Syngenta CEO Discusses Q4 2010 Results - Earnings Call Transcript

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Syngenta AG (NYSE:SYT) Q4 2010 Earnings Conference Call February 9, 2011 3:15 AM ET


Jennifer Gough – IR

Michael Mack – CEO

John Ramsay – CFO

John Atkin – COO, Crop Protection

Davor Pisk – COO, Seeds


Thomas Gilbert – UBS

Andrew Stewart – Merrill Lynch

Andrew Benson – Citigroup, Inc.

Jean De Watteville – Nomura Securities

Paul Walsh – Morgan Stanley

Martin Fluckiger – Helvea

Tony Jones – Redburn Partners

Patrick Rafaisz – Bank Vontobel

Andreas Heine – UniCredit

Richard Logan – Goldman Sachs

Virginie Boucher-Ferte – Deutsche Bank

Jennifer Gough

Good morning, and welcome to this webcast with Syngenta’s 2010 results. The presentation will be hosted by Mike Mack, CEO. But let me first read the usual customary statement.

The following presentation contains forward-looking statements which can be identified which can be identified by terminologies such as expect, would, estimated, aiming, on track and similar expressions. Such statements may be subject to risks and uncertainties that could cause the actual results to differ materially from these statements. We refer you to Syngenta's publicly available filings with the U.S SEC for information about these and other risks.

With that, let me hand you over to Mike.

Michael Mack

Thank you, Jennifer. Good morning, ladies and gentlemen. Today’s Syngenta has announced a new strategy to deliver superior customer and shareholder value. We want to spend a fair amount of time today covering this in our presentations which will unfortunately run a little bit longer than usual 50 minutes. This is going to give you an opportunity though to here from our two chief operating officers, John Atkin and Davor Pisk, whose responsibilities are being expanded now as part of this new strategy.

In addition, of course, John Ramsay will be covering the 2010 financial performance in some detail. But before handing you over to John, let me first set the context for today’s announcements.

The first chart shows the global stocks-to-use ratio for the major crops. A ratio that is now familiar to anyone who follows agriculture, but which unfortunately hasn’t become any easier to predict.

In the first half of 2010, crop prices traded within a very narrow range and at fairly subdued levels. Then in July came news of the damage that the wheat crop in Russia, followed in October by a dramatic downward revision by the USDA to U.S. corn yield estimates.

Although the stocks-to-use ratio today remains above its level three years ago, the recent rise in commodity prices shows just how fragile the supply demand balance actually is. The steepness of the reaction in crop prices has aroused concern in many quarters and has prompted remedial measures from government restrictions aimed at shoring up natural food supplies to attempts by financial market regulators to curb speculation.

These measures, however, only altered the fundamental challenge of producing more food to satisfying growing demand in many emerging markets, particularly China, whose import requirements alone influence global commodity prices.

This global picture forms just a small part of the challengers facing growers. Yes, higher crop prices are good for the farmer, but over the last years growers have been dealing with greater volatility and in some regions the impact of financial instability on credit.

In their immediate line of sight, they have the channel, particularly the grain traders who can influence their access to market. Further down the value chain, retailers and consumers are concerned with the cost, quality and availability of crops and produce. Governments and regulators are charged with monitoring safety and risk and with ensuring food and energy security and this can lead to additional requirements for growers. Finally, societal pressure including from NGOs focuses on environmental standards often with a hostile bias towards intensive farming. So, there is no doubt that that for growers’ worldwide, life has become a lot more complex.

And that’s the starting point of our new strategy, which is to develop a fully integrated offer on a global basis comprehensively addressing grower needs by crop. We will seek not to just meet the needs of today’s growers, but also to anticipate those and the farmer of the future bearing in mind that the farmer has a number of different phases and his or her own experiences differ markedly depending on the geography. Our strategy is defined by three core objectives – integrate, innovate and outperform. And I shall come back to this later on in the presentation.

We’ve been elaborating the strategy now for some time and it is already reflected in our lawn and garden business and we’re launching it from a position of considerable strength. We have consistently reinforced our leadership in crop protection and the 2010 gain share for the sixth consecutive year as you can see on the chart. The sides of our seeds business has grown significantly as well over the last five years and each of the last two years, we have achieved a marked increase in profitability underpinned by proven technology progress.

As we look to meet the differing needs of growers worldwide with an integrated offer, we do so with lawn experience of tailoring solutions to local markets. And the development of our offer will be accelerated by leveraging a $1 billion annual R&D spent.

The elements distinguishing Syngenta from its competitors and being able to pursue this strategy are shown here. They include our dedicated focus on agriculture and our broad crop exposure. We’re number one or number two in all regions and in all crop protection product lines. In seeds, we have the broadest scope to offer both proprietary traits and proprietary seed care alongside our leading germplasm.

We will develop these strengths to combine chemical and genetic solutions while also combining our commercial operations and enabling our sales forces to market complete portfolios.

Let me now hand you over to John Ramsay for review of the financial performance in 2010. John?

John Ramsay

Well, thank you, Mike. Good morning. I am pleased to present results, which notably in the second half demonstrate a very strong business performance including record cash generation. For the full year 2010, sales were 4% higher at constant exchange rates with a 9% increase in volume, partially offset by a pricing decline of 5% primarily due to the competitive pricing environment for crop protection in North America.

EBITDA increased by 3% at constant exchange rates to $2.5 billion. After taking account of higher depreciation and amortization, operating income was unchanged at $1.97 billion in line with our target which we set at the half year; earnings per share increased by 2% with a slightly lower tax rate more than offsetting higher net financial expense.

Due to a significant reduction in the level of investment in trade working capital, our free cash flow reached a record level of $1.1 billion. In recognition of our consistently strong cash position and confidence in our future financial performance, we will be implementing a new cash return policy, which will prioritize dividend growth. On this basis, we will increase the proposed dividend by 17% to CHF7 per share. In U.S. dollars the increase will be around 30% at current exchange rates.

And following a recent change in Swiss tax law, we will be proposing to the AGM in April to make the payment this year from our share premium reserves or ASIO [ph] as it is known in Switzerland, which enables the dividend to be paid free of withholding tax. The dividend would also be exempt from income tax for Swiss resident individual investors holding Syngenta’s shares as private assets. And finally, a return on invested capital after tax exceeded our 20% target for the six successive year and we will now be moving to a new return on capital measure, which I shall come back to later.

Turning now to look at the evolution of reported sales, you can see the positive volume impact of close to $1 billion. Over 80% of this volume growth in both crop protection and seeds was from emerging markets. And year-on-year, volume growth in these markets was around 18% demonstrating the strength of demand and the return on our continued investments. The strong volume performance was partially offset by crop protection pricing. A lot was said about this at the half year, but I will come back to pricing in more detail in a moment.

You can also see from the slide a favorable impact of 2% from currency and this was primarily from the Canadian, Australian, South Korean and Eastern European currencies which appreciated by more than 5% against the U.S. dollar. The next few slides show in more detail the performance of our crop protection business.

Sales at constant exchange rates were 3% higher at $8.9 billion. Volumes were up 9% for the year and up 18% in the second half with growth in all regions. Latin America delivered full year volume growth in excess of 25%, bringing the region close in size to that of North America. Likewise, emerging Asia continued to perform extremely well with double digit growth being achieved for the fifth successive year. Despite a difficult year in Eastern Europe, which was largely characterized by the severe drought, we achieved volume growth of 7%. In the development markets, North America has seen fungicide adoption at close to 2008 levels, with sales volumes up by over 20%.

Prices for the full year were down by 6% largely driven by high opening channel inventories and competitive pricing actions in North America. EBITDA of $2.2 billion represented a margin of 24.7% around 2% lower than last year. Of this, currency reduced the margin by 60 basis points, but the major impact came from lower prices, partially offset by raw material savings.

During the year, we continued to invest in emerging markets as well as in R&D and technology platforms as the fundamental building blocks turn your operating model, while maintaining tight control over the reminder of our cost base.

As these slide shows, we have capitalized on improving market conditions in the second half of the year. Following the low consumption levels in 2009, we have progressively delivered significant volume growth since quarter two 2010. General market sentiment has continued to improve, but the second half volume growth was particularly driven by strong emerging market performance particularly in Brazil, Argentina and Asia. Volume gains in both the third and fourth quarters were 18%.

Volume growth more than compensated for lower prices. The competitive environment in the first half of 2010 has remained confined largely to North America. The rate of price decline has diminished since the second quarter and pricing remains positive over the three-year period.

Where appropriate for the forthcoming season, we have been putting in place selective price increases and we will continue to target price increases in 2011. But this will be dependent on the competitive environment.

In quarter one, we will continue to report lower price [inaudible] compared to 2010 as current pricing will be compared to the situation last year before lower pricing took effect.

Moving now to look at the performance of our new products launched since 2006, sales rose 25% versus 2009 to $400 million with compound annual growth of 56% over the four-year period.

Following it’s launched earlier in the year on corn in the U.S. and cotton in Brazil, our nematicide seed treatment; AVICTA has now received regulatory approval for use on soybeans in Brazil and will be launched there in 2011. The cereal herbicide, AXIAL, continued to show strong volume growth in Canada. In addition, launches in France and Russia underpinned the importance of this product.

DURIVO continued its strong performance with sales up almost 140%. Its continued success on rice and vegetables in Asia has been further complimented by our launch on corn and soybean in Brazil. REVUS continues to expand globally, now being used in more than 50 countries. Most recently, as part of an overall increase U.S. fungicide usage, we have seen expanded uptake on vegetables. Isopyrazam was launched in quarter two in U.K. barley, earlier initial feedback is extremely positive with regards to both disease control and greening effects.

Now, moving on to look at the seeds business performance. Seed sales increased 8% to $2.8 billion. Now representing close to 25% of our total business and adjusted for advance corn and soybean sales in quarter four 2009, growth was 14% driven by volume and portfolio mix effects. The emerging markets generated volume growth in excess of 20% with Asia Pacific and Eastern Europe particularly strong.

In diverse field crops, we drove organic growth as well as fully captured the benefits from the integration of our recent Sunflower’s acquisition. Vegetables growth was across all product lines and particularly in the U.S. and Asia, where our tomato, melon and sweet corn sales performed well. Corn and soybean sales were up 40% or 16% after the advance sales adjustments. Corn performed particularly strongly due to our increased triple stack penetration and new product launches.

In quarter four, saw significant cash advances and pre-orders underpinned by the improved performance of our products. EBITDA increased significantly and the margin rose from 10% in 2009 to 12.7%. The overall improvement in margin reflects the success of our portfolio transition.

In 2010, we have demonstrated improved germplasm performance and triple stack penetration is now equivalent to market levels. The expansion of gross margin due to the favorable mix effect has allowed us to continue to increase R&D investment while delivering higher returns and we are firmly on track with our targets in terms of both portfolio and profitability.

The next slide shows you the progression of our operating income. Operating income remains broadly flat year-on-year. But within the year, we had large impacts from volume and price. And as you can see, gross profits from volume are close to $500 million nearly offset the negative price impact. The effect of price was the major driver of the decline in margins as we were only able to partially offset the impact through lower raw material cost.

We continue to make important investments in emerging markets, research and development and information systems, which are fully aligned with the evolution of strategic direction being outlined today. And we continue to exert close control over our remaining cost base.

As you all noticed currency had a minimal impact on our operating income. I’d now like to move on to the next slide to look at the currency in more detail. As we saw in the previous slide, our bottom line currency impact for the year was flat. First half currency gains were eroded in the second half due to the effect on our cost base of significant strengthening of the Swiss Franc versus the dollar. The Swiss Franc appreciated around 16% in the second half and in addition to euro volatility throughout the year, worked against us.

Our operating cost space is approximately 15% Swiss Franc denominated with very little sales revenue offsetting it. Overall, we continue to hedge with hedging levels at around 75% of our overall exposure. In 2011, I would expect the currency impact based on current exchange rates after hedging to be around negative $75 million coming primarily from our Swiss Franc exposure.

Looking now at the lines between operating and net income, net financial expense and tax together were overall similar to 2009. Net financial expense of $140 million was up by $19 million. Our overall tax rate was lower at 17% and as well as our continued tax optimization efforts, higher profitability in Brazil enabled us to realize our deferred tax asset while lower pricing in the U.S. reduced taxation in a relatively high tax jurisdiction. In 2011, I would expect the tax rate to increase to around 20%.

Net income was broadly flat and earnings per share excluding restructuring were 2% higher. In future, when we refer to net income, this will be after all charges including restructuring and impairment as reported under IFRS. We will continue to reference EBITDA and earnings per share excluding restructuring to ensure the underlying trends in business performance are understood.

Turning to look at cash flow, free cash flow reached a record $1.1 billion. This was achieved after a $200 million discretionary contribution to the employee pension schemes. Our major pension schemes are now fully funded.

Working capital levels remain broadly flat year-on-year, continued close attention resulted in a significant improvement in the second half. Both inventory and receivables reduce as a percentage of sales reflecting our ongoing rigorous credit management and our determined action on inventories in the second half.

Capital expenditure levels were lower than 2009 as we completed our capacity expansion. Financing and tax expenses remained at a similar level to 2009.

We expect strong cash generation to continue as an ongoing feature of our business. This allows us the flexibility to enable the move to our new progressive dividend policy, which are referred to earlier as well as to continually seek out acquisitions.

Strong cash generation has contributed to the maintenance of solid balance sheet ratios. A rigorous management of trade working capital resulted in a 3% reduction from 2009, exceeding our 2% target. Net gearing is significantly below last year and this lower ratio creates the potential for us to further increase the cash return to shareholders as we have demonstrated today through the proposed substantial dividend increase and our planned further $200 million share repurchase in 2011. Our return on invested capital, although slightly down in last year remains consistently above our 20% target for the six successive year.

I would now like to share with you the expected efficiency benefits of the new operating model that we are outlining today. We are projecting savings of a $150 million from our new integrated organization structure, which might well introduce in more detail shortly. $300 million is target to come from integrating supply chain activities across our crop production and seeds business and capitalizing on our current systems investment. And finally, a further $200 million from improved efficiency in our procurement activities again facilitated by organizational alignment and systems investment.

The benefits will be delivered through a combination of SG&A and COGS savings as shown on the chart. To deliver the $659 million of savings by 2015, we anticipate restructuring costs in the range of $400 million. The majority of which will incur in 2011 and 2012, and the 2011 income statement charge related to this restructuring program will be around $175 million.

Given the strong foundations which we have in place today, we are confident in achieving the desired savings within the timeframe outlined whilst at the same time, ensuring that we continue to capture growth opportunities. This will underpin our business performance over the next few years.

And finally, I would like to conclude with an overview of our new financial objectives upon which we will be measuring our performance in the coming years. Our future financial targets will be based upon three key measures, EBITDA margin, cash flow return on investment and cash return to shareholders. These measures take account of our new operating model, which we are introducing today and are confident in its potential for strong cash generation.

We will be targeting an EBITDA margin of 22% to 24% by 2015, thereby reflecting our continued commitment to profitable growth. We will introduce cash flow return on investment as a new measure targeting to maintain a level in excess of 12% which we have achieved in 2010 and represents a commitment to continue strong cash generation at attractive levels of return on investments. You can find the calculation of this figure in this morning’s press release.

As I previously referred to, our final objective is to continue to return significant cash to shareholders. And this will be through a cash return policy which prioritizes dividend growth. Share buybacks will be used only tactically when the balance sheet and acquisition outlook allow us.

And with that, let me hand you over to Mike, who will describe in more detail our new operating model.

Michael Mack

Thank you, John. Let me now layout to you our three core objectives. Integrate means a unique offer in the field combining crop protection and seeds, marketed by commercial teams which will be fully integrated by the end of 2011. This integrated model will yield the cost savings supplemented by supply chain of procurement savings that John just mentioned.

We will innovate through a powerful R&D platform, combining chemical and biological knowledge. Our definition of innovation though goes beyond products to encompass new markets and new go-to-market models, and John and Davor will be showing you some examples in just a moment. We will leverage the value of our R&D investment by entering into partnerships and collaborations in targeted areas.

Outperform, we define this in financial terms as John has describe within addition of business objective of growing our combined global market share by an average 0.5% a year. This is from a total market share of 15% to date. By generating above average growth while maintaining a high level of profitability, we will sustain strong cash generation enabling us to continue our record of returning cash to shareholders.

Technology lies at the heart of the strategy and this is how our formidable R&D engine will work going forward. We’ve identified the customer needs you see listed along the top of this chart and we will seek to address them through the technologies you see listed on the left to which we will add tools in adjacent areas such as water and nutrient usage all the while, we will look at this through the eyes of the grower as well as those of the scientist not simply what is possible, but also what needs to be done.

Let me now show you the new top level organization for our company. The organization is based on regional responsibilities with the regions divided into territories having a strategic crop focus. Each region will have two heads, one from crop protection and one from seeds reporting to John or Davor. All of the regional and territory heads have already been appointed.

John Atkin will continue to oversee the performance of crop protection and will in addition assume cross business executive responsibility for the regions Europe, Africa and Middle East and Latin America. He will also have global strategic responsibility for cereals, soybean, sugar cane and specialty crops.

Similarly, Davor Pisk will continue to oversee seeds performance while assuming cross business executive responsibility for the regions North America and Asia Pacific. Davor will have global strategic responsibility for corn, diverse field crops, rice and vegetables. The overlap between the regional and crop responsibilities will, I think, become clear to you in the following presentations.

So, let me now hand you straight away over to John Atkin. John?

John Atkin

Thank you, Mike. Good morning, everybody. I’ll begin with an overview of the two regions I’ll be responsible for. This will also incorporate information on some of the crops I’ll lead. I’ll then conclude with an update on our biggest crop protection products. As Mike said, I’ll continue to oversee CP performance globally.

So, firstly, Latin America, the charts show you the size of each market segments and our respective shares. We have a leading position for the combined business with a 21% share. We’re number one in crop protection in most territories and in seeds, we are progressing rapidly with our high quality germplasm on soybean and corn, and in corn, we’re benefiting from the traits develop for our North American business.

With accelerating technification, the seeds market is set to expand to rapidly in Latin America. When Davor describes North America, you’ll see what happens when the seeds market technifies. In the United States, it is bigger than the crop protection market.

Sugar cane is a prime example of the lack of development in non-soybean crops. We’ve got breakthrough technology to change this of which more in a moment. Now, underpinning all these opportunities is strong financial risk management, a feature of our rapid expansion in Latin America to date.

Brazil is by far our largest territory in Latin America and our second most important country after the U.S. It’s been the first to achieve full commercial integration and this has been an important part of our preparation to integrate our businesses across Syngenta. Diagram on the slide shows you how went about the transformation. The concept was carefully prepared in 2008 and was implemented in 2009.

We have introduced a consolidated management structure and integrated the crop protection and seeds sales forces. Customers are served by a single sales person with a combined offer. This has meant building broad knowledge of technology and agronomics in the sales team and it’s also meant to redesign as a supply chain and critically a significant cultural change. The results were already visible in 2010.

Our seeds business is clearly benefiting from a strengthening of the sales resources behind it and importantly, we’re also now starting to see the potential for enhance growth in crop protection as a result of the integrated offer. The compelling point is that we now have a unique value proposition for customers that will enable us not only to continue our history of market share gain in Brazil, but also to expand the size of the market.

Now, I’m not going to dwell on this slide, but I would ask you simply to read this independent testimony from a soybean grower in Parana state. He used up integrated offer to achieve a Brazilian record soybean year although more than 6,500 kilograms per hectare, an increase of 50% over his previous average. This is one in a series of 9,000 demonstrations of our integrated technology in soybean and corn. Over 90% of this test block showed increases over standard programs. This confirms the customer benefits of our technology and the terrific potential we have to expand our business.

This slide illustrates a strong performance we’ve already built in Brazil. Growth has been driven largely by our market leading crop protection business and we plan to continue to grow share in CP through portfolio innovation and effective management of post-patent products. This is complimented by the accelerating growth in seeds and our integrated strategy will help us capture this value shift to seeds as GM technology expands that I referred to earlier on.

Share gains will come from broader territory coverage and further trait launches, such as the triple stack, we announced earlier this month, the first product of its kind in Brazil and most importantly, the traction of our combined offer to growers as I illustrated on the previous slide.

The implementation of our strategy is going beyond synergies between crop protection and seeds. We are producing completely new technology from the integrated R&D approach, which Mike showed you. This year, we are launching Plene; a new way of plating of sugar cane with the first ever integrated mechanized planting system. You see the planter on the photograph; it has been especially developed with John Deere and has attracted great interest as you can see from the number of people riding on this, one of the first examples. That includes me in the white shirt on the right-hand side.

This technology has the potential to transform the way the sugar cane is produced. Prior to launch, we’ve already received $300 million worth of orders from sugar mills and we’re finalizing long-term contracts. We now estimate peak sales potential at over $500 million dollars, up from our previous estimate of $300 million.

This photograph shows you how Plene addresses multiple challenges. The offer involves planting four-centimeter cuttings of sugar cane. In the conventional system, cuttings are 10 times that length. The process therefore requires less equipment, is faster and more efficient. Smaller cuttings allow minimum tillage, which means better soil preservation.

There are social benefits too. The existing system requires a lot of manpower working in uncomfortable conditions. With Plene working conditions are vastly improved, work has become more skilled and farmers don’t need to find as many seasonal workers in a local economy which has other opportunities for the workforce.

In Europe, Africa or in the Middle East, our combined market share stands at 18% in what is our biggest and most diverse region. In East Europe, an important growth driver, we are the market leader with our share of over 20%. In seeds, we have broad strength including sunflower, corn, sugar beet and of course, our leading vegetables business. Seed care is also a strong and developing part of our portfolio.

Less well known is our breeding expertise in cereals, the most important crop in Europe. We are exploiting this through our integrated strategy. In vegetables and specialty crops including potatoes and fruit, we enable growers to increase yield and quality as well as respecting the prodigal set by the value chain. This is increasingly important to retailers and consumers.

The next chart shows you that our sales have grown significantly across the region, most strongly in the emerging markets where they have almost tripled. This reflects the ongoing expansion of the range; a focus on the large farms which are driving our modernization and the successful management of credit risk.

In West Europe, we have continued to innovate with three new chemistries introduce since 2006 and Sedaxane is due for launch next year. This is vital to exploit a market that is always evolving particularly driven by disease resistance, and we’ve got a broad seeds portfolio, which we have successfully develop through our own breeding as well as acquisitions notably in vegetables and sunflower.

By integrating our businesses, we are creating new potential end markets that might otherwise have been seen as mature. Italy is an example. Here a new structure is already been established. We are leveraging the power of our combined field force to service customers to launch our high quality seeds in the corn market. The results have been immediate and striking. We achieved a 2% seed share gain in 2010 and also a reinforcement of market awareness of Lumax, our leading corn herbicide, which in turn lead to increase market share.

In East Europe, the integration process will enable us to build on a strong growth dynamic. Ukraine is an excellent example. The market already reached $650 million in 2010 and we expect it to double again by 2020. And here, we have an outstanding record of 30% compound annual growth. We are further expanding the crop protection range with new launches from our own portfolio and through a distribution agreement with Dow AgroSciences. We started to combine this with our strong seeds portfolio and are conducting integrated trials with our key agro-holding customers.

Drawing on our experience in Latin America, we’re underpinning expansion with local risk management and can report that in 2010, we collected 98% of receivables and conducted around 20% of our sales through barter agreements.

Now, as Mike explained, I have cross business responsibility for certain crops including cereals, the leading European crop. Although the value of the wheat seed market is currently low due to the high proportion of farm safe seed, when growers do purchase seed, they’re looking for high performance.

Our brands Galland and Denman are widely recognized for their different output qualities and to make their potential, we have a program of crop protection products. This includes CRUISER seed care for bigger roots and enhanced vigor and our leading plant growth regulator Moddus addresses one of the most critical issues farmers face today. It improves water and nitrogen use efficiency, which helps to optimize fertilizer use and provides environmental benefits. Finally, our star product, AMISTAR is a critical component of our crop enhancement offer with proven benefits in yield and grain quality.

So, now, switching to my overall responsibility for crop protection business performance, I now update you on AMISTAR, which achieved record sales of $1.2 billion in 2010. We saw significant growth across all crops following the opening of new capacity in May. This capacity has also enabled us to sign supply agreements with a number of third parties, which will account for around 15% of total molecular sales. Most importantly, our own branded sales will continue to grow with increasing development of mixture products allowing to us maintain a gross margin that is above average for our portfolio.

AMISTAR growth will be particularly strong in the emerging markets. Focus is Asia Pacific, where sales in 2010 exceeded $120 million. The rapid growth achieved reflects the terrific potential this product has to improve yields and quality of crops ranging from rise in Vietnam to chilies in India, which you see in the picture. It’s important to point out that farmers greatly appreciate these effects because their income increases and that in turn benefit the rural community.

Turning now to Thiamethoxam, the other compound for which we have expanded capacity. As you can see from the top chart, it is used in an increasing number of our products driving volume growth of 18% in 2010. The number of crops is expanding to and further growth will come from new mixtures and from crop enhancement opportunities in both developed and emerging markets.

We’ve updated our crop protection pipeline to show you the potential of each product by crop. The near-term pipeline for launch over the next four years has a value of more than $1.5 billion. As I said, the potential for Plene to be launched in 2011 has expanded. We have moved the timing for the full launch of Invinsa back. The granular product we test marketed in 2010 is not yet sufficiently reliable. We remain convince that this technology has high potential and the focus is now on developing formulations, which will have broad market potential.

Products to be launched post-2014 shown on the slide bring the total pipeline value to $2 billion. The split of potential sales by crop foreshadows the way we shall be presenting our combined pipelines in the future.

Let me show you wheat as an example. In the left-hand side of the chart, you can see our current offer in wheat combining crop protection, seed care and seeds; total sales are in excess of a $1 billion. In the middle horizon, you see new products to be launch over the next five years and also integrated growing solutions, programs which will contribute to increasing sales to around the $1.5 billion mark. The late stage pipeline includes significant advances in seeds technology and further exploitation of the chemical genetic interaction, which underlies our crop enhancement strategy.

Now, the capital markets days, which we are holding this summer, we shall be presenting combined pipelines for all our key crops to reflect the way we are now looking at the business.

But in the meantime, let me hand you over to Davor for the review of the other regions and crops.

Davor Pisk

Thank you, John. Good morning. I’m going to talk now about Asia Pacific and North America, two regions at very different stages of agricultural development. U.S. corn yields, for example, are twice those in China. Throughout emerging Asia, there is a drive to increase productivity and this is a large part of the opportunity for Syngenta.

The fragmentation of the market is another feature. Our combined market share in Asia Pacific of 9% looks low compared with our shares elsewhere, but we hold leading positions in both crop protection and seeds. In the emerging countries about 80% of the crop protection market is divided amongst numerous generics companies and as governments have become more focus on agriculture, we are seeing increasing scope to substitute their products with our own high performance chemistry.

Adoption of seeds care, which is something generics have been unable to offer, is another opportunity. We’re bringing chemicals together with a high quality seed offer to spearhead the drive to increase productivity in rise as I shall show you in a moment. We’re also rapidly developing complete solutions of vegetables and are expanding our corn franchise with the success of our tropical corn germplasm, which is well adapted to regional needs.

In the developed markets, our focus is on maximizing high margins in Northeast Asia and then expanding the portfolio in Australasia while managing the sales volatility that inevitably comes with the extreme climate conditions there.

In emerging Asia Pacific as I just mentioned, there is scope for substituting generics and we are exploiting that opportunity with our local manufacturing presence in both China and India, which enables us to offer competitively priced products. This is being complemented by unique go-to-market strategies that raise awareness of the potential of modernization among growers.

Our expansion in rice began with crop protection products such as the fungicide score and has accelerated with the launch of the Virtako insecticide. We’re now also building strength in hybrid seeds. With 90% of the world’s rice grown in Asia, a focus on this crop is vital to our regional strategy.

Despite its importance in the region, rice cultivation is still largely underdeveloped. This pictures show traditional patty field where water is inefficiently used not only to enable crop growth, but also for weed control. Planting is carried out by hand using low value seed and commodity chemicals with the result that average yields are only around 40% of potential.

Syngenta has launched a response to these challenges and the photographs on these slides illustrate the difference in terms of the way the rice seedling are grown and planted. The Tegra program in India offers growers high quality seedlings protected with CRUISER and delivered in trays, which are then mechanically transplanted. The growers are also supplied with a customized agronomic protocol to cover all aspects of crop care during the growing season. The process ensures that water is used much more efficiently.

As shown in this chart across the number of trials in India, the average yield gain is 30%. To which the grower can add labor savings, simplicity and mitigation of a risk of a loss crop, which can be devastating for local communities. We have already started to make sales of the Tegra program and overtime, we’re expected to help growers double their yields with more sustainable rice growing practices.

Turning now to vegetables and another important market in Asia, but one which also continues to expand in developed markets as consumers aspire to healthier lifestyles and ever greater choice in variety; this is reflected in the growth of our developed market sales as you see on the chart. Although the spectacular growth in emerging markets means that they now account for over 40% of our combined sales.

Vegetables represent the second largest input market after corn. With high value seeds and high fungicide and insecticide requirements; our strength in all these areas gives us the ability to offer integrated technology in the form of grower focus protocols, which we will market through our combined field force. We are increasing our downstream engagement with the food chain in order to further tailor our solutions to meet end user needs.

China accounts for around half of the world’s vegetables production and it is one of the markets contributing to the rapid growth in our emerging market sales. The scale of production is illustrated by the expanse of plastic tunnels on this photo from Shandong province. Each one of these tunnels typically represents a family farm. In these intensive vegetable growing areas, we have a significant opportunity to expand further our already fast-growing business through the integration of crop protection and seeds.

Our seeds sales force already has direct access to around 10,000 farmers, while our crop protection products are sold in 7,000 retail stores. We will now begin to propose complete solutions for vegetables to both customer bases bringing together crop protection, seeds and the agronomic expertise of our teams.

The same principle is being applied in Europe, while we are starting to integrate our offer in order to expand our combined market share. The examples shown here is from Spain, where we have developed a program for pepper growers, which also includes biological controls. These are beneficial insects sold through our bio line business and used for pest control in green houses as part of integrated protocols to minimize residues.

Our sales team offers crop monitoring and advice throughout the season and we have seen our seed sales triple as a result of the program. With our share of overall grower spend up by 20%.

Moving on now to North America with a particular focus on our performance in corn, and here as John said, you can see just how large a technified seed market can become. Our combined market share for all crops in the region is 15% with consistent share gain in crop protection and a seeds platform that has been growing in strength and achieved share gain last year.

Resistance management represents and ongoing challenge in intensively grown crops and one which we are addressing through combinations of crop protection and traits. Overall, growers are facing increased complexity in choosing between technologies. Our aim is to provide a comprehensive offer, tailored and priced to differing needs with complete agronomic support behind it. By doing so, we will also create value for retailers operating in a highly competitive market.

The developments of our U.S. corn portfolio mean that we are now uniquely placed to compete in this market. We have seen a step change in germplasm performance and now command a full proprietary trait portfolio with evidence of yield out performance against competitor products. We are able to complement our seeds and trait portfolio with proprietary seeds care with a track record of innovation.

The integration of our sales force will allow us fully to leverage our portfolio building on the strong reputation of our crop protection products among retailers to further grow our seed sales. We are quite simply in a position to offer the best solutions in corn.

When we reported our third quarter sales, we showed you a chart equivalent to one on the slide, which gave performance date for the first harvested 20% of field trials. I’m pleased to report that the final data shown here confirmed the improvement in our germplasm performance across all maturities. This is attributable to new combinations arising from the pooling of germplasm from the two companies acquired in 2004 and to an acceleration of trade stocking to bring a full trade offer into top performing hybrids.

These products will account for more than 40% of the total in 2011. The performance of our portfolio is becoming more widely recognized and we’re targeting further share gain this year. It is also giving rise to new licensing opportunities as demonstrated by the recent agreement to license our corn rootworm trait MIR604 to Pioneer for payments that could exceed $400 million.

AGRISURE VIPTERA is a key component of a proprietary trait offer and is being launch in the current season largely in combination with the triple stack. In the top graph, you can see its yield advantage, between nine and 12 bushels per acre versus competitor products targeting the same peer spectrum.

In the lower chart, we have compared the performance of our triple stack containing VIPTERA versus the same product without it, looking specifically at zones of heavy pest pressure such as the South, where we have been granted refuge reduction from 50% to 20%. The average benefit is 14.4 bushels per acre and in extreme cases, the benefit is almost 42.

VIPTERA was also launched in Brazil at the end of last year as a single trait. And in the next season, will form part of a triple stack offer following regulatory approval received last week.

The next stage in our trait pipeline progression will be the introduction of further refuge stacks in time for the 2012 season with a focus on Refuge-in-the-Bag solutions. With AGRISURE 3122, we’re targeting 5% Refuge-in-the-Bag, above and below the ground in the Corn Belt. At the same time, in areas where chloroptrum [ph] pressure is low, but Lepidoptera pressure is high, we will launch an above the ground stack including VIPTERA.

In 2014, we plan to launch an above and below the ground stack with VIPTERA containing our new next generation rootworm trait.

Refuge reduction forms part of our corn pipeline as you have been used to seeing it with a total value of more than $2 billion. It includes the solutions for insect control or biotic stress already discussed. Water optimization and nitrogen use traits and output traits such as Enogen, which improves the efficiency of ethanol production.

If you add to that containing both native and GM traits, you have combined value of over $2.7 billion, this underpins our intention of gaining market share in North America while selectively rolling out traits in Latin America and building on our global germplasm strength.

As we go forward, we shall as in the case of wheat be looking at our corn pipeline more broadly. Today, our global sales in corn including chemicals and seed care exceed $2 billion. Over the next five years, we shall be adding chemical and biological options globally while developing integrated grower agronomic solutions and we expect our corn sales to grow by at least 50% over this period. Post 2015, there are further significant growth potential encompassing germplasm, new traits and stacking technology.

Let me now hand you back to Mike to conclude today’s presentation.

Michael Mack

Thank you, Davor. Let me now conclude by looking first at the outlook for 2011. Crop prices remain favorable as we approach the main northern hemisphere season and we expect positive volume momentum supported by further emerging market expansion and market share growth.

We’ll update you, of course, on our progress as the season advances, but as you can tell from our announcement on the dividend this morning, we’re confident in our prospects for the year.

Looking forward, we will deliver superior customer and shareholder value by focusing on our three core objectives – integrate, innovate and outperform. Our target of 0.5% annual market share growth across a growing and integrated business represents significant top line potential. We’ll combine this growth with a high level of profitability targeting an EBITDA margin in the range of 22% to 24% by 2015. And we will deliver ongoing high cash flow return on investment enabling us to target a continuous increase in the dividend.

All these adds up to above industry growth and returns underpinned by continuing efficiency and an ability to create new markets and new opportunities while contributing to increases in agriculture productivity globally.

I look forward to showing more of this with you in the summer, capital markets days. And for now, this concludes our presentation and I look forward to taking your questions. Operator?

Question-and-Answer Session

Michael Mack

Let’s open the line first to Thomas Gilbert at UBS. Good morning, Thomas.

Thomas Gilbert – UBS

Yes, good morning, Mike and John, and John and Davor. Thank you very much. It was quick. Three questions, the EBITDA margin target for 2015. Can I just clarify, you do not assume any exceptional charges that [inaudible] for the new program or for any old programs? Yes, just this is neither a pre-exemption or reported margin that is just a margin that is clean of any restructuring cost or is there a certain again, a certain definition on the EBITDA margin that we should be taking into account.

And I’m sorry for the housekeeping, simply ask how will you report to analyst and investors your businesses going forward from the first half. I mean you will continue to report quarterly sales, will you report by region only, just clarifying how we have to setup the model going forward. That is the first question.

The second question is on the advance payments as I understand from North American growers in the seed business. Can you quantify how much that has helped the cash flow? And looking back 2004, 2005, you had a similar phenomenon. You said back then the reason for advance payments where that the – where such a strong financial position that they wanted to spend the money to avoid paying the income tax. You’re saying this time around, it’s just the same phenomenon or is this because of accelerated demand for new offerings; if you could clarify whether the early purchases are for new offerings or across the seed portfolio.

And then a question for John Ramsay, the DNA is jumping around quite wildly, just wondering if you could give guidance for depreciation amortization, if possible, a breakdown for 2011. Thank you very much for taking these questions.

Michael Mack

Yes, thank you there, Thomas. I’ll jump in with the second part of your first question, which is the reporting. We are going to continue to – by the way, we have always reported on a regional and product line bases for crop protection and seeds and we’re going to continue to do that.

First of all, to give you some visibility and continuity with the ongoing business, what we are going to do is increasingly describe to you the integrated opportunity opposite the grower, the integrated opportunity with the pipeline and so you’re going to be able to get more lenses on our business. So, I think as we go forward, you’re going to have the benefit of the history and the continuity, but increasingly more opportunity to see how these two things can go together. That would be the first.

And your question about advance payment for growers, you know the simple answer is same answer. Its growers typically if they have – if they’re flushed with cash in the United States as they were in 2010 and have good confidence about the following season now in 2011, payments are strong. By the way place their advance payments with companies they intend to do business which is another example of our confidence that the momentum that we’ve had over the past years in NAFTA continues to be strong.

You asked a question about EBITDA margin, the 22% to 24%, how clean is it relative to restructuring and the depreciation, John, both of those?

John Ramsay

Hey, good morning, Thomas. Yes, just very clearly, the EBITDA target, the margin target that we’ve set is excluding restructure impairment charges and indeed whenever we refer to EBITDA consistent with the past actually that it excludes those one-off charges and that target does so likewise.

So far as DNA is concerned, yes, you just have to conscious which numbers you’re picking up from the statements of course because sometimes that will include one-off minor impairments. But you know in terms of the underlying depreciation now, it’s going to move up marginally the – there’s been a bigger increase in 2010 because we brought on the new assets from our capacity expansion and that’s diminishing. So, it’s going to return to you know slight increase on current year and then of course it will be affected occasionally by minor impairments, but in underlying slight increase on 2010.

Thomas Gilbert – UBS

Thank you very much. All very helpful.

Michael Mack

The next question, good morning. Andrew Stewart at Merrill Lynch.

Andrew Stewart – Merrill Lynch

Yes, good morning. Thanks for taking the question. It was actually again on the margin target, but just really thinking about the quantitative side of this. So, you’re base, if you like the 21.5% you’ve just reported. We should then add something and one would assume for the $650 million program or be it obviously you’ve got some retention ratio to work with on that.

And then, of course, you’ve reconfirmed today your seeds margin target for this year at 15%. I guess the question is 22% to 24% for my math seems quite a low range. So, is there a message here about future crop protection margins? Thank you.

Michael Mack

Good morning, Andrew. I mean first of all I think the message is one of confidence and the confidence being that we intend to substantially grow the firm, the revenues of the firm while maintaining a real high level of quality on the underlying business, which is if we can set that out for the following three years, I mean this tells you you’ve got some cost savings, we’ve got investments in R&D, we’re going to continue to make or then continue to lead the industry with harvesting some of the growth investments we’ve made in these emerging markets. And I mean to the extent that we can grow the top line aggressively while maintaining a high level of EBITDA quality.

I think that talks a great deal to the confidence that we have over the coming years. So, I mean that’s the message is no more or less simple than that.

Andrew Stewart – Merrill Lynch

Can I just by way of follow-up, if we work with R&D and SG&A, should we be working with a ratio or are you committed to sort of absolute targets? So, the 9% for R&D, the 17% in change for SG&A or sorry, the 17% just for market and distribution. Is that how we should be thinking in terms of modeling?

Michael Mack

Yes, as we’ve spoken before I mean we can never tell you what the precise number is for R&D until the sales have been totted up at the end of the year. We believe that we can accomplish the strategic objectives we spoke of this morning with targeting R&D between 9% and 10% of sales. And this is the fourth cost savings program the company has undertaken since we reformed now more than 10 years ago and we’ve got a great track record, I believe, of delivering on these cost savings, so continued efforts to manage aggressively the efficiency of our back offices in the SG&A.

John, any more color on SG&A?

John Ramsay

Yes, I think maybe I’d look at R&D and SG&A a bit differently particularly given the cost targets that we’ve been out – savings targets that we’ve announced. I think R&D clearly – we want to take opportunity for additional investment and I think working as a percentage of sales is the appropriate there. I think on SG&A, we’d anticipate some productivity improvement there in relation to the work that is underway with the savings targets that we announced this morning.

Andrew Stewart – Merrill Lynch

Okay, thanks. Thanks for taking the questions.

Michael Mack

Sure. Thank you, Andrew. We have an email from Juergen Reck at Macquarie and the email reads, could you elaborate on Q4 crop protection pricing versus Q3 and the first nine months of 2010. Comments about presumably pricing on 2010 and beyond, it appear to be a global question. John, maybe a bit on – we had this pricing – prices were down in H1 and what can we say about CP now in ’11?

John Atkin

Okay. Well, the data shows in H1 we were minus 7% total; in H2 minus 6%; Q4 was minus 5% and the nine months was minus 7%. So, you can see an improvement over those quarters albeit not a huge one. What we – there are perhaps a couple of points to make here.

First of all, as John Ramsay has said and I’ll merely enlarge on what he said. We will target price increases wherever we can get them and our expertise and our readiness in our, the programs we have behind this are improving all the time. So, we’re right on the front foot to do that.

Secondly, there’s no question, absolutely no question particularly after last year’s price rises and taking into account the high commodity prices that our customers are getting more full value from our technology, very, very good returns on their investment; typically, three to one or more. So, there’s every reason to think that that’s a positive environment in which to do this.

But as John Ramsay said, it will all depend on the competitive environment. We will not concede share of highly profitable products by not making adjustments if we need to.

Michael Mack

Thank you, John. Next question to Andrew Benson at Citigroup. Good morning, Andrew.

Andrew Benson – Citigroup, Inc.

Hey, good morning. Thanks very much. Can you just give a bit more detail on the cost saving. I mean I see $650 million, you say integrated supply chain global procurement. I mean you’ve been working on your procurement for 10 years. You seem to be doing a good job. I just want to understand why you’re so confident that you can achieve more savings.

The second on the corn seeds business. I mean the data you’ve shown here on VIPTERA looks pretty amazing, what scope is there in 2011 to build market share. So, if you would sell out of all of your sort of high performing seeds, what would it mean?

And thirdly, there is the page; I’m trying to find it on the soybeans. You talked about rust solution for soybeans and clearly the – what was it, the Asian rust market in Brazil alone for treating soybeans, with what you get AMISTAR as one of your leading products. That’s about $1.5 billion market. So, can you just talk a little bit about the scope of some of the infiltrates where you are, the confidence you’ve got on those deliveries and why your being quite so cautious when there’s such an enormous opportunity in that part of that soy market.

Michael Mack

Sure, thanks for that, Andrew. John, maybe you can kick off with a little bit more elaboration on the savings and why this is different from the first different 10 years.

John Ramsay

Yes. So, Andrew, good morning. Look at the savings in three chunks basically? The first chunk is about a $150 million that will come from basically the combination of a commercial organization support functions. The second bit, which is maybe the one that you’re more interested in, is around the supply chain of $300 million and yes, we’ve been at this at for some time, but that is going to continue.

The additional element within that is that we are combining a supply chain, so we are going to be bringing into seeds which we haven’t really progress in terms of supply chain efficiencies and additional expertise. We’re also going to be taking advantage of the new computer systems that we’ve been working on for the last two years, which is going to give us the ability to do the analysis and keep track and manage the supply chain and the cost of goods with the levels of effectiveness that we’re used to in crop protection.

And then the final element is, the third element is on procurement generally and this really is largely around indirect procurement and on raw material components, but again it’s taking advantage of the fact that we’re combining our back office organizations as you know from previous discussions and having one single process and a dedicated indirect procurement organization to capitalize in all of that. So that gives you the $650 million.

Michael Mack

And Davor, maybe you can talk a little bit about the launch of VIPTERA and how it’s going to drive our corn share evolution in NAFTA and applicability to Brazil and then maybe can John Atkin can give you a little bit, Andrew, a sense for this crop protection and seed story in the Brazilian soybean market and how we can take full advantage of that. Davor?

Davor Pisk

Yes. We’re very excited about VIPTERA this year. In fact, we’re pretty much sold out, very strong order book for that trait. It will clearly help us to grow share this year, which is why we’re targeting share growth again in 2011. Obviously, ramping up our portfolio with VIPTERA traits takes a little time to get to maximum penetration, but we’re going to have about 20% of our portfolio including VIPTERA this year and as I say, very, very strong demand. So, we would expect to see market share gain of around the percentage point this year.

John Atkin

Yes. On the soybean rust, well, what we’re doing here is we are market leaders today with our pre or the extra AMISTAR based product as you alluded to. This is really an integrated approach, so it’s very typical of the sort of work we will be increasingly doing. Seeds will make a contribution to the protection or the inbuilt protection against soybean rust.

Then we have our new seed care product, Sedaxane, we talked about that will also make a contribution. And then we’ve got a fungicide program today, which we will be able to add to in the coming two to three years, which will give an increasingly beneficial effect there with these new technologies. So, we’re certainly not conservative about the opportunity.

We think it’s an excellent opportunity and I also think it’s important to point out that it’s not just soybean rust in Latin America that’s expanding. We’re seeing increasing fungicide use in Argentina or against general soybean diseases. So, all in all we feel very, very optimistic about this and it is an integrated solution.

Andrew Benson – Citigroup, Inc.

Thanks for your comment. This is native trait, which provides a moderate kind of resistance. It’s not like it’s a sort of a transformational level of resistance that you don’t need fungicide anymore…

John Atkin


Andrew Benson – Citigroup, Inc.

It’s the slide 61 wave [ph], other input traits for our solutions…

John Atkin


Andrew Benson – Citigroup, Inc.

And I noted it’s a native trait.

John Atkin

You got that right and it is about integrating all these treatments. This is a very tricky and very damaging disease and we need all the weapons that we can bring to bear.

Andrew Benson – Citigroup, Inc.

All right, thanks.

Michael Mack

The next question goes to Jean De Watteville from Nomura Securities. Bonjour, John. Good morning.

Jean De Watteville – Nomura Securities

Yes. Hi, good morning. Good morning, everyone, Jean De Watteville in Nomura. First question on seeds margins. Obviously, you’re getting pretty close to your 15% margin target for 2011 and we’ve seen that the quite interesting licensing contract you have seen with DuPont in December, which are presumably will add in the addition to the development of your pipeline some royalty revenues, which will boost your profitability. Can you develop on what’s the next stage? Where do you think you can go beyond 15% margins in the seeds business?

The second question is on the CFRI targets. You’re targeting above 12% CRFI, we have 13% the last two years. We have presumably improvement of profitability to come and see, that you’re also guiding for EBITDA margin above the level achieved in 2010. And we expect the CapEx to decline the next year as you’ve done the massive investments in AMISTAR to Thiamethoxam [ph]. Can you just explain to us why you’re not guiding for higher CFRI, we would expect to leverage here on the returns.

And on the – the third question I wanted to ask is on the pricing momentum in crop protection. You talked about mainly competitive pricing in North America. Can you bring some more colors in other regions? Do you see any implementation or price increases occurring at the moment? Thank you.

Michael Mack

Yes. I mean in many ways, Jean, the first two questions are all this, in many respects is the same, which are seeds is going up in terms of its margin percentage and with CP already at 21%, why you know? And I think the answer is it’s bundled well into the guidance that we’ve given about hitting 22% to 24% by 2015 and you correctly point out that we have a lot of opportunity to continue to expand our seeds margin. But I’ve also consistently said that we intend to make investments in growth.

And by the way, that licensing arrangement that we announced in December, a great example of how our technology is being appreciated, but what we’re not going to do is to revise the 15% EBITDA target for seeds into a new EBITDA margin for seeds and instead give over to ourselves the continued challenge of investing in the business, but maintaining the total thing at a real high level of quality.

I think you’re absolutely correct to point out that the cash flow return on investment at 12% with declining CapEx is one that whose target seems entirely achievable and I agree with that. But it’s offered today not so much as a stretch objective as it is some assurance that we are completely committed to maintaining this business at a high level of quality while driving the top line growth.

Now, taken together, of course, this should underpin the confidence in this other piece which is a continued progressive dividend on the back of a substantially improved dividend of 2011. So, I think no one of these things should be taken in isolation. It should be taken in total and the piece overarching the whole thing is how quickly can Syngenta continue to grow this business particularly in the emerging markets.

The question about price increase, one more time, I think we addressed it a bit, John.

John Atkin


Michael Mack

But the question is about is there any specific color here in any part of the world or in any specific crop that you would like to draw attention to.

John Atkin

Well, I think I can just build on what I said earlier and say, unequivocally, yes. We have announced gross price increases in many places on our many products. And we see them holding as gross price increases and we’ll do whatever we can to bring those benefits down into net pricing.

I think it’s important to say that the second half is likely to be more positive than the first. We have some quarter on quarter or half year on half year comparisons. John Ramsay mentioned this which particularly in North America, which of course accounted for 60% of the price declines we saw last year. We’ll still see some comparisons, negative ones in the first quarter in the first half. But I can only reiterate that we’ll do whatever we can to make these price increases stick.

Jean De Watteville – Nomura Securities

All right, thank you. Can I just ask another question on working capital? You obviously have an impressive achievement in 2010, where reaching an average trade working capital of 39%. We know that obviously we have seeds that becoming a larger part of your portfolio in development markets, being on larger part presumably payment terms are a challenge for the portfolio. So, can you just elaborate on how sustainable is the performance that you achieve in 2010 [ph] and there’s any scope for improving the working capital performance on the next years.

John Ramsay

Yes, we’ve made significant progress in 2010, both in inventories and receivables. So, we’re not seeing the need to purchase aggressively on that in 2011, but we’d anticipate some further improvement maybe 1% of sales.

Jean De Watteville – Nomura Securities

All right. Thank you very much. Our next caller is Paul Walsh at Morgan Stanley. Good morning, Paul.

Paul Walsh – Morgan Stanley

Good morning. Good morning, everybody. Thank you very much for taking my questions. Three relatively quick ones, if I can. First, can you talk about the raw material environment on what you’re expecting over the next 12 months?

Secondly, can you just give us a bit more insight on the timing of the new strategy? What sort of was the catalyst behind changing the way you’re structuring the divisions and the cross selling opportunities and what sort of really changed for you to want to pursue the business in that direction.

And just finally on inventory build going in to the first half of next year, are you recently confident that the volume strength you’ve seen in the back half of this year is really just underlying growth rather than inventory build moving into the first half, which obviously was the problem on price rebates in Q2. Thank you very much.

Michael Mack

Sure. Well, thank you, Paul. I’ll start with the second question, which is the timing of the new strategy and what’s going to happen consequent with the press release this morning of our 2010 results, we made internal announcements all around the world on all of the appointments to implement the strategy. So, quite literally, as we’re speaking all of the leadership around the world in customer facing leadership roles is in a position to describe this to our channel partners and our customers and our employees.

So, for all intention purposes, this is effective immediately and we will be implementing this as I said between now and 2012 in at a different pace depending on the circumstances or the complexity of the commercial unit. We, as John described and Davor described, we’re already operational in this in several important parts of the world.

We undertook the integration in Brazil a couple of years ago. We’ve integrated in Italy. We’ve integrated in the Indian coastal countries in Latin America. We’ve integrated in Bangladesh. There are some commercial units that won’t integrate either for social program reasons or for differences between the CP and seeds businesses until the first half of 2012. We aim to complete this initiative by the end of 2012.

But underneath this is the question of course, why now? And the why now was principally the very first slide I had in my presentation, which is we have and have had the world’s leading crop protection business and we have been investing really heavily now over the past years in a seeds business that is now fully equipped technologically speaking to be able to get married up with crop protection.

We’ve got as I mentioned a lot of experience now with our people around the world such that we can undertake this globally with the confidence born of experience, the confidence born of the kind of technology that we need and the confidence born, frankly, of having a unique set of properties to undertake this. So, this is going to be the way we think about innovating. We’re going to continue to come up with and deliver strong products, but importantly these strong products are going to be constructed in such a way as they have an integrated benefit to the grower.

Now, I think the second – the first and the third questions, John, the raw material in the inventory and what kind of confidence that we have that – we’ve got those well-scoped opposite the ongoing volume orders that we see coming in.

John Ramsay

Yes, okay. Well, raw materials, we’re anticipating in 2011 raw material cost to be broadly neutral compared to 2010. I mean that’s the bottom line. But look at the situation really we’re not – there is a long lead time in terms of effects on our income statements, in terms of purchase of raw materials and clearly, there’s a higher oil price. But given our levels of inventory and what we can see back into the manufacturing chain from our suppliers, then that would be the case so far is 2011 is concerned.

And of course as I mentioned earlier in a response to Andrew is that a large part of the savings that we’re targeting aren’t going to be coming from the supply chain and the procurement area, which would be offsetting I think in years beyond 2011, any raw material increases.

Your third question was about the fourth quarter sales and whether this was, we’re confident that this wasn’t just going into inventory. I mean essentially the basic answer is no, it is not. We’re confident that this is representing real demand. And indeed, if you take a sort of high level view around the world of – in market inventories and setting in the distribution, they are lower as a general statement from this situation this time last year probably with the exception of Canada, which had lower acreage as a consequence of the floods in Saskatchewan and there’s probably still quite a lot of Glyphosate sitting around although it is lower than last year.

Paul Walsh – Morgan Stanley

That’s very helpful. Thank you very much.

Michael Mack

Thank you. And next question goes to Martin Fluckiger with Helvea. Good morning, Martin.

Martin Fluckiger – Helvea

Yes, good morning, gentlemen. Thanks for taking my questions. Actually a few have already been answered, but I’ve got two left. The first one is on Glyphosate. According to your Glyphosate volumes have been sharply up in the second half of 2010. Can you talk a little bit about price developments in the second half? Remind us in any words that in Q3, they had stabilized after declining in the first. And if possible could you elaborate also a little bit about your views on the outlook for 2011 regarding Glyphosate pricing.

Then the second question is, a financial question for John, I suppose. The tax rate guidance of 20% in 2011, how sustainable is that as we move into 2012 and beyond? Thanks for your help on that.

Michael Mack

Yes. Well, thank you for that Martin. I thought this was going to be the first conference we’ve ever had without a Glyphosate question, so you’ve saved the day.

John Atkin

Yes. Yes, look I think first of all the consumption of Glyphosate is strong and the demand for it is certainly there. As far as pricing is concerned, we are not anticipating the pricing environment will improve markedly. I think though it’s important to point out that for us this is a product that we – it doesn’t constitute a very high proportion at all of our gross margins and it’s a product which we have in our range to provide a complete offer. We have in mixtures, which are extremely important to combat Glyphosate resistant weeds, with those products, I think we can consider as specialty products. They’re not in the straight Glyphosate pricing bracket, so they’re different.

But I think for straight Glyphosate, if that’s the question, I don’t think we should be optimistic about where pricing is heading anytime soon. But obviously we are watching that very carefully and we will get increases where we possibly can.

Michael Mack

And Martin you had – I’m sorry, you’re second question some of the – John Ramsay had it. Go ahead, John.

John Ramsay

Yes. Just on the tax rate…

Michael Mack


John Ramsay

And the sustainability of the 20% target that we’ve set for 2011. I mean we should in a planning basis medium term be working on glutamate 20s as the continuing likely underlying rate. Of course, as you know we put – we put a lot of effort into looking at tax opportunities, tax minimization opportunities and that’s going to continue in what we know now in 2011, we’ll do a bit better than that; so, medium term rate of low to mid-20s.

But we should beyond 2011 work on the basis of glutamate 20s although we will continue to do what we can to minimize the tax although we have to appreciate the environment in which we’re operating is becoming more difficult with governments around the world looking to increase their tax stake, but we’ll do our best to improve.

Martin Fluckiger – Helvea

Okay, thanks a lot.

Michael Mack

Thank you, Martin. The next caller, Tony Jones from Redburn. Good morning, Tony.

Tony Jones – Redburn Partners

Good morning. A couple of questions left. On crop protection, could you let us know if any of the volume growth we’re seeing which is so strong, is any of this down to just to distributor restocking, which is what we’re seeing in some of the first lines in markets or is it real underlying demand?

And then the slide on page, slide 38, you talked about say Ukraine, very high growth rates. You’re saying this is going to sustain at sort of mid to high teen’s rate. This is quite a head of expectations, I think, in some cases. Is this sustainable and does it represent the similar trend across to the parts of Eastern Europe?

And then finally on seeds, with Monsanto going ahead with another head attempt at launching smart stacks this year, how relax are you that you can maintain share and deal with that? Thanks.

Michael Mack

Well, John, maybe you can just talk to the volume growth and the growth rates and then Davor should jump into our Refuge-in-the-Bag, which is the underlying issue in opposite the competitiveness of the U.S. John?

John Atkin

Yes, it is demand. In Latin America, which of course Brazil was a very large part of our Q4. We record sales on the basis of consumption, so these are not stocks sitting in distributors warehouses. They are out there on the farms. Consumption is a little bit delayed in Brazil, so we expect – well, we know that that’s now picking up. So, no, this is about demand as far as our sales are concerned.

Ukraine, it’s probably the country with the greatest potential. So, I wouldn’t necessarily read into other CIS countries the same sort of growth trajectory that we expect in the Ukraine. It is favored from a climatic and soil standpoint and the potential is there as long as the prices are good and some of the things that we have put in place on risk management and barter trading are enabling us to deliver the farmer what they need, which is to reduce their risks a bit whilst they can capitalize on improving their yields.

So, I think – but we feel – there’s always be an element of volatility there, but we think there’s a good chance this market is set for some medium term growth.

Davor Pisk

On the seeds question, Tony, I’m not sure I would characterized us as being initially relax, but I think we are excited and we’re very confident about the quality of our offer as we go forward.

So, for example, what you’ve seen this morning in terms of the performance of our germplasm, the confidence we have there in terms of that performance compared to competitors, the quality of our trait pipeline and particularly as Mike referenced, the progress we have with our own refuge reduction offers, I think we’ve got an extremely rich pipeline. I think we’ve got outstanding technology and I think we’re putting together a very compelling offer for the growers, so we’re very confident.

Tony Jones – Redburn Partners

Okay, that’s great. Could I just ask one quick follow-up actually? Going back to crop protection, with volume growth being quite high in mature regions do you think that say spray rates, application rates, number of sprays, are we back at say peak normalized levels or back at where we were in 2008? Or is there a bit more recovery we can see over the next year?

Davor Pisk

That’s tough to be precise on. We do know that farmers whilst their incomes are high as we’ve seen, they’re a little bit more cautious than they were in 2008 because of what happened in 2009. But we do expect though that generally farmers will invest to make the most of their yield.

I mean it is important to point out that the biggest single factor here and we haven’t mentioned it yet and we should is the weather. I mean here we are in February. We don’t what the weathers going to do and that will always have a big impact particularly in the northern hemisphere on what consumption there is.

Tony Jones – Redburn Partners

Thanks very much.

Michael Mack

Thank you, Tony. And the next caller is Patrick Rafaisz of Bank Vontobel. Good morning, Patrick.

Patrick Rafaisz – Bank Vontobel

Good morning. I’ve got two questions left. The first on dividends, you’re targeting continued increases. Has anything change as you pay out targets going forward?

And the second question is, I’m afraid, again regarding your EBITDA margin target. You’re pretty clear on the cost savings but what kind of top line growth annually are you assuming until 2015 for this target to be reached and what would have to happen for you to achieve that margin range earlier than 2015? Thanks.

Michael Mack

Yes, I mean actually the second questions, of course, is the one that we’re going to continue to strive very hard to over deliver on, and by over deliver on some guidance that we haven’t given today, which is by maintaining business at a real high level of quality and continuing to invest in R&D and these emerging markets. And investing in a portfolio that has some great integrated opportunity, what can be the potential for the revenue evolution.

As we’ve seen over the past couple of years, there is in our business; John just mentioned it, there is – weather is a continuing factor. The attitudes of farmers at the front end of the year opposite such things as commodity prices. These things do introduce an element of uncertainty into our business. We’ve experience this though now for a number of years, but the underlying fundamentals that we’ve talked about so consistently continue to be very profound.

The expansion of these big economies in developing markets, our ability to compete very aggressively opposite generics, frankly, in these markets with new technologies. All of these represent a big revenue generating opportunity for the firm to say nothing of some of these new go-to-market models and new solutions like Plene and Tegra. So, I think – please believe us that we’re going to do everything we can to increase the growth rate of the firm over the past years.

John Ramsay, the specifics on the payout ratio. I mean we’ve said we’ve maintained by increasing the dividend substantially 17% as we did this year and a promise to continue to progressively increase it. What if anything can we say specifically about the payout ratio?

John Ramsay

Well, I think the way to look at it is very much a change from the past whilst we’ve had progressive dividend in the past, we have been relating that to earnings and therefore being somewhat constrained by the payout ratio in relation to income earnings. That’s not going to be the case in the future. We will be looking at progressing the dividend year-on-year regardless of that to ensure. We achieve a high return to shareholders in cash terms and prioritizing the dividend.

Patrick Rafaisz – Bank Vontobel

Okay, thanks a lot.

Michael Mack

Okay. We have another question from Andreas Heine of UniCredit. Good morning, Andreas.

Andreas Heine – UniCredit

Hi, good morning. I’d like to come back at first to the cost savings. Obviously, it is not the right calculation to answer cost savings to the P&L because then you would already be above your margin target. Is that the cost saving basically we’ve seen as offsetting to cost inflation and the additional R&D and marketing investments so that to offset the inflation rather than savings we can see on the bottom line?

And again on the mid-term margin, if you would achieve the margin you have in crop protection in the year 2009 of 200 basis points higher than it was in 2010 and assuming that the crop, let the seed margin goes up to your margin target then you’re already at the upper end of the range here you have given. Was the margin we have seen in 2009, and you view it something very exceptional which will be very difficult to achieve again and that’s where the second question.

And maybe the last one, on Tegra, you have given some kind of peak sales you might achieve on the sugar cane protocol. Is it too early to say on peak sales on this raise Tegra on protocol or could you share with us what you have in mind that can contribute to sales? Thanks.

John Ramsay

What you just on – the first two points, cost savings and there, I don’t think you can probably combine my answer to both those questions together. I think the way to look at and what we were intending as Mike has said on answered previous questions is that this is intended to give a confidence, our confidence and be able to grow this business while sustaining high levels of return and that’s what the targets are meant to do. They’re not meant to be a mathematical progression towards a 2015 position.

It’s meant to portray that over the medium term, we’re going to invest in this business and that is going to detract from margin, but is going to grow the top line, which is getting [ph] out to margin and we believe that it’s going to be higher than it is today and we can add value through the strategy that we’ve announced. That’s how to look at these targets, confidence and ability to grow at attractive levels of profitability.

Michael Mack

And Davor the Tegra, what’s the ramp up for that look like?

Davor Pisk

Yes. We’re extremely excited about the opportunities for Tegra, but we need to recognize the customer base in rice seed. Its small holder, it’s very dispersed. It’s going to take us a little while to be confident and characterizing max sales for that offer to grow. It’s quite different I think from Plene, where we’re talking about a well-defined customer group amongst the sugar can farms and sugar cane mills and processes in Brazil, so it will take us awhile. But I think this has the potential to be a very, very significant business opportunity for us.

Andreas Heine – UniCredit


Michael Mack

We have time for two more callers on the line. Richard Logan, first, of Goldman Sachs. And then Virginie Boucher-Ferte at Deutsche Bank. First, Richard, good morning.

Richard Logan – Goldman Sachs

Good morning. Thanks for taking my questions. Firstly, I just wondered if you could split the market share gain target into the seeds and crop protection areas. I’m assuming that the seeds would probably be at greater growth than crop protection, but if you could clarify that.

And then secondly, on the buyback, is there potential for the buyback to be increased? I think in previous years whenever you’ve had strong profitability; we’ve seen the buyback being increased later in the year so potentially at the first half, if you could just comment on that. Okay, thanks.

Michael Mack

Yes. On the first one, we are, of course, going to continue through just the normal course of business to target specific market share increases in both crop protection and seeds as appropriate in virtually every single one of our markets. I mean we do that as a business budgeting matter.

Your question though, I mean when we come to a program like Tegra where you’ve got seedlings in a tray, it’s got hybrids in there, there is seed treatment, there is crop protection chemicals. It is a protocol. In many respects, we’re making a market for the very first time and as we go our revenues in that market, I mean what part of the Tegra tray is a seeds market share expansion versus a CP? So, increasingly, we will look at it that way.

I would give you the same answer about Plene. And Plene is one where – we’re already working on germplasm for sugar cane. We’re working on GM traits for sugar cane. We’re working on the agronomic protocols, which John told you about. So as that sugar cane market becomes more highly technified, is that a germplasm market share gain or crop protection? I would say in some cases, it will be indistinguishable.

But as Davor described to you in our seed business, for example, in North America, we come out with a drought resistant trait like AGRISURE ARTESIAN. We come out with a new insect trait like VIPTERA and the second generation corn rootworm that will come out in a couple of years. These are going to be examples where products by themselves will be able to evolve. So, the 15% overall market share that we have today will grow both in CP and seeds differentially around the world.

I do think you’re correct in pointing out though that as our crop protection business is the biggest in the world and a lot of people trying, of course, for a spot of it, I think our seeds opportunity by virtue of the investments we’ve made in it is going to be quite strong. And so you know again it’s an overall global goal and we start with a lot of good momentum.

John, the question about?

John Ramsay

Yes, just a question on buybacks. I think we wouldn’t really allow to increasing it. But I have to say that we don’t have the same policies we had in the past, we are prioritizing dividend growth into the future. And then we’re trying to just look at share buybacks on a tactical basis. But at this stage, our target is we’re planning on a $200 million for this year.

Richard Logan – Goldman Sachs

Great. Okay, thank you.

Michael Mack

Thank you, Richard. And finally, Virginie, good morning.

Virginie Boucher-Ferte – Deutsche Bank

Yes, good morning. Thanks for taking my questions. A few questions left. First of all, I’ll make an attempt to go back to your, to applying growth potential over the next few years. Earlier in the presentation you referred to one very aggressive to a plan growth potential. If I look at the consensus, it forecast about 5% growth in the next few years. I understand all the uncertainties, the weather, the crop prices, but all things being equal. Are you expecting to beat December?

My second question it’s on Azoxystrobin and Thiamethoxam. Now, first of all, Azoxystrobin, I understand the price held up relatively well in Europe last year. I just would like to know what dynamics you’re seeing on AMISTAR pricing in Europe this year. And also if you could remind us the sales ramp up of the new capacity in 2011 and 2012 and what it was in 2010.

And on the last question is just the licensing opportunities, you refer to more deals to be announced. Are you thinking of any particular traits? So far you’ve announced quite a lot of deals on your insect registered traits. Would you do anything on GA21? These are my questions. Thanks.

Michael Mack

Sure. On the very first one, Virginie, I think you said something very important. You said all things being equal and as we all know, they never are. And we’ve already talked about the weather its farmer sentiment, we’ve talked about the weather.

What do we think we can tell you right now about 2011 and 2012? The first would be that we go into this year with some momentum and farmer sentiment is good as John Atkin pointed out, but it’s not necessarily as you euphoric as it was in 2008 and that augers good for a northern hemisphere. I would expect that the growth rate is certainly going to be higher than 5% in emerging markets and it has been. Our growth rate and our new products is going to be higher than this.

At the same time, we’ve got competition. Farmers don’t have a shortage of a – I wouldn’t try to dissuade you that 5% is a hugely aggressive number or too conservative a number. I do have recognized the number and as usual by doing out performance in market share, hopefully, we will best whatever growth the market would offer up. But as you said, not all things are equal.

John on Azod [ph], in part to Azod [ph] and Thiamethoxam in the sales ramp up with a bit of particular focus on EAME. And then Davor, maybe you can say a little bit more about the licensing opportunities outside of the ones we’ve already announced. John?

John Atkin

Yes. Azoxystrobin ramp up, where we had a 29% increase in volume last year and we’re looking to continue to drive volume. The main growth opportunity, of course, in emerging markets, and in fact, Latin America is our biggest market for this product now.

Pricing in Europe, we’ll try and get increases wherever we can. We don’t expect there’s going to be major adjustments there. Looking ahead, I can only underline that we’re very excited about the potential for this molecule, particularly in emerging markets.

Michael Mack

Davor, licensing?

Davor Pisk

Yes. On licensing, I think there maybe opportunities to license some of our existing and established portfolio. But I would really point towards the new pipeline, the new traits that we have coming through as representing the most significant licensing opportunities for us in the future.

Michael Mack

But leverage, say maybe you can a bit about the leverage that we have with GA21 in Asia Pacific.

Davor Pisk

Yes. We certainly – there’s the opportunities for GA21 and our insecticides in combination to have a big impact in APAC. We intend to exploit that predominantly through our own branded sales, but there may be some opportunities for licensing. But essentially our opportunities are going to be on branded sales.

Virginie Boucher-Ferte – Deutsche Bank

Okay, thank you.

Michael Mack

Thank you, Virginie. Well, look, that concludes our presentation this morning and I look forward – I and on behalf of my team that we’ll be at these capital markets days. Look forward to seeing, hopefully, a lot of you there; one here in Europe in the summer, and then follow it in August, one in the United States. We will be showcasing virtually all of our technologies across all the crops at these capital market days and look forward to seeing many of you then.

In the meantime, of course, as usual, if you have any questions, please call our Investor Relations Group here lead by Jennifer Gough in Basel. Thank you for joining and good day.

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