Syngenta vows cost cuts of $1 billion

Sales of high margin herbicides dipped slightly

ZURICH, Switzerland (Reuters) — Syngenta is aiming to increase cost cutting to $1 billion a year by 2018, it said after disappointing the market with an 11 percent fall in profit last year.


Earnings were hit by higher seed production costs, a write down on seed inventories and lower-than-expected sales in crop protection in the fourth quarter, said chief executive officer Mike Mack.


Mack has changed Syngenta’s sales model so that a single account manager sells farmers seeds, pesticides, fertilizers and support services, and he aims to boost sales to $25 billion by 2025 from $14.69 billion in 2013.


He recently 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. The company made cost savings of $460 million last year.


Syngenta’s unfavourable product mix also hurt profitability, with sales of low-margin, non-selective herbicides up 24 percent while sales of its higher margin seeds slipped one percent, said 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,” said Gamper, who has a neutral rating on the stock.


Vontobel analyst Patrick Rafaisz, who rates the stock a buy, said he was cheered by the new efficiency program, which he thinks should help improve Syngenta’s financial performance after a disappointing 2013.


The company’s shares have fallen 10 percent this year.


The stock trades at 14.9 times forward earnings, which is at a discount to Monsanto’s 19.3 times but at a premium to DuPont’s 14 times.


Sales growth of five percent at constant currency rates lagged the 10 percent growth reported by Mon-santo and the 13 percent higher sales in DuPont’s agriculture business for 2013.


Gamper said Syngenta has suffered from its weaker position in corn and soybean seeds than its peers. Seed sales for those products dropped eight percent while the smaller area of diverse field crops rose 18 percent.


Syngenta forecast an improvement in its gross margins this year and said 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 22 to 24 percent range.


The cost savings should help it raise the margin to 24 to 26 percent by 2018, it said.


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