Syngenta promises $1 billion in cost cuts by 2018 as profit drops

Syngenta is aiming to increase cost-cutting to $1 billion a year by 2018, after disappointing the market with an 11 percent fall in profit for FY 2013.

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 ended December 31, 2013, Chief Executive Mike Mack told Reuters.

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.

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. Last year the company made cost savings of $460 million.

Syngenta's unfavorable product mix also hurt profitability, with sales of low-margin non-selective herbicides up 24 percent while sales of its higher margin seeds slipped 1 percent, J. Safra Sarasin analyst Philipp Gamper said.

"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.

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 said 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 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 range of 22 to 24 percent.

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