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Income statement review
Summarized financial information 2004 and 2003
Currency
Crop Protection
Seeds
Plant Science
Restructuring, impairment and discontinued operations
Regional sales analysis
Cash flow and balance sheet
Cash return to shareholders
Constant exchange rates (CER)
Free cash flow
EBITDA
Restructuring, impairment and discontinued operations
Unaudited full year product line and regional sales
Condensed consolidated income statement
Restructuring and impairment
Condensed consolidated balance sheet
Condensed consolidated cash flow statement
Free cash flow (graphical)
Segmental results for 2004 excluding restructuring and impairment
Segmental results for 2003 excluding restructuring and impairment
Reconciliation of segment EBITDA to segment operating income excluding restructuring
and impairment
References
to EBITDA in the following
financial information exclude the impact of restructuring, impairment and
discontinued operations1.
Income statement review
Sales, at constant exchange rates
(CER) increased by seven per cent. Underlying
demand in the fourth quarter remained
strong; reported sales reflect the realignment
of sales closer to consumption for the coming
season, particularly in the USA, Western
Europe and Japan. Full year Crop Protection
sales were seven percent higher; Seeds sales
rose by six per cent.
EBITDA improved by 18 per cent (CER) to
$1.4 billion benefiting from the growth in
sales and continued cost efficiency.
Earnings per share, excluding restructuring
and impairment and a one-off tax benefit,
were up 76 per cent to $5.87. After charges
for restructuring and impairment earnings per
share were $4.34 (2003: $2.45). In addition
to the improvement in operating income,
the increase reflects lower net financial
expense as well as a lower underlying tax rate.
Summarized financial information 2004 and 2003
Currency: Sales were positively impacted by four per cent due to the weakness
of the US dollar, notably against the Euro, although this impact narrowed in
the second half. At the EBITDA level the positive effect of US dollar weakness
and a benefit from hedging was offset by the strength of the Swiss franc and
sterling.
Crop Protection: Sales increased across all product lines
and in all regions, with Europe and Latin America generating the strongest
growth.
Increased disease pressure, notably from soybean rust in Latin America and
Septoria resistance in European cereals, contributed to a double-digit increase
in
fungicide sales, with AMISTAR exceeding $500 million. Insecticides benefited
from the roll-out of new combination products while solid growth in herbicides
demonstrated the strength of this product line. Professional Products continued
a record of top line growth driven largely by the expansion of seed treatment.
Total sales of new products grew by 32 per cent (CER) to reach $688 million with
continuing growth in the CALLISTO® range
($289 million) and in ACTARA/CRUISER ($298 million) as well as the successful
launch
of ENVOKE on cotton in the USA. The range rationalization program reduced sales
by $49 million (CER) in 2004. This four year program, with a cumulative sales
impact of $301 million, is now complete. EBITDA rose by 22 per cent (CER) to
$1463 million.
Seeds: Sales increased across all businesses and in all regions.
Sales of Vegetables and Flowers increased by 10 per cent. Demand in Field Crops,
notably US corn and soybean, was strong; reported sales increased by two per
cent, impacted by the realignment of sales in the fourth quarter for the coming
seasons consumption. US field crops seeds have a marked seasonal pattern of
sales
and profit, heavily weighted to the first half.
Following their acquisition in the second half
of 2004, GARST and GOLDEN HARVEST made a negligible contribution to sales,
as expected, and their consolidation resulted in the reduction of Seeds EBITDA
by 48 per cent (CER) to $68 million. These acquisitions are expected to be
accretive from 2005.
The integration of GARST and GOLDEN
HARVEST into the North American field crops business is well underway. These
acquisitions
have significantly increased Syngentas market share and, from 2005, the US
field crops business will benefit from broader geographic reach, enhanced germplasm
and a range of biotechnology input traits.
Plant Science: Following the acquisition
of GARST and GOLDEN HARVEST, the management of corn and soybean trait development
activities with the associated cost has been transferred to Seeds. In August
Syngenta signed a long-term technology
agreement with Delta and Pine Land (D&PL), the US leader in cotton seed, under
which
D&PL will commercialize Syngentas insect control technology for cotton.
Restructuring,
impairment and discontinued operations: Total restructuring and impairment
charges during the period were $354 million (cash: $171 million; non-cash:
$183 million)
of which the majority related to the program to streamline global operations,
announced in February 2004. The total cost of the program is expected to
be around $850 million over five years including a non-cash charge of $350
million.
Peak
savings of $300 million are expected by the end of 2008. The sale of SF Chem
resulted
in an additional charge of $108m.
Regional sales analysis
Crop Protection
Sales in Europe, Africa
and the Middle East demonstrated growth across all product lines,
following drought in 2003,
with notable contributions from the entire fungicide range and selective herbicides,
particularly
CALLISTO®. Double-digit increases were registered in France and Eastern Europe,
the latter benefiting from increased investment in agriculture and economic growth.
In
NAFTA sales of selective herbicides were stable in a challenging
market whilst nonselectives continued to be affected by price pressure in glyphosate
in the
USA, which offset volume growth. Fungicide sales growth was driven primarily
by the success of
AMISTAR. Insecticide sales were lower, due
to a reduction in the sales of FORCE and,
to a lesser extent, KARATE. Professional
Products notably seed treatment and turf performed well. Strong growth
continued in Mexico and in Canada with the roll-out
of CRUISER on canola.
Latin America: Sales expanded across the portfolio in
Brazil and Argentina as the international competitiveness of growers and strong
export demand encouraged an increase in acreage under cultivation. The strongest
growth was generated by insecticides,
notably ACTARA, and by fungicides, with
a significant increase in AMISTAR sales to control the spread of soybean rust.
The launch
of the combination product PRIORI Xtra, with both preventative and curative
action, further
strengthened Syngentas position in this important new market.
In Asia Pacific underlying demand in Japan was strong. Sales grew strongly in China where
channel inventories have now returned to normal levels. India showed good growth,
and
sales in Australia improved in the second half.
Cash flow and balance sheet
Free cash flow, post acquisitions,
of $623 million reflected the increase in operating income, a reduction in
working capital
in the second half and lower net financial expense. The ratio of average
trade working capital as a percentage of sales was 40 per cent (2003: 42 per
cent).
Fixed capital expenditure of $166 million was below depreciation of $250
million.
At period end net debt was $864 million (2003: $1.2 billion) representing
a
gearing ratio of 15 per cent (2003: 24 per cent).
Cash return to shareholders
In February 2004 the company announced its intention to return over $800
million to shareholders between 2004 and 2006. A total dividend of $142 million
was
paid in July. In May the company commenced a share repurchase program; by
end December 1.7 million shares had been repurchased at an average price of
CHF
107.2 which equates to $143 million. These shares will be cancelled, subject
to approval at the Annual General Meeting (AGM) on 26 April.
In view of the
ongoing strength of financial performance, the 2004 to 2006 cash return program
has been enhanced to more than $1 billion. As part of this program a dividend
of CHF 2.70, to be paid by way of a nominal par value reduction, will be
submitted for shareholder approval at the AGM on 26 April.
Constant exchange rates (CER)
In this report results from one period to another period are, where appropriate,
compared using constant exchange rates (CER). To present that information,
current period results for entities reporting in currencies other than US
dollars are converted into US dollars at
the prior periods exchange rates, rather than at the exchange rates for the
current year. CER margin percentages for gross profit and EBITDA are calculated
by the ratio of these measures to sales after restating the measures and sales
at prior period exchange rates. The CER presentation indicates the underlying
business performance before taking into
account currency exchange fluctuations.
Free cash flow
Free cash flow comprises cash flow after operating activities,
investing activities, taxes and operational financing activities prior to discontinued
operations and capital financing activities such as drawdown or repayment of
debt, dividends paid to Syngenta Group shareholders, share repurchase and other
equity movements. Free cash flow is not a measure of financial performance
under generally accepted accounting principles and the free cash flow measure
used by Syngenta may not be comparable to similarly titled measures of other
companies. Free cash flow has been included as it is used by many investors
as a useful supplementary measure of cash generation.
EBITDA
EBITDA is defined
as earnings before interest, tax, minority interests, depreciation, amortization
and impairment. Information concerning EBITDA has been included as it is used
by management and by investors as a supplementary measure of operating performance
and is used by Syngenta as the basis of part of its employee incentive schemes.
Management focuses on EBITDA excluding restructuring as this excludes items
affecting comparability from one period to the next. EBITDA is not a measure
of cash liquidity or financial performance under generally accepted accounting
principles and the EBITDA measures used by Syngenta may not be comparable to
other similarly titled measures of other companies. EBITDA should not be construed
as an alternative to operating income or cash flow as determined in accordance
with generally accepted accounting principles.
Restructuring, impairment and
discontinued operations
Restructuring represents the effect on reported
performance of initiating business changes which are considered major and which,
in the
opinion of management, will have a material effect on the nature and focus
of Syngentas operations, and therefore require separate disclosure to provide
a more thorough understanding of business performance. Restructuring includes
the effects of completing and integrating
significant business combinations and
divestments. The incidence of these business
changes may be periodic and the effect on
reported performance of initiating them
will vary from period to period. Because
each such business change is different in
nature and scope, there will be little continuity
in the detailed composition and size of the
reported amounts which affect performance
in successive periods. Separate disclosure of
these amounts facilitates the understanding
of performance including and excluding items
affecting comparability. Reported performance
before restructuring and impairment is one
of the measures used in Syngentas short-term employee incentive compensation
schemes.
Syngentas definition of restructuring and impairment may not be comparable to
similarly titled line items in financial statements of other companies.
Restructuring
and impairment costs in 2004 related primarily to the operational efficiency
program; in 2003 they related primarily to merger and integration activities
following the creation of Syngenta. Further information on restucturing and
impairment is available in the Financial Report 2004.
On 30 September 2004
Syngenta sold
its 75 percent interest in its sulphur and chlorinebased chemical intermediates
business, SF-Chem AG, to a private equity buyer. This business was shown
as part of the Crop Protection segment, and has been presented as a discontinued
operation
in
the consolidated income statement and in
the consolidated cash flow statement.
Unaudited full year product line and regional sales
Condensed consolidated income statement
Restructuring and impairment
Condensed consolidated balance sheet
Condensed consolidated cash flow statement
Free cash flow
Segmental results for 2004 excluding restructuring and impairment
Segmental results for 2003 excluding restructuring and impairment
Reconciliation of segment EBITDA to segment operating income excluding restructuring
and impairment
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