Syngenta Profit Meets Estimates as It Unveils ChemChina Dealby
Savings will yield more than $1 billion in free cash flow
Proposed dividend remains unchanged at 11 Swiss francs a share
Syngenta AG, which agreed to be taken over by China National Chemical Corp. for more than $43 billion, reported full-year earnings that met analysts’ estimates as it cut costs to offset lower demand for pesticides and other agrochemicals.
Earnings before interest, tax, depreciation and amortization fell 5 percent to $2.78 billion in 2015, the Basel, Switzerland-based company said in a statement Wednesday. Analysts had predicted $2.76 billion, according to a Bloomberg survey. Sales were 11 percent lower at $13.41 billion. Shares of Syngenta gained 5.4 percent to 413.4 Swiss francs as of 9:03 a.m. in Zurich.
In doing a deal with ChemChina, Chief Executive Officer John Ramsay and Chairman Michel Demare can keep the company intact and in Switzerland rather than merging with a competitor and having to relocate and blend management teams. Ramsay, who will stay on as interim CEO after the takeover, said he’s coming to the end of a review of Syngenta’s integrated sales approach where teams are organized along crop lines such as corn and wheat so that all the appropriate products are offered, from seeds to herbicides.
“I’m surprised that they are finally doing it,” said Christian Faitz, an analyst at Kepler Cheuvreux in Frankfurt. “The offer looks attractive. In these deteriorating market conditions shareholders would be well advised to take that offer.”
Under the wing of a state-owned company, Syngenta would have the opportunity to expand and dominate in China, one of the fastest-growing markets for agrochemicals and seeds. It currently generates about $400 million in sales in the Asian nation that’s worth billions of dollars in agrochemical business. Revenue in the Asia Pacific region fell 10 percent to $1.84 billion in 2015.
Syngenta will expand in China “much more rapidly” under the new ownership and may acquire Chinese companies to increase market share in a “very fragmented market,” Ramsay said.
“Syngenta remains Syngenta,” Ramsay said in a phone interview Wednesday. “There is a change to one shareholder from many shareholders. But everything else stays the same.”
While the Swiss company didn’t give a concrete outlook for profit and sales for this year, Ramsay said he expected another year of improved profitability. This year will continue to be “difficult,” he said, though emerging markets won’t have the same level of volatility as in 2015.
“The opportunity in China is great,” Ramsay said. “We are the market leader and we have a 6 percent share. We will work with ChemChina to expand the Chinese business much more rapidly. There is a lot of potential for technification and to improve the quality and technology for Chinese farmers.”