Last updated: February 5, 2014 11:30 pm

Syngenta: weeding out the problems

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World’s largest agricultural chemicals company needs to fulfil its potential

In Syngenta’s field of dreams every plant has potential. Unfortunately investors seem to want a little more than potential. The shares have suffered in the past year, down 22 per cent as profits from the crop-protection specialist have underwhelmed. Wednesday’s full-year results were no exception; net profit at $1.6bn came in below expectations as one-offs and write downs of about $600m hit profits.

Syngenta’s management believe, rightly, that at least part of this will reverse. Elatus, the company’s new fungicide product for soybeans in Brazil, was due to launch at the end of 2013. It will come one year later instead; not great, but that means $350m of Elatus sales should come through this year.

That would be good news because working capital, specifically inventory, has risen before the Elatus launch. Assuming Elatus does as well as expected, management sees a 200 basis point reduction in the inventory to sales percentage.

That’s important as rising working capital has been draining Syngenta’s cash flow in recent years. The overall working capital to sales ratio has risen from 36 per cent in 2011 to 42 per cent in 2013, with inventories responsible for much of the increase. Syngenta’s management is already committed to improving profit margins, but it needs to focus on working capital as well. That means cutting not only inventories, but also squeezing better payment terms from both suppliers and customers.

Freeing up cash flow would give the company more scope to do the sort of things that might excite investors – investments in new products, acquisitions, buybacks or higher dividends. If Syngenta can also improve profit margins through more cost cutting, all the better. All this, along with any good news on crop protection in Europe after a mild, wet winter, should add some colour to Syngenta’s faded bloom.

Email the Lex team in confidence at lex@ft.com

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