Syngenta to double key crop sales on demand surge

Date:06-22-2011

Swiss agrochemicals giant Syngenta AG Tuesday said soaring demand for seeds and pesticides should help it more than double revenue generated from its main seed and crop protection products in the next few years.

Informing investors at the company's capital markets day at its Jealott's Hill Research Centre in the U.K., Syngenta said new products and a recently launched revamp should also allow the Swiss conglomerate to outgrow the agrochemicals sector, which is expected to grow fast amid fears of a global food crisis.

"Our confidence in the future growth potential of our business is underpinned by an innovation pipeline which will increase sales of key crops to over $17 billion [after] 2015 from $8.4 billion today", said chief executive Mike Mack. "This, combined with our integrated business model, will enable us to grow faster than the global market and deliver superior returns to our shareholders."

Syngenta, based in Basel, is one of the world's largest makers of cereal and vegetable seeds, fungicides, herbicides and insecticides. It has a market share that's about 15% more than that of rivals like U.S.-based Monsanto, Dupont Co and Germany's Bayer AG. The Swiss company, which has some 26,000 staff and generated around 50% of its 2010 annual sales of $11.6 billion in emerging markets, has benefited from the ongoing food price rally that is considered to spur demand in the agrochemical sector.

According to recent research published by consultancy marketsandmarkets, the sector is set to grow sales at double- digit rates over the next five years. This is because food prices have soared during 2010 and 2011 and have remained at elevated levels ever since, according to the Food and Agriculture Organization of the United Nation. The body's FAO Food Price Index, which includes cereals, oils and meat, stood at 232 points in May, slightly below its record level of 238 points, which it hit in February.

Syngenta in February launched an restructuring that will integrate the commercial operations of its seeds and crop protection divisions, helping the Swiss company, which was created out of Novartis AG /quotes/zigman/171707/quotes/nls/nvs NVS +0.43% and AstraZeneca PLC /quotes/zigman/134653/quotes/nls/azn AZN -0.20% in 2000, keep costs in check and also spur sales.

Innovative products such as the recent launch of a seed protection product designed to help shield the root system of cereals and soybean--and which could fetch global peak sales of some $200 million--should also help the company outgrow the market and expand its market share to 17% over the next few years.

According to consultancy marketsandmarkets, the global agrochemical market is expected to grow $223 billion in 2015 from $134 billion in 2010. The consultancy said the rise is "due to increasing population and decreasing land availability" and is "also driven by the use of agrochemicals in the production of biofuels, which are rapidly gaining in importance over traditional petroleum-based fuel."

This situation has proved a boon for agriculture companies, which had previously struggled to find fresh avenues of growth and at a time when most farmers were concerned about food price developments, making them reluctant to buy newer and often more expensive products. As food prices have remained at high and comparatively stable level, companies such as Syngenta were recently able to lift prices.

Analysts and investors welcomed Syngenta's bold projection, sending its shares higher. The stock, which has remained flat this year despite the company's strong first quarter performance, also benefited from CEO Mack's confident statement about the company's "robust" performance in the second quarter. At 1146 GMT, the shares were up 3.4%, or CHF9.1, at CHF278.4 in a slightly higher Swiss stock market.

"The outlook for its key crops business is above consensus," said Zuercher Kantonalbank. "It's also positive that the company remains confident about its second quarter performance as there were market concerns that the bad weather might have impacted its business." Other analysts agreed, noting that Syngenta may also increase dividends or launch share buybacks if the agrochemical market remains sound.