Syngenta promises $1 billion in cost cutsSyngenta is aiming to increase cost-cutting to $1 billion a year by 2018, the world’s No. 1 crop chemicals maker said on Feb. 5 after disappointing the market with an 11 percent fall in profit for last year.
By: Caroline Copley, Reuters
Syngenta is aiming to increase cost-cutting to $1 billion a year by 2018, the world’s No. 1 crop chemicals maker said on Feb. 5 after disappointing the market with an 11 percent fall in profit for last year.
Earnings were hit by higher seed production costs, a writedown on seed inventories and lower-than-expected sales in crop protection in the fourth quarter, says CEO Mike Mack.
Mack has changed Syngenta’s sales model so that a single account manager sells farmers everything from seeds and pesticides to fertilizers and support services, and he aims to boost sales to $25 billion by 2025 from $14.69 billion in 2013.
On Feb. 5, he pledged to take a more disciplined approach to costs after net profit came in at $1.64 billion, missing the average forecast of $1.7 billion in a Reuters poll. Last year, the company made cost savings of $460 million.
Syngenta’s unfavorable product mix also hurt profitability, with sales of low-margin nonselective herbicides up 24 percent while sales of its higher margin seeds slipped 1 percent, says J. Safra Sarasin analyst Philipp Gamper.
“I think the reshuffling of the organization may have cost them a bit of momentum on the operating level,” says Gamper, who has a “neutral” rating on the stock.
Vontobel analyst Patrick Rafaisz, who rates the stock a “buy,”says he was cheered by the new efficiency program, which he thinks should help improve Syngenta’s financial performance after a disappointing 2013.
Shares in Syngenta, which have fallen 10 percent this year, fell 3.3 percent to 306.6 francs ($338.94), compared with a 0.6 percent weaker European chemicals sector.
The stock trades at 14.9 times forward earnings, at a discount to U.S. rival Monsanto’s 19.3 times, but at a premium to DuPont’s 14 times.
Sales growth of 5 percent at constant currency rates lagged the 10 percent growth reported by Monsanto and the 13 percent higher sales in DuPont’s agriculture business for 2013.
Gamper says Syngenta has suffered from its weaker position in corn and soybean seeds than peers. Seed sales for those products dropped 8 percent while the smaller area of diverse field crops rose 18 percent.
Syngenta forecast an improvement in its gross margins this year and says cost savings should offset investments in research and development.
It reported a margin on earnings before interest, tax, depreciation and amortization (EBITDA) of 19.7 percent, down from 21.9 percent on the year. In 2015, it expects to come in at the lower end of its target for an EBITDA margin in the range of 22 to 24 percent.
The cost savings should help it raise the margin to 24 to 26 percent by 2018, it says.
The company says it would pay a dividend of 10 francs per share, up 5 percent, and flagged further increases. Analysts in a Reuters poll had forecast a dividend of 10.40 francs.