-- Free cash flow(1) $707 million: gearing reduced to 22 percent
-- Earnings per share(2) up 17 percent to $5.18: lower financing and tax rate
-- Sales $4.1 billion, up 5 percent: 3 percent lower at constant exchange rates (CER)
-- EBITDA $1165 million: improved product mix, cost synergies, favorable currency effect
Financial Highlights (unaudited)
1st Half 1st Half
2003 2002 Actual CER(3)
$m $m % %
Sales 4105 3902 5 -3
Excluding Special Items(2)
EBITDA 1165 1099 6
Profit before Tax 841 751 12 4
Net Income 527 448 18
Earnings per Share(5) $5.18 $4.41 17
Including Special Items(4)
Profit before Tax 760 594
Net Income 468 328
Earnings per Share(5) $4.60 $3.23
Growth rates in the following narrative are at CER(3).
Michael Pragnell, Chief Executive Officer, said:
"Syngenta has sustained progress in the first half of 2003 against a
background of challenging conditions. We have reinforced the quality of our
business through focused price management, tight financial control and
continued modernization of the product portfolio; new products, particularly
CALLISTO® and ACTARA®/CRUISER®, have maintained their encouraging
growth. Seeds built on the performance achieved in the first quarter. We
continue to meet cost synergy targets; cash generation and earnings per share
growth remain strong."
(1) For a definition of free cash flow, see Note 10b, page 19.
(2) Excluding special items of $81 million (2002: $157 million) being a
net charge in respect of merger restructuring costs, see Note 8, page
17. See Footnote 4, page 9 for a description of EBITDA.
(3) Growth rates are at constant exchange rates, see Note 4, page 13.
(4) In accordance with International Financial Reporting Standards
(5) Diluted EPS calculated on 101,730,032 shares.
Highlights for 1st Half 2003
Sales during the first half of 2003 were up five percent; excluding a $320
million currency benefit, sales were three percent lower. At constant exchange
rates Crop Protection sales were four percent lower; excluding the impact of
product range rationalization ($70 million) sales were two percent lower
(CER). In Seeds sales (CER) were up three percent.
EBITDA, at constant exchange rates, was unchanged; the reported margin was
28.4 percent (2002: 28.2 percent); the margin at CER was up 0.8 percent.
Earnings per share excluding special items were up 17 percent to $5.18.
Special items reduced earnings per share by $0.58 to $4.60.
Currency: the continued weakness of the US dollar resulted in an eight
percent positive impact on sales; the strength of the Euro, combined with a
positive contribution from other currencies and hedging benefits, contributed
$67 million to EBITDA.
Crop Protection: the business has focused on price management and
portfolio modernization in conditions where demand during the first half of
the year has been slow in many areas and remains below external forecasts;
unusually dry conditions in Europe have reduced grower demand, particularly in
fungicides. Demand in a number of Asian markets has been weak.
The focus on price has succeeded in arresting the recent trend of price
erosion, against continuing pressure particularly in US herbicides, albeit at
the expense of TOUCHDOWN® IQ® volumes.
Growth of new products amounted to $121 million (CER), to bring total new
product sales for the period to $338 million with particularly strong
performances from CALLISTO® and ACTARA®/CRUISER® Range rationalization
resulted in sales being reduced by $70 million (CER) during the period (2002:
$96 million). This program is expected to be completed by the end of 2004.
With lower sales, albeit an improving product mix, EBITDA at $1060 million
was two percent lower (CER).
Seeds: Sales increased across the portfolio: notable growth was achieved
in Europe in vegetables, flowers and sunflowers; in the USA growth was driven
by field crops, notably corn which benefited from a change in US distributor
arrangements, and flowers. EBITDA at $180 million was up five percent (CER).
Plant Science: Plans are progressing for the launch of microbial phytase
in 2004 and VIP (new insect control technology) in 2004/2005 subject to US
regulatory approval.
Synergies: Synergies totaling $84 million were realized in the first half
of the year bringing cumulative savings since merger to $446 million. The
program remains on track to deliver the full year target of $138 million.
Special Items: Special charges of $81 million before tax relate to
restructuring costs associated with implementation of the merger synergy
program and a gain of $39 million from the receipt of shares and warrants from
the Diversa research agreement completed earlier this year.
Cash Flow and Balance Sheet: Free cash flow of $707 million (2002: $398
million) was particularly strong due to a further reduction in average trade
working capital associated largely with the early collection of receivables
combined with lower tax and interest payments. The ratio of trade working
capital as a percentage of sales at period end improved to 44 percent (2002
half year: 51 percent). Fixed capital expenditure of $112 million was below
depreciation of $133 million. At period end, net debt (see Note 10a, page 19)
reduced to $1.1 billion (30 June 2002: $1.8 billion) representing a gearing
ratio of 22 percent (30 June 2002: 40 percent).
- Outlook
-
Michael Pragnell, Chief Executive Officer, said:
-
"Sales in the second half are expected to benefit from robust progress in
Latin America which is likely to be offset by continued weakness in Europe and
Asia. For the full year 2003, our continuing focus on pricing and cost
management is expected to deliver an increase in EBITDA and significant growth
in earnings per share, even though at current exchange rates, most of the
currency benefit on EBITDA seen in the first half is expected to unwind.
"We remain committed to sustaining a cost-competitive organization focused
on value creation; Syngenta is well-positioned to handle the changing
agricultural environment through its broad and innovative product range and
marketing strengths."
Syngenta is a world-leading agribusiness committed to
sustainable agriculture through innovative research and technology. The
company is a leader in crop protection, and ranks third in the high-value
commercial seeds market. Sales in 2002 were approximately $6.2 billion.
Syngenta employs some 20,000 people in over 90 countries. Syngenta is listed
on the Swiss stock exchange (SYNN), and in London (SYA), New York (SYT) and
Stockholm (SYN). Further information is available at www.syngenta.com.
Crop Protection
Except where stated, all narrative in this section refers to the half
year. Percentage growth rates are at CER, see Note 4, page 13. See Note 5,
page 14, for a definition of range rationalization (Ex RR CER).
Half Year Growth
Ex RR
Product line 2003 2002 Actual CER (CER)
$m $m % % %
Selective herbicides 1187 1125 5 -1 -
Non-selective herbicides 364 381 -4 -9 -9
Fungicides 898 871 3 -8 -6
Insecticides 506 480 5 -2 3
Professional products 328 304 8 3 4
Others 87 95 -8 -21 -11
Total 3370 3256 4 -4 -2
2nd Quarter Growth
Ex RR
Product line 2003 2002 Actual CER (CER)
$m $m % % %
Selective herbicides 622 591 5 -1 -
Non-selective herbicides 218 230 -5 -9 -9
Fungicides 474 473 - -9 -8
Insecticides 288 286 1 -5 1
Professional products 159 154 3 -2 -
Others 39 50 -20 -27 -12
Total 1800 1784 1 -6 -3
Selective Herbicides: major brands BICEP® MAGNUM, CALLISTO®/LUMAX(TM),
DUAL® MAGNUM, FUSILADE®MAX, TOPIK®
Excluding the impact of range rationalization, selective herbicide sales
were unchanged. In corn herbicides sales of the CALLISTO® range grew
strongly to $193 million driven by the successful US launch of a new
combination product, LUMAX(TM), for broad-spectrum weed control essential to
high-yielding corn. The US corn herbicide market continued to be adversely
affected by significant pricing pressure and increased penetration of
herbicide-tolerant corn which resulted in reduced sales of DUAL®/BICEP®
MAGNUM. In cereals, sales of the grass herbicide TOPIK® increased strongly
as a result of broad-based growth, particularly in Canada.
Non-selective Herbicides: major brands GRAMOXONE®, TOUCHDOWN®
Sales of the premium priced TOUCHDOWN® IQ® were lower due to an
increasingly competitive US glyphosate market with significant generic
pressure and price reductions. The launch of TOUCHDOWN® CF®, currently
underway for use in the lower-priced chemfallow market, is the first in a
sequence of new introductions that will equip Syngenta to compete in all
glyphosate segments. Sales of GRAMOXONE® were also lower: channel de-
stocking and competitor pressure in China and delayed sales in Mexico more
than offset strong performances in Australia, Brazil and smaller Asian
markets.
Fungicides: major brands ACANTO®, AMISTAR®, BRAVO®, RIDOMIL GOLD®,
SCORE®, TILT®, UNIX®
Excluding the impact of range rationalization, fungicides sales were down
six percent. This decline was a consequence of dry weather in the north
European market, notably France and Germany, which resulted in significantly
lower usage on cereals, particularly a reduction in the important first
application. The roll-out of two competitor strobilurins impacted Syngenta's
particularly high share in this sector. As a result of these factors, sales of
ACANTO® and AMISTAR® were lower in Europe although AMISTAR® continued to
grow in the USA and Brazil. Growth of SCORE® in western Europe and
RIDOMIL® in the USA, largely offset lower sales of TILT® and other smaller
products.
Insecticides: major brands ACTARA®, FORCE®, KARATE®, PROCLAIM®,
VERTIMEC®
Excluding the impact of range rationalization, insecticides sales were up
three percent. ACTARA® continued to grow strongly across most markets,
achieving sales of $61 million. FORCE® sales increased in the USA due to
high corn rootworm infestation and PROCLAIM® continued to progress in the
Japanese vegetable market. KARATE® sales were slightly down, with growth in
NAFTA offset by reductions in Asia.
Professional Products: major brands CRUISER®, DIVIDEND®, HERITAGE®,
ICON®, MAXIM®
Excluding the impact of range rationalization, professional products sales
were up four percent.
Seed Treatment sales continued to grow strongly driven by growth of
CRUISER® (sales totaling $51 million) particularly in North America. Sales
of Turf and Ornamentals were lower largely due to reduced early season demand
in the USA although sales in Japan showed encouraging growth. First sales of
IMPASSE(TM), the innovative termite barrier, were made in the USA.
Half Year Growth
ExRR
Regional 2003 2002 Actual CER (CER)
$m $m % % %
Europe, Africa & Middle East 1335 1218 10 -8 -4
NAFTA 1345 1378 -2 -3 -2
Latin America 243 210 16 16 17
Asia Pacific 447 450 -1 -8 -4
Total 3370 3256 4 -4 -2
2nd Quarter Growth
ExRR
Regional 2003 2002 Actual CER (CER)
$m $m % % %
Europe, Africa & Middle East 665 609 9 -7 -3
NAFTA 783 831 -6 -6 -6
Latin America 133 114 17 17 18
Asia Pacific 219 230 -5 -10 -5
Total 1800 1784 1 -6 -3
Sales in Europe, Africa and the Middle East were eight percent lower; ex
range rationalization four percent lower. Broad-based growth was achieved in
southern Europe, notably in Spain and Italy, capitalizing on strong early
demand; this was insufficient to offset a decline in northern Europe largely
due to dry conditions and new competitor strobilurins. Eastern European sales
made encouraging progress in the second quarter.
In NAFTA sales were up strongly in Canada, more than offsetting delays in
Mexico following price increases implemented earlier in the year. Resistance
to following competitor discounting in two product areas led to reduced sales
in the USA in the second quarter: TOUCHDOWN® IQ® maintained premium
pricing in the glyphosate market, while DUAL®/BICEP® MAGNUM was affected
in the highly competitive corn selective herbicide market. This was partly
offset by growth in CALLISTO®/LUMAX(TM), FORCE® and seed treatments.
Sales in Latin America recovered strongly. Brazil benefited from the
program to align sales with consumption and reduce distributor stocks to a
sustainable level. Business quality improved markedly through rigorous pricing
and credit management; this strategy has resulted in market share gains with a
positive outlook for further growth. Argentina has continued to build on its
new business model, with sales more than doubling while remaining on secure
terms.
In Asia Pacific sales were lower largely due to market decline in Korea
combined with channel de-stocking and competitor pressure in China. Sales in
Japan were broadly flat; in Australia growth was achieved following some
rainfall after prolonged drought.
Seeds
Except where stated, all narrative in this section refers to the half
year. Percentage growth rates are at CER, see Note 4, page 13.
Half Year Growth 2nd Quarter Growth
Actual ExRR Actual ExRR
2003 2002 CER (CER) 2003 2002 CER(CER)
Product Line $m $m % % % $m $m % % %
Field Crops 430 381 13 2 2 156 141 11 3 3
Vegetables & Flowers 305 265 15 3 3 150 133 12 1 1
Total 735 646 14 3 3 306 274 11 2 2
Field Crops: major brands NK® corn, NK® oilseeds, HILLESHOG® sugar
beet
Sales of NK® corn in the USA increased strongly following the launch of
14 premium priced new hybrids and benefited from changes to distributor
arrangements. Oilseeds sales were up strongly primarily due to high growth in
sunflowers in Europe, with anticipated market share gains. Sales of
HILLESHOG® sugar beet were lower in NAFTA and Europe in declining markets.
Sales of GM product accounted for 18 percent of total Seeds sales.
Vegetables and Flowers: major brands S&G® vegetables, ROGERS®
vegetables, S&G® flowers
Sales of S&G® vegetables continued to grow with particularly strong
results from tomatoes in Europe; growth was offset by lower sales in the USA
and Korea.
The development of New Produce Network in the USA has continued with roll-
out in 900 outlets; this will further enhance business focus on the fresh
produce sector.
New product introductions underpinned sales of S&G® flowers in Europe
and the USA.
Half Year Growth
ExRR
2003 2002 Actual CER (CER)
Regional $m $m % % %
Europe, Africa & Middle East 394 316 25 4 4
NAFTA 286 270 6 6 6
Latin America 25 33 -24 -25 -25
Asia Pacific 30 27 8 1 1
Total 735 646 14 3 3
2nd Quarter Growth
ExRR
2003 2002 Actual CER (CER)
Regional $m $m % % %
Europe, Africa & Middle East 150 119 26 5 5
NAFTA 115 113 2 1 1
Latin America 23 27 -13 -14 -14
Asia Pacific 18 15 12 7 7
Total 306 274 11 2 2
Sales in Europe, Africa and the Middle East increased due to strong
performances in vegetables, flowersand sunflowers.
In NAFTA increased sales of corn and flowers more than offset declines in
sugar beet and vegetables.
Sales reductions in Latin America reflect implementation of a risk
management strategy, with sales aligned loser to planting.
In Asia Pacific sales were up slightly with encouraging results in India
and Australia.
Synergy and Cost Reduction Programs
During the first half of 2003 cost savings of $84 million were delivered;
cumulative savings of $446 million at a cumulative cash cost of $817 million
have been achieved.
During the period some $48 million has been realized in Cost of Goods; $12
million from Selling, General and administrative; and $24 million from
Research and Development. Since merger, the total number of employees has been
reduced by some 3,000.
Currency
For the full year, the impact of currency movements on EBITDA at current
exchange rates, is expected to be broadly neutral. In the second half reduced
benefit from the stronger Euro and from hedging will largely offset he
positive currency effect registered in the first half.
Taxation
Ongoing restructuring has resulted in a further reduction in the tax rate,
for the ongoing business, to 37 percent December 2002: 39 percent).
Unaudited Half Year Segmental Results (1)
1st Half 1st Half
Total Syngenta 2003 2002 CER (2)
$m $m %
Sales 4105 3902 -3
Gross profit 2185 2055 -1
Marketing and distribution -602 -549 -
Research and development -355 -336 5
General and administrative -318 -323 4
Operating income 910 847 2
EBITDA 1165 1099 -
EBITDA (%) 28.4 28.2
1st Half 1st Half
Crop Protection 2003 2002 CER (2)
$m $m %
Sales 3370 3256 -4
Gross profit 1799 1716 -1
Marketing and distribution -470 -433 -
Research and development -224 -206 4
General and administrative -274 -277 3
Operating income 831 800 -
EBITDA 1060 1028 -2
EBITDA (%) 31.4 31.6
1st Half 1st Half
Seeds 2003 2002 CER (2)
$m $m %
Sales 735 646 3
Gross profit 386 339 1
Marketing and distribution -132 -116 -3
Research and development -62 -57 2
General and administrative -35 -37 13
Operating income 157 129 5
EBITDA 180 148 5
EBITDA (%) 24.5 22.9
1st Half 1st Half
Plant Science 2003 2002 CER (2)
$m $m %
Sales - - -
Gross profit - - -
Marketing and distribution - - -
Research and development -69 -73 11
General and administrative -9 -9 2
Operating loss -78 -82 10
EBITDA -75 -77 8
EBITDA (%) n/a n/a
(1) Excluding special items.
(2) Growth at constant exchange rates, see Note 4.
Unaudited Interim Financial Information
The following unaudited interim condensed consolidated financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS). A reconciliation to US GAAP has been prepared for
US investors.
Unaudited Interim Condensed Consolidated Income Statement
Including
Special Excluding Special
Items(1) Special Items Items
For the six months to 30
June 2003 2002 2003 2002 2003 2002 CER(2)
$m $m $m $m $m $m %
Sales 4105 3902 - - 4105 3902 -3
Cost of goods sold -1920 -1847 - - -1920 -1847 6
Gross profit 2185 2055 - - 2185 2055 -1
Marketing and
distribution -602 -549 - - -602 -549 -
Research and development -355 -336 - - -355 -336 5
General and
administrative -318 -323 - - -318 -323 4
Merger and restructuring
costs -81 -157 -81 -157 - - -
Operating income 829 690 -81 -157 910 847 2
Associates and joint
ventures -1 -3 - - -1 -3 67
Financial expense, net -68 -93 - - -68 -93 21
Income before taxes and
minority interests 760 594 -81 -157 841 751 4
Income tax expense -289 -264 22 37 -311 -301 n/a
Income before minority
interests 471 330 -59 -120 530 450 n/a
Minority interests -3 -2 - - -3 -2 n/a
Net income 468 328 -59 -120 527 448 n/a
Earnings per share(3)
- basic $4.61 $3.23($0.58)($1.19)$5.19 $4.42
- diluted $4.60 $3.23($0.58)($1.18)$5.18 $4.41
EBITDA(4) 1087 989 -78 -110 1165 1099 -
(1) The condensed consolidated income statement including special items
is prepared in accordance with IFRS.
(2) Growth rates are at constant exchange rates, see Note 4.
(3) The weighted average number of ordinary shares in issue used to
calculate the earnings per share were as follows: for 2003 basic EPS
101.5 million and diluted EPS 101.7 million; 2002 basic EPS 101.4
million and diluted EPS 101.6 million.
(4) 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 investors as
one measure of an issuer's ability to service or incur indebtedness.
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.
Unaudited Interim Condensed Consolidated Balance Sheet
30 Jun 30 Jun 31 Dec
2003 2002 2002
$m $m $m
Assets
Current assets
Cash and cash equivalents 283 260 232
Trade accounts receivable 2303 2589 1602
Other accounts receivable 333 292 243
Other current assets 674 494 516
Inventories 1633 1631 1704
Total current assets 5226 5266 4297
Non-current assets
Property, plant and equipment 2307 2352 2310
Intangible assets 2708 2943 2813
Investments in associates and joint
ventures 98 97 95
Deferred tax assets 701 714 666
Other financial assets 404 271 345
Total non-current assets 6218 6377 6229
Total assets 11444 11643 10526
Liabilities and Equity
Current liabilities
Trade accounts payable -1094 -1079 -725
Current financial debts -776 -1034 -1207
Income taxes payable -430 -312 -210
Other current liabilities -929 -899 -794
Provisions -218 -239 -222
Total current liabilities -3447 -3563 -3158
Non-current liabilities
Non-current financial debts -952 -1238 -925
Deferred tax liabilities -1158 -1283 -1098
Provisions -923 -894 -915
Total non-current liabilities -3033 -3415 -2938
Total liabilities -6480 -6978 -6096
Minority interests -62 -78 -80
Total shareholders' equity -4902 -4587 -4350
Total liabilities and equity -11444 -11643 -10526
Unaudited Interim Condensed Consolidated Cash Flow Statement
For the six months to 30 June 2003 2002
$m $m
Operating income 829 690
Reversal of non-cash items;
Depreciation, amortization and
impairment on:
Property, plant and equipment 136 176
Intangible assets 123 127
Loss/(Gain) on disposal of fixed
assets -46 -27
Charges in respect of provisions 216 188
Cash (paid)/received in respect of;
Interest and other financial receipts 38 40
Interest and other financial payments -119 -189
Taxation -23 -148
Merger and restructuring costs -104 -107
Other provisions -74 -53
Cash flow before working capital
changes 976 697
Change in net current assets and
other operating cash flows -154 -148
Cash flow from operating activities 822 549
Additions to property, plant and
equipment -88 -65
Proceeds from disposals of property,
plant and equipment 10 34
Purchase of intangibles, investments
in associates and other financial
assets -24 -138
Proceeds from disposals of intangible
and financial assets 5 3
Proceeds from business divestments -1 10
Acquisition of minorities -29 -
Cash flow (used for)/from investing
activities -127 -156
Increases in third party interest-
bearing debt - 168
Repayment of third party interest-
bearing debt -587 -543
Dividends paid to group shareholders -65 -48
Dividends paid to minorities -4 -3
Cash flow used for financing
activities -656 -426
Net effect of currency translation on
cash and cash equivalents 12 5
Net change in cash and cash
equivalents 51 -28
Cash and cash equivalents at the
beginning of the period 232 288
Cash and cash equivalents at the end
of the period 283 260
Unaudited Interim Condensed Consolidated Statement of Changes in Equity
Total equity
$m
31-Dec-01 4086
Net income 328
Unrealized holding gains/(losses) on
available for sale financial assets -21
Unrealized gains/(losses) on
derivatives designated as cash flow
hedges 34
Income tax (charged)/credited to
equity -4
Dividends paid to group shareholders -48
Foreign currency translation effects 212
30-Jun-02 4587
31-Dec-02 4350
Net income 468
Unrealized holding gains/(losses) on
available for sale financial assets 14
Unrealized gains/(losses) on
derivatives designated as cash flow
hedges 14
Income tax (charged)/credited to
equity 16
Acquisition of minority interests -5
Dividends paid to group shareholders -65
Foreign currency translation effects 110
30-Jun-03 4902
Notes to the Unaudited Interim Financial Information
Note 1: Basis of Preparation
Nature of operations: Syngenta AG ('Syngenta') is a world leading crop
protection and seeds business that is engaged in the discovery, development,
manufacture and marketing of a range of agricultural products designed to
improve crop yields and food quality.
Basis of presentation and accounting policies: The condensed consolidated
financial statements for the six months ended 30 June 2003 are prepared in
accordance with International Financial Reporting Standards (IFRS), which
comprise standards and interpretations approved by the International
Accounting Standards Board (IASB), and International Accounting Standards and
Standing Interpretations Committee interpretations approved by the
International Accounting Standards Committee (IASC) that remain in effect. The
condensed consolidated financial statements have been prepared in accordance
with our policies as set out in the 2002 Financial Report, applied
consistently. These principles differ in certain significant respects from
generally accepted accounting principles in the United States ('US GAAP').
Application of US GAAP would have affected shareholders' net income and equity
for the six months ended 30 June 2002 and 2003 as detailed in Note 11.
The consolidated financial statements are presented in United States
dollars ('$') as this is the major trading currency of the company.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimated.
Note 2: New Accounting Standards - IFRS
No new IFRS accounting pronouncements were adopted in the six months ended
30 June 2003. The effect of adoption of new US GAAP accounting pronouncements
is described in Note 12 below.
Note 3: Changes in the Scope of Consolidation
On 28 January 2003 additional shares were acquired in Syngenta India
Limited increasing Syngenta's shareholding to 84% from 51%. The acquisition
was accounted for under the purchase method at a cost of $29 million. Goodwill
of $6 million was recognized on this transaction and will be amortized over a
period of 10 years. Goodwill amortization is included in general and
administrative expenses on the consolidated income statement.
Note 4: Constant Exchange Rates
In this report results from one period to another period are compared
using constant exchange rates (CER) where appropriate. To present that
information, current period results for entities reporting in currencies other
than US dollars are converted into US dollars at the prior period's exchange
rates, rather than at the exchange rates for the current year. The CER
presentation indicates the underlying business performance before taking into
account currency exchange fluctuations. See Note 6 for information on average
exchange rates in 2003 and 2002.
Note 5: Sales Excluding Range Rationalization (Ex RR)
Following the formation of Syngenta, Crop Protection has set out to
improve business quality and create value through the rationalization and
modernization of the product portfolio. From 121 active ingredients (AIs) at
the time of the merger, plans are in place to reduce the portfolio to 76 AIs
and the range had been reduced to 89 AIs by the end of 2002. In addition,
various third party products previously formulated and distributed by Syngenta
but generating lower levels of profitability have been exited. Sales growth
rates excluding rationalization impact has been calculated by excluding the
sales decline between current year and prior period caused by these phase-out
products, at constant exchange rates.
Note 6: Principal Currency Translation Rates
As an international business selling in over 100 countries, with major
manufacturing and R&D facilities in Switzerland, the UK and the USA, movements
in currencies impact business performance. The principal currencies and
adopted exchange rates against the US dollar used in preparing the financial
statements contained in this communication were as follows:
Average Average Period Period
1st Half 1st Half end end
2003 2002 30-Jun-03 30-Jun-02
Swiss franc. CHF 1.35 1.66 1.36 1.48
Pound sterling. GBP 0.62 0.7 0.61 0.65
Yen. JPY 118.77 130.47 119.94 118.92
Euro. EUR 0.91 1.13 0.88 1.01
Brazilian real. BRL 3.31 2.39 2.88 2.82
The above average rates are an average of the monthly rates used to
prepare the condensed
consolidated income and cash flow statements. The period end rates were used
for the preparation of the condensed consolidated balance sheets.
Note 7a: Unaudited Half Year Product Line and Regional Sales
1st 1st
Half Half Ex
Syngenta 2003 2002 Actual CER(1) RR(2)
$m $m % % %
Crop Protection 3370 3256 4 -4 -2
Seeds 735 646 14 3 3
Total 4105 3902 5 -3 -1
Crop Protection
Product line
Selective herbicides 1187 1125 5 -1 -
Non-selective herbicides 364 381 -4 -9 -9
Fungicides 898 871 3 -8 -6
Insecticides 506 480 5 -2 3
Professional products 328 304 8 3 4
Others 87 95 -8 -21 -11
Total 3370 3256 4 -4 -2
Regional
Europe, Africa and Middle East 1335 1218 10 -8 -4
NAFTA 1345 1378 -2 -3 -2
Latin America 243 210 16 16 17
Asia Pacific 447 450 -1 -8 -4
Total 3370 3256 4 -4 -2
Seeds
Product line
Field Crops 430 381 13 2 2
Vegetables and Flowers 305 265 15 3 3
Total 735 646 14 3 3
Regional
Europe, Africa and Middle East 394 316 25 4 4
NAFTA 286 270 6 6 6
Latin America 25 33 -24 -25 -25
Asia Pacific 30 27 8 1 1
Total 735 646 14 3 3
(1) Growth at constant exchange rates, see Note 4,
(2) Growth at constant exchange rates excluding the effects of range
rationalization, see Note 5.
Note 7b: Unaudited Second Quarter Product Line and Regional Sales
2nd 2nd
Quarter Quarter Ex
Syngenta 2003 2002 Actual CER(1) RR(2)
$m $m % % %
Crop Protection 1800 1784 1 -6 -3
Seeds 306 274 11 2 2
Total 2106 2058 2 -5 -3
Crop Protection
Product line
Selective herbicides 622 591 5 -1 -
Non-selective herbicides 218 230 -5 -9 -9
Fungicides 474 473 - -9 -8
Insecticides 288 286 1 -5 1
Professional products 159 154 3 -2 -
Others 39 50 -20 -27 -12
Total 1800 1784 1 -6 -3
Regional
Europe, Africa and Middle East 665 609 9 -7 -3
NAFTA 783 831 -6 -6 -6
Latin America 133 114 17 17 18
Asia Pacific 219 230 -5 -10 -5
Total 1800 1784 1 -6 -3
Seeds
Product line
Field Crops 156 141 11 3 3
Vegetables and Flowers 150 133 12 1 1
Total 306 274 11 2 2
Regional
Europe, Africa and Middle East 150 119 26 5 5
NAFTA 115 113 2 1 1
Latin America 23 27 -13 -14 -14
Asia Pacific 18 15 12 7 7
Total 306 274 11 2 2
(1) Growth at constant exchange rates, see Note 4
(2) Growth at constant exchange rates excluding the effects of range
rationalization, see Note 5.
Note 8: Impact of Special Items, net
1st Half 2003 1st Half 2002
$m $m $m $m
Income statement charge
Merger integration costs -8 -10
Restructuring costs:
Write-off or impairment of
property, plant &
equipment -3 -47
Non-cash pension
restructuring charges - -12
Cash costs -111 -90
Total -114 -149
Gains from mandated product disposals 2 2
Gain on sale of technology &
intellectual property license 39 -
Total special items, net -81 -157
Special items are material items that management regards as requiring
separate disclosure to provide a more thorough understanding of business
performance.
Merger integration costs are the costs associated with establishing the
operations of Syngenta, which was formed from the merger of Novartis
agribusiness and Zeneca agrochemicals business in November 2000.
Restructuring costs are the costs of implementing the synergy programs
following the formation of Syngenta.
In 2003 Syngenta signed a research agreement with Diversa Corporation
("Diversa"), under which Diversa acquired an exclusive, royalty-free perpetual
license for technology and intellectual property in the pharmaceutical field
in exchange for stock and warrants in Diversa. Following completion of this
transaction Syngenta closed the Torrey Mesa Research Institute, Syngenta's
facility in La Jolla, California. Costs relating to the closure are included
in restructuring costs.
The non-cash pension restructuring charges represent those direct effects
of restructuring initiatives on defined benefit pension plans, for which there
is no corresponding identifiable cash payment. Where identifiable cash
payments to pension funds are required to provide incremental pension benefits
for employees leaving service as a result of restructuring, the amounts
involved have been included within cash costs.
The post-tax impact of special items reduced diluted earnings per share by
$0.58 to $4.60 during 2003 (by $1.18 to $3.23 in 2002).
Note 9a: Reconciliation of EBITDA to Net Income
1st Half 2003 1st Half 2002
Including Excluding Including Excluding
Special Special Special Special Special Special
Items Items Items Items Items Items
$m $m $m $m $m $m
Net Income 468 -59 527 328 -120 448
Minority interests 3 - 3 2 - 2
Income tax expense 289 -22 311 264 -37 301
Financial expense, net 68 - 68 93 - 93
Depreciation, amortization and
impairment 259 3 256 302 47 255
EBITDA 1087 -78 1165 989 -110 1099
Note 9b: Reconciliation of Segment EBITDA to Segment Operating Income
1st Half 2003 1st Half 2002
Including Excluding Including Excluding
Special Special Special Special Special Special
Items Items Items Items Items Items
Crop Protection $m $m $m $m $m $m
Operating income 750 -81 831 643 -157 800
Loss from associates -2 - -2 -3 - -3
Depreciation, amortization and
impairment 234 3 231 278 47 231
EBITDA 982 -78 1060 918 -110 1028
Seeds
Operating Income 157 - 157 129 - 129
Income from associates 1 - 1 - - -
Depreciation, amortization and
impairment 22 - 22 19 - 19
EBITDA 180 - 180 148 - 148
Plant Science
Operating Loss -78 - -78 -82 - -82
Loss from associates - - - - - -
Depreciation, amortization and
impairment 3 - 3 5 - 5
EBITDA -75 - -75 -77 - -77
Note 10a: Net Debt Reconciliation
Net debt comprises total debt net of related hedging derivatives and cash
and cash equivalents. Net debt is not a measure of financial position under
generally accepted accounting principles and the net debt measure used by
Syngenta may not be comparable to the similarly titled measure of other
companies. Net debt has been included as it is used by many investors as a
useful measure of financial position and risk. The following table provides a
reconciliation of movements in net debt during the period:
2003 2002
$m $m
Opening balance at 1 January 1671 2219
Acquisitions and disposals - -
Other non-cash items (44) (22)
Foreign exchange effect on debt 74 (12)
Sale of Treasury Stock - -
Dividends paid to group shareholders 65 48
Dividends paid to minorities 4 3
Free cash flow (707) (398)
Closing balance as at 30 June 1063 1838
Constituents of closing balance;
Cash and cash equivalents (283) (260)
Current financial debts 776 1034
Non-current financial debts 952 1238
Financing-related derivatives (1) (382) (174)
Closing balance at 30 June 1063 1838
(1) Included within other current assets.
Note 10b: Free Cash Flow
Free cash flow comprises cash flow after operating activities, investing
activities, taxes and operational financing activities, but prior to capital
financing activities such as drawdown or repayment of debt, dividends paid to
Syngenta Group shareholders, share buyback 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.
1st Half 1st Half
2003 2002
$m $m
Cash flow from operating activities 822 549
Cash flow (used for)/from investing activities (127) (156)
Free cash flow, pre-foreign exchange effect 695 393
Foreign exchange effect on cash and cash equivalents 12 5
Free cash flow 707 398
Note 11: Reconciliation to US GAAP from the Interim Condensed
Consolidated Financial Statements
The condensed consolidated financial statements have been prepared in
accordance with IFRS which, as applied by Syngenta, differs in certain
significant respects from US GAAP. The effects of the application of US GAAP
to net income and equity are set out in the tables below:
Net income (for the six months ended 30 June) 2003 2002
$m $m
Net income/(loss) under IFRS 468 328
US GAAP adjustments:
Purchase accounting:
Zeneca agrochemicals 21 25
Other acquisitions (33) (47)
Impairment losses - -
Restructuring charges 45 -
Pension provisions (including post-retirement
benefits) - (4)
Stock-based compensation 1 -
Deferred taxes on unrealized profit in inventory (13) (25)
Capitalized costs, less disposals and depreciation 3 -
Deferred tax effect on US GAAP adjustments (4) 7
Net income under US GAAP 488 284
Weighted average number of ordinary shares in issue
- basic 101.5 101.4
Weighted average number of ordinary shares in issue
- diluted 101.7 101.6
Earnings per Share under US GAAP (basic) $4.81 $2.80
Earnings per Share under US GAAP (diluted) $4.80 $2.80
Equity (as at 30 June) 2003 2002
$m $m
Equity under IFRS 4902 4587
US GAAP adjustments:
Purchase accounting:
Zeneca agrochemicals (461) (485)
Other acquisitions 898 1051
Impairment losses 23 -
Restructuring charges 36 -
Pension provisions (including post-retirement
benefits) (95) (6)
Stock-based compensation - -
Deferred taxes on unrealized profit in inventory (58) (52)
Capitalized costs, less disposals and
depreciation 29 29
Deferred tax effect on US GAAP adjustments (177) (243)
Equity under US GAAP 5097 4881
For the six months ended 30 June 2003, the net income under IFRS was $468
million, compared to a net income of $488 million under US GAAP.
The differences for purchase accounting result from the application of
different purchase accounting requirements under IFRS and US GAAP to business
combinations completed in prior periods, and the different subsequent
accounting for goodwill. The different IFRS and US GAAP purchase accounting
requirements which applied when previous business combinations were completed,
resulted in different balance sheet values for goodwill and intangible assets
related to those acquisitions. For intangible assets, this has led to
different amortization charges in each subsequent accounting period, including
2002 and 2003. Also, as Syngenta adopted SFAS No. 142 'Goodwill and Intangible
Assets', as of 1 January 2002, it ceased to record goodwill amortization for
US GAAP from that date. The difference of $21 million arising in pre-tax
income in respect of purchase accounting for Zeneca agrochemicals principally
represents the goodwill amortization expense recorded under IFRS. The
difference of $(33) million in pre-tax income in respect of other acquisitions
mainly arises because the Sandoz and Ciba-Geigy merger was accounted for as a
uniting of interests under IFRS. For US GAAP the merger was accounted for as a
purchase, including recognition and subsequent amortization of purchased
product rights.
The difference of $45 million in pre-tax income in respect of
restructuring provisions mainly represents employee termination costs which
have been recorded under IFRS, but have not been recognized for US GAAP
because the employees affected will continue to work beyond the minimum
retention period stipulated by SFAS No.146. These costs will be recognized for
US GAAP in future periods as the employees complete their remaining service.
The difference arising in shareholders' equity for pension provisions at
30 June 2003 includes $94 million which was directly charged to US GAAP
shareholders' equity in 2002, due to the recent decline in value of pension
assets. US GAAP, unlike IFRS, requires provisions to be at least equal to the
unfounded pension liability for each pension plan on an accumulated benefit
basis. This adjustment did not affect cash or earnings.
Note 12: New US GAAP Accounting Pronouncements
SFAS No. 143, `Accounting for Asset Retirement Obligations', was adopted
by Syngenta with effect from 1 January 2003 and did not have a material effect
on the financial statements.
SFAS No. 146, `Accounting for Costs Associated with Exit and Disposal
Activities', was adopted by Syngenta with effect from 1 January 2003 and
applies to exit and disposal activities initiated after 31 December 2002.
Therefore it had no effect on the opening balance of consolidated retained
earnings at 1 January 2003. SFAS No. 146 superseded EITF 94-3. Restructuring
costs of $38 million, which would have been recognized in net income for the
six months ended 30 June 2003 had EITF 94-3 still been in force, will be
recognized in later periods in accordance with SFAS No. 146.
The initial recognition and initial measurement provisions of FASB
Interpretation No. 45, `Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others', was
adopted by Syngenta with effect from 1 January 2003, and did not have a
material effect on the financial statements.
FASB Interpretation No. 46, `Consolidation of Variable Interest Entities',
was adopted by Syngenta with effect from 1 January 2003 and had no effect on
the scope of consolidation or on the financial statements.
Announcements and Meetings
Third quarter trading statement 2003 2 October 2003
Announcement of full year results 2003 1 February 2004
AGM and first quarter trading statement 2004 7 April 2004
Announcement of half year results 2004 9 July 2004
Glossary and Trademarks
All product or brand names included in this results statement are
trademarks of, or licensed to, a Syngenta group company. For simplicity, sales
are reported under the lead brand names, shown below, whereas some compounds
are sold under several brand names to address separate market niches.
- Selective Herbicides
- APIRO® novel grass weed herbicide for rice
-
BICEP® MAGNUM broad spectrum pre-emergence herbicide for corn and
sorghum
- CALLISTO® novel herbicide for flexible use on broad-leaved weeds for corn
- DUAL® MAGNUM grass weed killer for corn and soybeans
- ENVOKE® novel low-dose herbicide for cotton and sugar cane
- FLEX® broad spectrum broad-leaf weed herbicide for soybeans
- FUSILADE® grass weed killer for broad-leaf crops
- LUMAX(TM) Unique season-long grass and broad leaf weed control
- TOPIK® post-emergence grass weed killer for wheat
- Non-selective Herbicides
- GRAMOXONE® rapid, non-systemic burn-down of vegetation
-
TOUCHDOWN® systemic total vegetation control
-
TOUCHDOWN® IQ® improved TOUCHDOWN®
Fungicides
ACANTO(R) second-generation strobilurin with particular
advantages in early cereal applications
AMISTAR(R) broad spectrum strobilurin for use on multiple crops
BRAVO(R) broad spectrum fungicide for use on multiple crops
RIDOMIL GOLD(R) systemic fungicide for use in vines, potatoes and
vegetables
SCORE(R) triazole fungicide for use in vegetables, fruits and
rice
TILT(R) broad spectrum triazole for use in cereals, bananas
and peanuts
UNIX(R) cereal and vine fungicide with unique mode of action
Insecticides
ACTARA(R) second-generation neonicotinoid for controlling foliar
and soil pests in multiple crops
FORCE(R) unique pyrethroid controlling soil pests in corn
KARATE(R) foliar pyrethroid offering broad spectrum insect
control
PROCLAIM(R) novel, low-dose insecticide for controlling
lepidoptera in vegetables and cotton
VERTIMEC(R) acaricide for use in fruits, vegetables and cotton
Professional Products
AVID(R) acaricide for ornamentals
BARRICADE(R) pre-emergence crabgrass herbicide for turf
CRUISER(R) novel broad spectrum seed treatment - neonicotinoid
insecticide
DIVIDEND(R) triazole seed treatment fungicide
HERITAGE(R) strobilurin turf fungicide
ICON(R) public health insecticide
IMPASSE(TM) termite barrier
MAXIM(R) broad spectrum seed treatment fungicide
Field Crops
NK(R) global brand for corn, oilseeds and other field crops
HILLESHOG(R) global brand for sugar beet
Vegetables and Flowers
S&G(R) vegetables leading brand in Europe, Africa and Asia
S&G(R) flowers global brand for seeds and young plants
ROGERS(R)
vegetables leading brand throughout the Americas
