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Basel, Switzerland
February 20, 2003
Business Quality
Reinforced: Strong Cash Generation; Increased Dividend Recommended
Financial Highlights
2002 2001 Actual CER
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$m $m % %
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Sales 6197 6323 -2 -3
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Excluding Special Items(1) -----------------------------------
EBITDA 1154 1127 +2 +5
Profit before Tax 445 388 +15 +21
Net Income 265 223 +19
Earnings per Share(3) $2.61 $2.20 +19
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Including Special Items(2)
Profit before Tax 49 111
Net Income -27 34
Earnings per Share(3) ($0.26) $0.34
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Growth rates in the following narrative are at constant exchange rates (CER).
- Crop Protection sales down 3 percent; Seeds sales unchanged
- EBITDA(1) margin up to 18.6 percent (2001: 17.8 percent)
- Synergies ahead of plan; $362 million annualized savings since
merger
- Earnings(1) up 19 percent; reduced finance and tax charges
- Free cash flow $551 million; gearing down to 38 percent
Heinz Imhof, Chairman, said:
"These results are tribute to the skill and commitment of all employees who have
built Syngenta into a higher quality and more competitive business. As we enter
2003 we will further strengthen our position by vigorously developing our
marketing and technical advantages."
Michael Pragnell, Chief Executive Officer, said:
"Our alertness to the challenges of 2002 enabled Syngenta to report a second
year of marked progress thanks to the growth of new products, the benefits of
lifecycle management and the commitment of our selling organization; all
contributed to the strengthening of our competitive position in difficult market
conditions. We have again exceeded our cost synergy target and improved
performance ratios. Tight financial control has enhanced business quality and
significantly strengthened the balance sheet."
(1) Excluding special items of $396 million (2001: $277 million which included
$75 million of disposal gains) being a net charge in respect of merger and
restructuring costs, of which impairment costs associated with these items was
$134 million (2001: $86 million). Please refer to Note 6, page 18 for a complete
analysis and footnote 3, page 10 for a description of EBITDA.
(2) In accordance with International Financial Reporting Standards.
(3) Diluted EPS calculated on 101,635,654 shares.
Highlights for 2002
Sales, at constant exchange rates, during 2002 were three percent lower; the
benefits gained from new product introductions and the breadth of the portfolio
could not fully compensate for continuing weak agricultural markets, product
phase-outs and reductions in channel inventories. In addition, a competitive US
herbicide market was primarily responsible for a one percent decline in price;
reported pricing was also affected by the continued depreciation of the
Brazilian Real.
EBITDA, at constant exchange rates, improved by five percent and the margin
increased by 0.8 percentage points due to reduced cost and improved product mix
through range rationalization.
Earnings per share excluding special items were up 19 percent helped by lower
financial expenses and a lower tax rate. Special items reduced earnings per
share by $2.87.
Dividend: The Board has recommended an increased dividend for 2002 of CHF0.85
per share (2001: CHF0.80) to be paid from 5 May 2003, subject to shareholder
approval at the AGM on 29 April 2003.
Currency: sales were positively impacted by one percent due to the depreciation
of the US dollar; a stronger Swiss franc and the second half appreciation of the
Euro versus the US dollar reduced EBITDA by two percent. At constant exchange
rates the EBITDA margin would have been 19.1 percent.
Crop Protection: Modernization of the product portfolio was a key focus
throughout 2002. During the year sales of newly launched products, in particular
CALLISTO(R), ACTARA(R)/CRUISER(R) and ACANTO(R), increased by $192 million to
$293 million which more than offset the reduction in sales of $129 million due
to product phase-outs. The program to reduce the number of active ingredients
(AIs) from 121 to 76 is well advanced; in 2002 14 AIs were phased-out, bringing
the current total of proprietary AIs in the portfolio to 89.
Progress in reducing channel stocks has been achieved with notable success in
Brazil and some improvement in the USA and Japan.
The beneficial impact of new launches, product rationalization and a continued
reduction in cost of goods offset by price effects in Brazil and the USA
resulted in gross profit remaining stable at 49 percent. EBITDA was 23.1 percent
(2001: 21.8 percent) and at constant exchange rates would have improved further
to 23.4 percent.
Seeds: Continued growth in vegetables and encouraging sales from flowers
compensated for a decline in field crop sales in Brazil and the USA,
particularly in corn. Performance across all major crops in Europe was strong.
Progress has been made in reducing product costs leading to an improvement in
gross margin. The impact of currencies on function expenses resulted in a
decline in EBITDA margin to 11.6 percent (2001: 11.8 percent), which on a
constant exchange rate basis would have improved to 12.5 percent, following the
significant improvement in 2001.
Plant Science (formerly New Technology) is spearheading Syngenta's investment in
biotechnology, an important contributor to the future of agriculture. A wide
range of traits is being developed for commercialization with a target of
breakeven in 2006. Research capability will be expanded through the alliance
with Diversa Corporation of the USA, announced in December, which establishes an
enhanced technology platform. The alliance broadens Syngenta's access to new
plant science applications and will allow innovative products to be brought to
market more quickly. Existing research facilities will be consolidated, further
improving efficiency.
Synergies: Synergies totaling $197 million were realized in 2002, $22 million
ahead of the target announced at the half year. Since the start of the program
in 2000, $362 million of annualized savings have been achieved.
Special Items: Special charges of $396 million before tax largely relate to
restructuring costs associated with implementation of the merger synergy
program. Additional costs relate to the restructuring of the Seeds business in
Korea, cash cost $4 million, and the impairment of intangible assets and
goodwill relating to this and other smaller Seeds acquisitions. Of the total
amount $148 million is a non-cash charge.
Cash Flow and Balance Sheet: Free cash flow of $551 million (2001: $400 million)
exceeded first half expectations and was due to a reduction in average trade
working capital equivalent to five percent of sales, reflecting an accelerated
collection of receivables in the second half and certain pre-payments in the
USA. In Brazil and Argentina net receivables now stand at just below $300
million (2001: $595 million). The ratio of trade working capital as a percentage
of sales at year end improved to 42 percent (2001: 46 percent). Fixed capital
expenditure of $211 million was significantly below depreciation.
At the period end, net debt was $1.7 billion (2001: $2.2 billion) representing a
gearing ratio of 38 percent (2001: 54 percent).
Outlook
Michael Pragnell, Chief Executive Officer, said:
"Agricultural markets remain uncertain at the start of 2003. We will continue to
maximize opportunities to improve business quality in both Crop Protection and
Seeds. At the same time, we are developing our new Plant Science business
through the determined commercialization of biotechnology traits.
"Due to the current strength of many currencies relative to the US dollar,
coupled with additional pension and insurance costs, progress in EBITDA margin
in 2003 is likely to be constrained to less than one percent. Cash flow is
expected to remain strong, albeit at a lower level than achieved in 2002. We
remain committed to delivering increased earnings and steady progress with all
performance ratios."
Syngenta is listed on the Swiss stock exchange (SYNN), and in London (SYA), New
York (NYSE: SYT) and Stockholm (SYN).
Further information is available at
www.syngenta.com.
Crop Protection Sales
Except where stated, all narrative in this section refers to the full year.
Product line variances take into account minor reclassifications made in 2002.
Percentage growth rates are at constant exchange rates (CER).
Full Year Growth 4th Quarter Growth
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2002 2001 Actual CER 2002 2001 Actual CER
Product line $m $m % % $m $m % %
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Selective
herbicides 1606 1722 -6 -7 280 268 +5 +2
Non-selective
herbicides 650 687 -2 -3 110 128 -9 -11
Fungicides 1398 1392 - -1 295 282 +4 -
Insecticides 855 944 -7 -7 177 218 -17 -18
Professional
products 585 522 +6 +5 126 118 +1 -
Others 166 118 +19 +13 35 19 +36 +27
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Total 5260 5385 -2 -3 1023 1033 -1 -4
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Selective Herbicides: major brands BICEP(R) MAGNUM, CALLISTO(R), DUAL(R) MAGNUM,
FLEX(R), FUSILADE(R), TOPIK(R)
Total sales declined for three main reasons: price pressure, largely in the USA,
accounted for $47 million; range rationalization of $32 million; and volume
reductions in Brazil due to de-stocking. In corn herbicides, sales of
CALLISTO(R) reached $103 million following a strong first full-season of
marketing; this more than offset the decline in DUAL(R)/BICEP(R) MAGNUM due to
the competitive US market. In soybeans, sales of FLEX(R) and FUSILADE(R) were
also lower with increased herbicide-tolerant crop (HTC) plantings. In cereals,
sales of the grass herbicide TOPIK(R) declined in France, and in Canada and
Australia due to drought.
Non-selective Herbicides: major brands GRAMOXONE(R), TOUCHDOWN(R)
Continued strong growth of TOUCHDOWN(R) IQ(R) in the USA resulted in an
increased share of the glyphosate market; this was offset by lower sales in
Brazil. New marketing programs for GRAMOXONE(R) in Australia and China increased
sales; in Japan and Brazil there was continued channel de-stocking. Two years
after the opening of the Nantong plant, China has become the second largest
market for GRAMOXONE(R) after the USA.
Fungicides: major brands ACANTO(R), AMISTAR(R), BRAVO(R), RIDOMIL GOLD(R),
SCORE(R), TILT(R), UNIX(R)
First full-season launches in Europe, including a late fourth quarter launch in
France, of the new strobilurin ACANTO(R), resulted in sales of $40 million. This
more than offset reduced sales of AMISTAR(R), the largest product in the
fungicide portfolio, which were lower due to the introduction of a new
competitor in France at the start of the season; there was continued encouraging
growth in the USA, Japan and Brazil. Sales growth of SCORE(R), in Asia and
Europe, and a number of smaller products compensated for lower sales of
RIDOMIL(R), BRAVO(R) and TILT(R). Underlying sales growth in fungicides was
impacted by the phase-out of older products ($28 million).
Insecticides: major brands ACTARA(R), FORCE(R), KARATE(R), PROCLAIM(R),
VERTIMEC(R)
ACTARA(R) achieved sales of $87 million, with broad-based growth and a
particularly strong performance in the USA. Sales of KARATE(R) benefited from
strong growth in KARATE(R) ZEON(R) in Germany. Reduced cotton plantings in
Australia and the USA combined with channel de-stocking in Brazil resulted in
lower sales for a number of products. Over half the decline in insecticides was
due to phase-outs ($35 million).
Professional Products: major brands CRUISER(R), DIVIDEND(R), HERITAGE(R),
ICON(R), MAXIM(R)
Seed Treatment sales sustained very strong growth with sales of CRUISER(R) more
than doubling to $54 million, driven by strong demand in North America in cotton
and canola. Growth of MAXIM(R) continued in the USA and Brazil. Sales of Turf
and Ornamentals were lower with growth more than offset by product phase-outs
($29 million). Public Health sales were down due to reduced tenders for ICON(R).
Full Year Growth 4th Quarter Growth
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2002 2001 Actual CER 2002 2001 Actual CER
Regional $m $m % % $m $m % %
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Europe,
Africa and
Middle East 1919 1870 +3 - 367 358 +2 -5
NAFTA 1864 1887 -1 -1 238 205 +16 +17
Latin America 596 677 -12 -12 177 195 -9 -9
Asia Pacific 881 951 -7 -7 241 275 -12 -14
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Total 5260 5385 -2 -3 1023 1033 -1 -4
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Sales in Europe, Africa and the Middle East were unchanged. Growth came from new
product introductions throughout the region and particularly strong performances
in Germany and Eastern Europe; sales in France were lower due to a contracting
market, increased fungicide competition and the impact of a heavy phase-out
program which all adversely affected sales, particularly in the fourth quarter.
In NAFTA sales continued to grow in Canada and Mexico. In the USA early
indications are of an increased overall market share. Sales recovered in the
fourth quarter reflecting demand aligning with spring consumption; this followed
channel de-stocking and reduced shipments due to adverse weather conditions
earlier in the year. Sales of new products continued to grow strongly.
The early implementation of risk control measures in Latin America mitigated the
worst effects of the financial crises in both Brazil and Argentina. In Argentina
a more robust business has been established which has capitalized on export-led
agricultural demand: sales for the year were up 50 percent and have remained on
a secure terms basis. In Brazil the targeted reductions in channel inventories
and receivables, by 40 percent in volume and 25 percent of sales respectively,
combined with the continued depreciation of the Real significantly reduced sales
although grower consumption is estimated to have increased.
In Asia Pacific sales were down due to market decline. The impact of drought in
the fourth quarter in Australia and product phase-outs of $17 million also
contributed to reduced sales. China achieved strong sales growth in the second
half following a weak first half performance. Initial estimates indicate a
stable overall market share in the region; the business is expected to benefit
from the new go-to-market strategies launched during the year in Japan and
Korea.
Seeds Sales
Except where stated, all narrative in this section refers to the full year.
Percentage growth rates are at constant exchange rates (CER)
Full Year Growth 4th Quarter Growth
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2002 2001 Actual CER 2002 2001 Actual CER
Product line $m $m % % $m $m % %
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Field Crops 503 530 -5 -4 88 85 +4 +3
Vegetables
and Flowers 434 408 +6 +5 85 79 +8 +5
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Total 937 938 - - 173 164 +6 +4
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Field Crops: major brands NK(R) corn, NK(R) oilseeds, HILLESHOG(R) sugar beet
Sales of NK(R) corn declined with significantly lower sales in Brazil; sales in
the US market were also lower due to increased penetration of herbicide-tolerant
corn. Oilseed sales increased slightly: soybean sales were lower in line with
the overall market; sunflowers grew strongly benefiting from superior technology
and increased acreages in Eastern Europe. Sales of HILLESHOG(R) sugar beet grew
in NAFTA and in Europe, where new technology provided growth in a market which
continued to decline.
Sales of GM product were stable and accounted for 17 percent of total Seeds
sales.
Vegetables and Flowers: major brands S&G(R) vegetables, ROGERS(R) vegetables,
S&G(R) flowers
Sales of S&G(R) vegetables continued to grow with particularly strong results in
Europe: in the important Spanish market for peppers and tomatoes Syngenta has a
leading position and market shares are estimated to have increased further
during the year; melons and sweet corn also performed well. Total growth was
reduced by lower sales in Korea.
Sales of S&G(R) flowers increased primarily in Europe, where the full
commercialization of the proprietary X-tray(tm) system for young plants provided
strong growth.
Full Year Growth 4th Quarter Growth
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2002 2001 Actual CER 2002 2001 Actual CER
Regional $m $m % % $m $m % %
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Europe,
Africa and
Middle East 427 393 +8 +8 40 33 +19 +11
NAFTA 396 404 -2 -2 101 100 +2 +2
Latin America 65 88 -26 -26 19 18 +6 +6
Asia Pacific 49 53 -8 -8 13 13 -2 -6
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Total 937 938 - - 173 164 +6 +4
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Sales in Europe, Africa and the Middle East grew across all major crops with
particularly strong performances in vegetables, flowers, corn and sunflowers.
Early estimates indicate significant market share gains in the fresh vegetable
produce sector.
In NAFTA declines in corn and soybean sales more than offset growth in
vegetables and flowers.
The significant sales decline in Latin America reflects the impact of the
Brazilian crisis, a reduced market affecting corn sales and the implementation
of the risk reduction strategy.
In Asia Pacific, increased sales of field crops, particularly in India, were
more than offset by a decline in vegetable sales in Japan and South Korea, where
the business is being restructured.
Synergy and Cost Reduction Programs
During 2002 cost savings of $197 million were delivered, with $92 million
realized in the second half of the year. Since the start of the program in 2000,
annualized savings of $362 million have been achieved at a cumulative cash cost
of $725 million.
During 2002 some $60 million has been realized in Cost of Goods; $91 million
from Selling, General and Administrative; and $46 million from Research and
Development. Since merger, the total number of employees has been reduced by
some 2,600.
The program target for annual cost savings was increased at the half year to
$625 million by the end of 2005 (previously $525 million by the end of 2004) at
a projected total cash cost of $1 billion.
Currency
Syngenta is subject to material currency exposure which arises from two main
factors: 30 percent of its cost base is now in Swiss franc and sterling against
just over three percent of sales, whilst some 19 percent of sales are made in
emerging markets leading to an exposure to more volatile currencies.
Most Euro-denominated sales occur in the first half; costs are spread more
evenly throughout the year. Results are therefore affected by the timing of
currency changes.
The effect of the strong Swiss franc throughout the year was exacerbated in the
second half by the strengthening of the Euro against the US dollar. The
consequent negative impact on EBITDA, arising from increased European costs
expressed in US dollars, was limited to $24 million by hedging programs.
Taxation
Progress has been made through tax restructuring to achieve a further reduction
in the tax rate on the on-going business to 39 percent (December 2001: 42
percent).
Pensions & Insurance
The decline in financial markets has affected the valuation of Syngenta's major
pension funds. As a consequence a cash injection of $135 million was made in
2002.
From 2003 an increase in company pension and insurance costs of some $55 million
annually, will be charged to the income statement. Based on actuarial advice the
increased pension contributions are expected to meet Syngenta's long-term
pension liabilities.
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