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Feb. 8, 2012 Source: Syngenta Interview with Mike Mack, CEO To view a video of the interview, click here Results You're announcing your full year results for 2011, so how did Syngenta perform over the period? It was a great year. Our sales were up 12% on a constant currency basis; earnings per share plus 18%; and our free cash flow, a record for the company, $1.5bn. But importantly, we also believe that we gained market share in regions throughout the world and across our product lines. So, overall, it was terrific. Now, given the lower commodity prices that we've seen, were you able to sustain momentum during the second half? Well we said at the half year that we needed to have a strong sales result in the second half, and I'm pleased that that is exactly what happened. Overall, sales up 12%: 8% on volume, 4% on price. But the composition is important. In the Americas, we had good volume momentum throughout the second half, which is really key as this Brazilian market continues to grow for us. In the emerging markets, which this year now accounts for very nearly 50% of our sales, acceleration continued to grow. Europe was down a bit in the second half, but we anticipated that owing to some changes in the French credit regime. But overall, a really terrific result in H2. We've clearly seen some big foreign exchange moves during the year. What impact did they have on your business? Well, there have been indeed some very big movements in foreign exchange, and they were headwinds for the company in 2011; $52m all together for this past year. Now that number is smaller than it would have been had we not had some hedging in place. And we won't get the full benefit of that hedge in 2012. Another factor was that the emerging market currencies also moved against us, particularly in the second half. So, between the currency movements as well as some increase in raw materials we are expecting perhaps $300m to $350m of headwind in 2012. Now the good news is that we are going to be able to more than offset that through a couple of things. First are price increases which we put in place earlier in the year are going to have some momentum going into 2012 as well as of course the cost savings programme that we announced one year ago, and that's going to start to come through the P&L nicely. Now you mentioned your record free cash flow, how were you able to achieve that and what are you planning on using the cash for? Well the free cash flow of course was driven by an increase in EBITDA, plus 18% to $2.9bn. And working capital was a bit higher, but our working cap as a percentage of sales went down slightly, and that was very pleasing. So overall again extremely strong cash flow, and as a consequence this year we are going to be following, of course, the cash return to shareholder policy we announced last year. The dividend will be proposed to be raised 14% to 8 francs. And we are going to be continuing to do a share buyback - $200m - and of course we'll continue to be on the lookout as the opportunities present themselves for acquisitions. So when it comes to acquisitions, especially given the strength of your balance sheet, are there any particular areas that you are looking at? Well we continue to want to fortify our seeds business if those opportunities present themselves. They have in the past but they've tended to be a bit smaller, as well as to supplement our research and development portfolio with technologies that can be incorporated into our integrated offer. But of course some of our best growth opportunities continue to be those that we can develop from our in-house capability. We have a terrifically deep toolbox and a big reach, and looking forward to getting underway in 2012 now. Operational performance So have you seen the hoped-for improvement in pricing? And how did pricing break down across your various regions? Of course the pricing story of 2011 is more than a 'hope'. We systematically set out to have price stability in crop protection chemicals and I'm pleased to say that we beat that target. Overall, it was not only stable but prices were up 1% - in the second half 4% - and they were up across all of the regions which is again very encouraging. And we are looking forward now to having some of that momentum carry us into 2012. So talking about that momentum what should we be expecting for the rest of 2012? Well, look, the season hasn't quite started even in the Northern Hemisphere yet and there is still some to go, but I am hopeful that we are going to be able to put 2% to 3% to the bottom line and that would be apparent then at the end of the first half. You've improved margins in seeds, so what was the driver behind that? Of course, the seeds margin improvement story is not a one year story but a multi-year story. Back in 2006 when our sales were about $2bn and our EBITDA was less than 5% we said that we would set about to systematically grow our sales as well as grow the profitability of seeds around the world. And a lot of that was always predicated on bringing through our trait pipeline in North American corn seed. And that, of course, has been accomplished. And we are in a substantially stronger position, a very competitive position. But equally importantly, we've been able to now take that technology and begin to move it to other parts of the world, principally the Latin American area where in Argentina and in Brazil we are now registering our traits and have a very competitive line up of traits and germplasm. So things are going very well in the US. We've gained perhaps a point of market share in the North American corn business. Things are going very well in Latin America where we are gaining share as well. And of course, it's not just about a corn story, we've also grown our seeds properties around the world, sunflower is a terrific example where we continue to just move from strength to strength, particularly in Eastern Europe where we have the leading offer. So, that alongside making investments in our technology and our platform is going to give us a strong position to continue to grow our sales which last year were $3.2bn, and it's onward and upward for our seeds business. Integrated strategy So can you give us an update on how the integration of your business is progressing? And what's the response been like from customers and employees? Well we announced the integrated strategy in February and we've been systematically moving to implementing it throughout the world. As of right now we have integrated 16 out of the 19 territories. And it's going much more quickly than even we anticipated, and we set a pretty demanding schedule for ourselves. One of the reasons it's going so well is of course a lot of enthusiasm not only from our employees but from our customers as well. They see the benefits for them, and they're looking forward to now being the recipients of some of the integrated offers that we are in the process right now of developing. I think the success of this of course is going to have to be demonstrated in the field over a number of years. One of the most encouraging proof points is Brazil, where we integrated our Crop Protection and Seeds organisation three years ago. This is the third season that they've been in place, and it's really well received by the growers as well as our distributor partners. And our sales are up and our market share is up as a consequence. So, Brazil being our second largest market in the entire world I think that's encouraging about the potential for the strategy. And from your point of view what's the key aim behind this new strategy? Is it about increasing margins or driving growth? It's absolutely about driving growth, top line growth. And we aim to principally do that by expanding the market through our integrated offers. And not only expand the market of course but outpace the competition within an expanded market. So that is absolutely the aim. Equally, though, we think we can do that with the ability to maintain the high profitability that the company already has, thus an important additional target of 22% to 24% EBTIDA margin by 2015. But having said all that isn't this just a defensive move, especially given the ever present threat from generics? Not at all. My first proof point would be our market share continues to evolve, for example, in Asia Pacific where it is a market that is principally served by generics. So, no, our products, crop protection and seeds absolutely have to compete on an economic basis with growers who are very familiar with the use of generic products. So they are bought by our customers because they deliver value clean and simple. Tweet |
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