1. Goldman Sachs Global Investment Research
GS Chemicals: Syngenta (Conviction Buy;SFr344.30):
Solid Capital Markets Day feedback provides mid-term reassurance
Syngenta held its final crop update in Brazil. Presentations on day 1 focused on soybean, coffee and
sugarcane.
Overall: Syngenta echoed comments from peers that the LatAm season (c.28% of 13E sales) has
started extremely strongly. This is despite the company not yet receiving approval for key
fungicide product, Solatenol, in Brazil which should now impact revenues from 1Q14 onwards. As
previously reported, the delay (from 4Q13) is due to staff shortages at the regulator. Approvals
have been received in other LatAm countries. In the region, Syngenta has 19% market share in CP,
ahead of number 2, Bayer, (13%) and further market share gains are expected from the integrated
strategy. Beyond this, the company confirmed its 2020 target of $25bn in sales (vs $13.4bn in
2012) with 8% integrated sales CAGR allowing margin expansion and cash return to shareholders.
Soybean ($2.3bn in 2012 sales/18% of total): Bottom line: Syngenta expect to see 7% CAGR (2012-
20) with $4bn in sales from $2.3bn in 2012 with an improvement in profitability helped by pricing in
seeds. Near term, it was confirmed that Solatenol will impact Brazilian revenues from Q1 2014 (vs
Q4 2013 previously due to staff shortages at the Brazilian regulator; the fungicide has received
approval in other LatAm countries). It was noted that the demand side of the equation for Soybean is
extremely strong driven by well versed megatrends of population growth, dietary changes and biodiesel.
China has been an extremely strong consumer taking up c.30% of global soybean demand mainly for
animal feed. As far as the supply side is concerned, the crop has reduced risk relative to others, lower
investment and better ROI.
It is easy to farm through mechanization. In the US it is a rotation crop (due to nitrogen fixation) whilst
there is strong demand in Brazil. Nevertheless, farmers remain concerned about drought, yield
requirements given export taxes and glyphosate resistance. The crop is profitable with ROI’s before land
rental of 66-178%. As a percentage of grower revenues Crop protection (CP) and Seeds (SE) ranges from
12-17% of sales. Syngenta believe there is scope for intensification to increase grower yields. Syngenta
believe it can differentiate as it has the most complete portfolio along with CP, seeds (with access to
Intacta technology) and Quantis (nutrient offer). Globally Syngenta is the market leader in CP with 24%
and market share and in seed care with 28% in seedcare.
In seeds, it is number 3 with 9% share. To enhance the seeds footprint, Syngenta expects to invest in
seeds R&D and leverage its CP position integrating high yielding solutions. In this stead, it has shifted its
business model in seeds from traditional licensing and branding to IBP (Integrated Business Partner), here
the licensing business is switched to Syngenta brand; multipliers become Syngenta distributors with IBPs
producing seeds for Syngenta channels.
Specialty Crops ($2bn in 2012 sales/15% of total): Bottom line: Management expects to deliver 7%
revenue CAGR (2012-20) to c.$4bn in sales in 2020 driven by integrated offers which are scalable,
leveraging its key products and new business models (e.g. Nucoffee which is being expanded to

2. other geographies). This division has gross margin several hundred basis points ahead of the
group. This segment consists of 40 different crops including potato, apple, cotton, citrus, coffee. These
crops were stated to be high margin with common characteristics consisting of a need to control pest and
disease. Generally, consumers are often prepared to pay a premium for a quality product. Within this
segment, Syngenta is focused on 4 key crops (Potato, Cotton, Fruits and Plantations) – it is the market
leader in all these segments, save for Fruits where it is a close number 2 to Bayer. Gross margin is above
group average due to a favorable fungicide produce mix and the stickiness of product. Syngenta
highlighted five of its integrated offers (Potato, Fruits, Cotton, Plantations, and Young tree care) which
each have a $100mn opportunity for the company.
Coffee: ($120mn in 2012 sales): Bottom line: Syngenta expect to deliver c.$300mn in 2020 sales
whilst maintaining gross margin ahead of the specialty crops segment. Syngenta has over 30%
share with a strong position at each stage of crop development from Nursery to Post Harvest. The
company’s Café ForteXtra calls for a step change in both yield and quality with it providing 24% higher
yield relative to competitors with a better quality mix. For the grower, CP accounts for c.5% of total
production costs of coffee. Given volatile movements in coffee prices along with FX moves, Syngenta has
further extended its barter programme from Brazil to Columbia. Syngenta highlighted its Nucoffee
partnership programme where the grower can pay for Syngenta’s ICS programme through barter. The end
user is providing full traceability of coffee which is a key differentiator and the grower is provided with a
means to navigate FX and crop prices. Syngenta expect to expand NuCoffee from 800 smallholder
farmers to 10k by 2017 in Brazil (out of a total of 260k market potential). The company reported that there
is strong sign up from growers and retention rates from end users (coffee sellers).
Sugar Cane ($259mn in 2012 sales/2% of total): Bottom line: Syngenta has been able to double its
sales in Brazil every two years taking its market share from under 8% (7th) to 15% in 2012 (2nd)
and in 2013 it should be the market leader. Sales are expected to increase to c.$2bn in 2020 which
are backend loaded from Plene. On the demand side, Syngenta see two main drivers for 3% CAGR
(2012-27) for demand consisting of Ethanol for flex-fuel cars in Brazil/blending mandates /other products
e.g. bioplastics and Sugar from population growth, and diet shift s in large and fast growing markets.
Sugarcane requires high upfront investment and consists of a long cycle. Syngenta highlighted that there
is a large opportunity for productivity improvement n Brazil given the historic lack of investment driven by
the credit crisis (underusage of CP) and unfavourable weather. Management highlighted a number of yield
limited factors including pests, weeds and diseases. Syngenta has been able to address these factors
through integration (e.g. treating crop as it grows to harvesting; Syngenta are gaining market share using
this technology). Management is proactively showing farmers on test fields success of technology relative
to previous tried and tested methods. At the end of the week, Syngenta will launch its PleneEvolve and
PlenePB offers where management believes historic teething issues have been ironed out.
Valuation: Syngenta trades at c.12x 2015E P/E (incl. use of cash) and c.9x EV/EBITDA, which we believe
offers a strong opportunity to buy a 2020 Vision Leader and GS SUSTAIN Focus List stock at a low
valuation.
Jean-Baptiste Rolland
Global Investment Research - Chemicals
Goldman Sachs International
Peterborough Court | 133 Fleet Street | London EC4A 2BB
Tel: 020-7051-9893 | Fax: 020-7552-7285
email: jean-baptiste.rolland@gs.com