Syngenta Combined Regional Sales 2017
The data provided in the accompanying tables and the analysis for the current quarter ending 30 September 2017 are based on market estimates compiled from different sources as the company has not reported results due to their de-listing from the Swiss and other stock exchanges.
Combined Regional Sales
Overall group sales for the third quarter grew by 0.3% or 1% on a CER basis. Changes in Q3 2017 were from volume 3%, price (3%), currency 0.3%; or on a CER basis volume 3%, price (2%). For the 9-months-to-date 2017 period sales declined (1.9%) or (0.7%) on a CER basis, with changes from volume 1%, price (3%), currency 0.1%. With elimination of internal transfers, sales declined (1.7%) or (0.5%) on a CER basis.
The company had to compromise on price to push sales, offsetting any growth in volumes and currency support from Russian and Brazilian operations. One positive aspect was the increase in royalties from trait licensing. Syngenta managed to stick to its Accelerating Operational Leverage (AOL) programme to increase synergies as it did last year. This is done particularly in operating areas of logistics and seed multiplication.
Syngenta’s takeover by ChemChina is now complete and the new entity has already signed deals to divest seeds and chemical businesses as mentioned above. This would result in further divestment of product portfolios in EAME and the Americas due to past divestments to Adama. It would however result in a higher market share in China’s domestic market and excellent potential for growth in seeds and traits for corn, rice sunflowers and vegetables.
The outlook for the balance of 2017 is “Business as usual” with a small single-digit increase over 2016.
Combined Regional Operating Profits
Overall, the company operating profits are estimated at $276 million in Q3 a growth of 0.6% over Q3 2016, while 9-months-to-date 2017 operating profits were $1452 million, a decline of (10.7%) over the same period last year. Crop protection chemicals showed an EBIT of $203 million, a decline of (0.5%) for the quarter and $1173 million in the 9-month period, a decline of 11% (Cropnosis estimates).
Syngenta achieved better results in their seeds segment with 4.5% growth during Q3, while declining (14%) during the 9-month period. Trait fees contributed $88 million this period while seeds EBIT was $112 million. Trait fees are actually the mainstay of Syngenta’s seeds operating profits due to the superior quality of their biotechnology offering especially for IR traits. These revenues are expected to increase strongly after China’s approval for imports of corn bearing the traits.
Outlook for 2017 is positive as they have received approval from most major importing countries including China for their VIP traits like MIR 162/Duracade™ and MIR 604. This would release other seed growers and grain handlers/exporters from any liabilities.
Unfortunately Syngenta has been fined by the Supreme Court for claims made by corn seed exporters like Cargill, Dreyfus and ADM, from the year before. Reduced volumes and currency impacts with lower prices did not do much for the bottom line The big impact was felt from lower profitability from non-selective herbicides as both glyphosate and paraquat outsourced from China faced price competition, while the latter faces regulatory issues in Asian markets – currently a major source of revenues.
Depreciation & Amortisation
Depreciation-Amortisation is estimated to have declined by (3%) for the quarter and by (1.3%) for the 9-month period, arising mainly from crop protection chemicals (6.3%) while their seeds and traits businesses D&A grew 2.4%, although declining (1.1%) for the 9-month period. Full-year D&A is expected to show a similar, small change.
EBITDA declined (0.6%) for Q3 and (26.7%) for the 9-months-to-date 2017. This is an improvement over H1 when trait revenues dropped by 67%. This is expected to improve further by year end 2017 as planting for corn, soybeans in Latin America and winter cereals in Europe begins.
Any further increase in trait revenues would be offset by their lost opportunity in the soybean and corn seed segments. Albeit some increases are expected from licensed-in seeds from Monsanto’s traits. They could certainly compensate by buying Bayer’s cotton seeds business, an area where they currently lack any presence. This would also give them the opportunity to reclaim their proprietary VIPCot™ traits developed for cotton, but never commercialised.
Profitability in crop protection and vector control/public health products is expected to show improvement over the Q4 and year-end 2017 period.
Research and Development
Syngenta’s research & development expenditure was flat in Q3 and (1.1%) during the 9 months-to-date period 2017 as they cut down on expenditure during the ChemChina honeymoon period. Expenditure for crop protection increased marginally by 0.5% and grew by 5% for traits (plant science), as they strengthen their base in Europe.
As part of their objectives for improved profitability they will continue to reduce overall spending in Q4 2017 as they did in 2016 to improve profitability. Syngenta spends 25% of crop protection R&D on discovery, 30% on innovative formulation technology, 35% on development for trials, registration and balance on developing markets. Their acquisition by CNAC /ChemChina may have further impact in CP but less so in Seeds & Traits with great scope to expand in China.
Investing in Seeds – corn in Brazil, China and oilseeds in US, EU. Also new MOU for developing small-scale farming with USAID. Syngenta foundation is increasing activity in this area. Also with small farmers in Asia for rice, sugar-beet seeds. For its seeds and traits R&D budget Syngenta spends 30% on breeding, germplasm library, 40% on development and expansion, for its traits and 30% on developing commercially viable lines with partners.
Increased spending of crop protection inputs for seed production in all regions. North America, Latin America being the largest for their corn and soybean seeds and traits. The sharp increase in Europe and Asia-Pacific is due to seed multiplication for oilseeds and vegetables with their recent acquisitions.