“I remain convinced that the emerging markets, which today are experiencing such turmoil, continue to represent the major growth driver for our industry in the future. I am equally convinced that Syngenta has the necessary skills and experience, as well as the right portfolio, to succeed in these markets.”
As shareholders in an agriculture company, you are familiar with the impact – positive or negative – that commodity prices can have on our business. The evolution of commodity prices is determined by multiple factors, including notably the weather. However, over the last two years, geopolitical and economic events have also had a significant influence on our business.
The 2014 events in Russia and Ukraine had continuing implications in 2015 because of the massive currency devaluations in those two countries. I am pleased to say that we were successful in offsetting these devaluations through price increases. While higher prices had some impact on sales of seeds, where local alternatives were available, our crop protection business was virtually unscathed. This shows the importance of high-value chemistry to customers in these countries and the strength of our market positions.
In January 2015, the Swiss National Bank removed the Swiss franc peg against the Euro, resulting in a rapid appreciation of the franc. With some 13% of our costs in Swiss francs compared with less than 1% of our sales we, like many other Swiss companies, stood to be adversely affected by this move. However, thanks to our well-established hedging program we were able to minimize the impact.
The next currency challenge was the rapid devaluation of the Brazilian real, which accelerated during the summer – just as the planting season was getting underway. With growers confronted with severe liquidity constraints, it has not been possible immediately to raise prices in response to the movement in the currency. In the coming season, however, we will begin to do so, building on our experience in the CIS countries. In the meantime, our focus has been on helping our customers through this period of economic difficulty, while safeguarding our balance sheet through rigorous risk management.
Overall I am proud of the way we have navigated through this period of currency instability. Currency movements reduced our sales by $1.8bn in 2015 and yet the impact on EBITDA was contained at around $100m.
During my career of over 30 years at Syngenta and its legacy companies, I have spent extended periods in both Latin America and Asia Pacific. I remain convinced that the emerging markets, which today are experiencing such turmoil, continue to represent the major growth driver for our industry in the future. I am equally convinced that Syngenta has the necessary skills and experience, as well as the right portfolio, to succeed in these markets.
I am conscious that in recent years our profitability has fallen short of our own and our shareholders’ expectations. I am therefore pleased that in 2015, despite low commodity prices and currency volatility, we were able to increase profitability. In the current environment, the need for efficiency improvements has emerged as a prevalent industry theme. Syngenta took early action in this respect, having announced our Accelerating Operational Leverage (AOL) program in February 2014. The program has three pillars – global operations, commercial and R&D – with targeted savings of $1bn in 2018. We delivered savings ahead of target at $300m in 2015 and are firmly on track to deliver the 2016 target.
As part of our commitment to improved profitability, we have undertaken a review of all our seeds businesses, which will be concluded at the end of the first quarter of 2016. We will assess the profitability potential of each asset as well as its importance in the context of an integrated offer.
At our R&D Days in September, we demonstrated that Syngenta has the most productive R&D engine in the industry, with every dollar spent generating $10.70 in sales over the last ten years. We also explained that investment in R&D is not just about invention – it must also enable products to be successfully brought to market. With regulatory hurdles becoming steeper, our expertise and foresight in this area are increasingly important – Syngenta has a 100% success rate in bringing products from development to launch. We have now put in place the platforms that will enable us further to increase R&D productivity, while continuing to excel at the invention and the development of new products.
I took over as the CEO ad interim of Syngenta at the end of October. One of my first moves has been to align the organization behind clear goals which are key to our objective of outperformance. The goals comprise: meeting or exceeding our financial commitments; further improving the customer experience in order to maintain and grow market share; and driving simplification in everything we do to increase our speed and impact. I am confident that we have the framework in place to achieve these goals, all of which are underpinned by the AOL program. Our strength in innovation, which has been amply demonstrated in the course of 2015, will be a further driver in terms of the customer experience.
I have been deeply impressed by the loyalty and determination of our people during the last year, which has brought considerable challenges. This gives me the utmost conviction that we can achieve our goals and deliver on Syngenta’s immense promise.
Chief Executive Officer