Profit
“Our goal is to create value for our shareholders by first creating value for our customers through higher yields and better use of resources”- CEO Michael Mack
Business Strategy:
The company has shown through multiple projects- such as the one in Kenya- that it is committed to a triple bottom line business strategy (of increasing profit for its shareholders and enhancing the life of all stakeholders, in a socially responsible way while minimising its carbon footprint).
Syngenta’s strategy is gaining momentum, its key objective for the coming financial year is to achieve above market growth. According to its chairman Michel Demaré, 2014 was a year in which both the enormous potential of global agriculture and its innate volatility were clearly visible. With the emerging markets now representing more than 50 percent of its sales (35% 10 years ago), managing more volatile conditions has become an integral part of managing the company. Longer-term Syngenta’s strong position in these countries, where productivity gains are still immense, underpins its future growth potential.
Finding a Solution to the food demand:
“The UN estimates the world will need to increase the production of grain by approximately 70 percent to meet global demands in 2050."
Smallhold farmers are vital in agricultural and rural development;and are specifically affected by market volatility. Syngenta’s good growth plan is a good example how some profits can be reinvested to aid these farmers become more professional growers.
The Good Growth Plan:
Syngenta currently reinvests parts of it’s profits into projects such as the one in Kenya to promote more efficient agriculture methods amongst local communities, the project which does not generate any profit to Syngenta, however allows local farmers to make a better livelihood out of their trade, reducing rural exodus. Syngenta is providing farmers in Kenya with newly developed fertilisers that farmers use to enhance their produce. Also syngenta’s gains an opportunity in testing it’s new products on large scale sites before launching them in the wider market. Highlighting the corporate and social benefit that is generated from a project like this. This programme has improved Syngenta’s brand image.
Short Term Volatility:
In the short-term, Syngenta’s 2014 financial results have been hugely affected by geopolitical & economic issues (Eurozone deflation, Russia-Ukraine conflict). It has made the market where the company operates extremely unpredictable. A combination of the decrease in oil prices, a stronger US dollar vs emerging market currency, and a series of regulation by governments have led to the decrease of the overall price of crops. As a result, the net income in 2014 has decreased by 2% compared to 2013. Governments subsidy on grains and crops has generated a dead weight loss to the producer syngenta, negatively affecting it’s economic activity. 2014 was a year of favourable weather for farmers, ensuring that fertilisers, pesticides and crop demand was adequate. However production of corn, soybean and cereals was high, leading to significant global grain stock without major demand. Consequently, this created significant uncertainty with regards to the outlook for farm incomes. Moreover, soft commodity prices declined during 2014 and ended at lower levels than at the start of the year. Syngenta’s customer base was hugely affected by the fluctuation of the prices in the market. This in turn has affected Syngenta’s short-term prospects. It does not however alter the longer-term aim of the company producing more food with finite natural resources according to its CEO.
“Lower profitability in 2014 meant that our goal of creating value for our shareholders was not met. While we cannot influence currency and weather effects, we are fully committed to resuming a trend of profitable growth” Syngenta CEO Michael Mack.
Syngenta’s dividend rose from 6 CHF to 10 CHF in 5 years, which was in line with the increase of it’s share price Market Capitalisation=Number of shares *market price as of 25/03/2014, 91,674,127 * 329 CHF=30.1 Billion CHF
The oil industry influences the agrochemical market: a 50% decrease in oil prices reduced selling prices of Syngenta’s products. However, due to supplier production chains and Syngenta’s own inventory, it can take up to 12 months for movements in the oil price to feed through into cost of goods sold. Syngenta’s prices have very small elasticity.
Syngenta’s consolidated sales for 2014 were $15,134 million, compared with $14,688 million in 2013, a 3 percent increase year on year. At constant exchange rates sales grew by 5 percent.
Raise small farmer productivity and food security; strengthen links to markets making Syngenta a key name in the
chemical/agriculture business in developing countries. Through this project syngenta is increasing profitability for it’s
stakeholders and thus creating a future database of customers for the future.
