Basel, Switzerland,
July 23, 2015

2015 Half Year Results - Strong business performance leads to significant increase in profitability

Halbjahresabschluss 2015 - Starke Geschäftsperformance sorgt für deutlichen Anstieg der Profitabilität

Résultats du premier semestre 2015 - Solide performance commerciale et nette augmentation de la rentabilité

Strong business performance leads to significant increase in profitability

• Sales $7.6 billion: up 3 percent at constant exchange rates
• Second quarter sales up 7 percent[1]: growth in all regions
• EBITDA $2.0 billion, up 21 percent at constant exchange rates
• Reported EBITDA 5 percent lower owing to currency movements
• EBITDA margin up 140 basis points to 26.2 percent: 29.2 percent CER1
• Cost savings $104 million: Accelerating Operational Leverage program underway
• Earnings per share[2] $14.70
• Combined peak sales potential of recently launched and pipeline products: >$6 billion

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[1] At constant exchange rates.

2 Excluding restructuring and impairment; EPS on a fully diluted basis.

Mike Mack, Chief Executive Officer, said:

“In 2015 our industry has experienced continuing softness in crop prices and low farm incomes. Despite these challenges, and our decision to reduce sales of glyphosate, we achieved sales growth at constant exchange rates of three percent in the first half. We have been able to largely offset currency depreciation in emerging markets through determined price increases and this, together with our hedging program, has mitigated the impact of currencies on EBITDA. The realization of the first savings from our Accelerating Operational Leverage program has contributed to substantial margin improvement, demonstrating that we are on track to deliver a sustainable improvement in profitability.

“In the first half we saw continuing momentum from our new fungicide ELATUS™ and the successful launch in the USA of the new corn herbicide ACURON™. The excellent grower reception for both products reinforces our confidence in the innovation upturn that is now underway, with total peak sales potential for recently launched products of over $2.7 billion. In addition, to illustrate the longer term returns that we expect from our industry leading R&D, we have today announced an expanded pipeline with peak sales potential of over $3.6 billion.”

Financial highlights 1st Half 2015

Sales $7.6 billion

Sales at constant exchange rates increased by 3 percent, with prices up 6 percent and volumes 3 percent lower. Excluding glyphosate sales were up 6 percent. Reported sales were down 10 percent, with most currencies depreciating against the US dollar.

EBITDA $2.0 billion

EBITDA was 5 percent lower in reported terms but increased by 21 percent at constant exchange rates. The EBITDA margin was 26.2 percent as reported and 29.2 percent at constant exchange rates (H1 2014: 24.8 percent).

Net financial expense and taxation.

Net financial expense at $101 million was virtually unchanged compared with the previous year. The tax rate before restructuring was 17 percent (H1 2014: 15 percent).

Net income $1.2 billion

Net income including restructuring and impairment was 12 percent lower. Earnings per share, excluding restructuring and impairment, were 6 percent lower at $14.70.

Cash flow and balance sheet

Free cash flow before acquisitions at $(113) million was the same as in H1 2014, despite lower reported sales. Average trade working capital as a percentage of sales was 43 percent (H1 2014: 42 percent), with a further reduction in inventory partly offsetting higher receivables in Latin America.

Fixed capital expenditure including intangibles was $240 million (H1 2014: $312 million); for the full year capital expenditure of around $640 million is expected.

Dividend

A dividend of CHF 11.00 per share (2014: CHF 10.00) was paid on April 30, representing a total payout of $1,078 million and a payout ratio of 60 percent.

Business highlights 1st Half 2015

Integrated sales performance

• Sales $7.3 billion, up 3% at CER
  • volume -3%, price +6%
• EBITDA $1.9 billion (H1 2014: $2.0 billion)
• EBITDA margin 26.5% (H1 2014: 25.1%)

Europe, Africa and the Middle East: After a strong start to the year growth continued in the second quarter, supported by further significant price increases in the CIS which more than offset the impact of currency depreciation. Volumes increased in most territories with exceptions in France, which saw early purchasing at the end of 2014, and the CIS, where the price increases caused volume erosion in Seeds. Broad based growth in fungicides included a significant contribution from the new SDHI SEGURIS®. Seedcare also performed strongly, with good volume growth in Ukraine as well as EU Central.

North America: Growth in the second quarter was achieved despite the ongoing impact of low commodity crop prices and lower sales of glyphosate. Excluding glyphosate, sales for the first half were 4 percent lower. In the USA, corn seed sales increased significantly in the second quarter owing to higher trait income. Selective herbicide sales were also robust in the quarter, with the first contribution from ACURON™ following its approval in April. In Canada sales were lower as a result of drought and high channel inventory for Seedcare.

Latin America: Sales were affected by two key factors: the deliberate reduction in sales of glyphosate, and an increase due to a change in contractual sales terms for crop protection products in Brazil, which caused a timing change in sales. Adjusted for these two factors sales were 2 percent lower, reflecting low disease and insect pressure, lower corn seed sales due to acreage contraction and deliberate credit constraint. In addition, Latin America South was adversely affected by the current economic uncertainty. The change in contractual terms in Brazil means that sales to distributors are now recognized on delivery instead of when sold on to the grower. It is a response to the increased size of the Brazilian business and will simplify operations while maintaining tight control over customer credit.

Asia Pacific: The second quarter saw a return to growth despite the phase-out of paraquat in China. Growth was driven by South Asia with increased sales on cotton and the further expansion of GROMORE™ protocols. In ASEAN, sales continue to be affected by reduced rice acreage in Thailand. New products played an important role with the launch of SEGURIS™ in China. DURIVO® continued to expand with growth of over 20 percent in the first half.

Lawn and Garden performance

• Sales $325 million, unchanged at CER
• EBITDA $73 million (H1 2014: $70 million)
• EBITDA margin 22.4% (H1 2014: 19.3%)

Sales were unchanged with growth in Europe and Asia Pacific offsetting the impact of high channel inventories in North America. Profitability again improved and for the full year the business is on track to achieve the targeted EBITDA margin of 20 percent.

Accelerating Operational Leverage

The Accelerating Operational Leverage (AOL) program, announced in February 2014, targets savings of $1 billion by 2018 and has three main pillars: Commercial; Research and Development; and Global Operations. The program’s aim is to optimize the cost structure within the framework of the integrated strategy in order to attain industry-leading efficiency. In the first half of 2015 the company achieved savings of $104 million contributing to the significant improvement in EBITDA margin and putting us firmly on track to achieve the targeted $265 million (including $75 million from a previous program) in 2015.

Innovation

Syngenta’s recent crop protection launches comprise two fungicides (ELATUS™, SEGURIS®), three seed treatments (CLARIVA®, FORTENZA®, VIBRANCE®) and one herbicide (ACURON™). In the first half these products achieved sales of $264 million. Following its successful launch in April, we have revised up the peak sales potential for ACURON™ from over $250 million to over $500 million. The combined peak sales potential of the six recent launches is over $2.7 billion.

The longer term innovation pipeline comprises a further nine new products with combined peak sales potential of over $3.6 billion. The first launch from this pipeline is expected to be ORONDIS™, a fungicide for vegetables and specialty crops, in 2016.

Further information on the pipeline, and on our innovation in seeds and traits, will be available at the R&D Day to be held at our Research Center in Stein, Switzerland on September 16, 2015.

Outlook

Mike Mack, Chief Executive Officer, said:

“Our performance in the first half of the year demonstrates our ability to improve profitability even in a difficult market environment. It has been underpinned by the excellent progress in our AOL program which will make a larger contribution in the second half of the year. As usual, the outlook for the second half is largely dependent on Latin America, where we are confident in our ability to manage the business in an uncertain environment. This enables us to maintain our targets for the full year of sales broadly unchanged at constant exchange rates and EBITDA, after the impact of currencies, around the 2014 level. We expect to generate significant free cash flow. 

“With the significant improvement in our profitability in 2015, further AOL efficiencies to come and increasing trait royalty income, we are firmly on track to achieve our targeted EBITDA margin of 24-26% in 2018. The progress made by our new products and our expanded pipeline underpin our confidence in delivering sustained sales growth accompanied by market share gains.”

Website: http://www.syngenta.com

Published: July 23, 2015