales by $224 million.

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Chief Executive John Ramsay said in a statement, “Over the last two years we have been dealing not only with low crop prices but also with emerging market instability and massive movements in currencies. Our ability to navigate our way through these headwinds was notably evident in 2015, when exchange rates reduced our full year sales by $1.8 billion – and yet the impact on EBITDA was contained at just $100 million. The latest currency challenge has been the rapid devaluation of the Brazilian real, which accelerated during the summer, just as the planting season was getting underway. Our focus has been on supporting our customers through this period of economic difficulty, while safeguarding our balance sheet through rigorous risk management.”

Ramsay continued: “Syngenta anticipated the current market downturn with the announcement in February 2014 of the Accelerating Operational Leverage Program. It is primarily due to the cost savings achieved under this program that we were able to increase profitability in 2015 – despite the currency headwinds. We have further sharpened our focus on profitability with a comprehensive review of the integrated strategy and of our seeds businesses in particular, which will be completed in the coming weeks. We will assess the profitability potential of each asset as well as its importance in the context of an integrated offer.”

Looking ahead, Ramsay said, “In 2016 our focus will be on further improving profitability in challenging market conditions. Progress will be underpinned by additional cost savings under the AOL program and by a reduction in raw material costs. The AOL program also targets a release of working capital, which will contribute to an increase in free cash flow for the year to over $1 billion.

“Growth in sales of new products and further enhancements in sales force effectiveness should enable us to maintain and grow market share. In addition, our experience of risk management in emerging markets means that we are best placed to weather the current period of volatility. Our strong customer relationships, together with our broad portfolio and integrated offers, will ensure that we maintain and expand our leadership in these markets, which continue to represent the major driver of long term industry growth.”

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