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Syngenta shares hit 8-month low as Brazil woes sting

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Syngenta shares fell to their lowest since January, extending to 24% their tumble since Monsanto pulled its bid, as the agrichemicals group unveiled a bigger-than-expected drop in sales, deepening the cloud over the sector.

The Swiss-based group, the world's top agrichemicals company, reported sales down 12.1% at $2.62bn for the July-to-September quarter, falling well short of the figure $2.82bn that investors had expected.

And the decline would have been larger were it not for a change of contract terms in Brazil, which means that Syngenta now books sales to distributors on delivery instead of when the products are sold on to growers.

Although Latin American sales were reported 3% lower at $1.23bn, Syngenta said that they fell by an underlying 8%, even before the impact of a weak real was taken into account.

'Challenging conditions'

Indeed, Syngenta underlined the "challenging conditions" in Latin America during the quarter, in comments which come two days after US-based rival FMC Corp cut its earnings forecast for a second time this year, citing weak conditions in Brazil.

Last week, Platform Specialty Products, the owner of agrichemicals group Arysta, cut its profits outlook for a second time, while Monsanto announced 2,600 job cuts and issued an earnings forecast well short of market expectations.

Syngenta said that the in Brazil, "the impact on the market of low commodity prices was exacerbated by the sharp depreciation of the real… and by liquidity constraints".

The weaker real, while protecting growers from lower values of dollar-denominated crops, has raised the cost of imported inputs.

Syngenta also flagged "tight" credit in Argentina, where "growers continue to be penalised by export taxes on soybeans". Farmers are hoping that elections later this month will herald a less punitive taxation regime.

Licensing deal

The July-to-September period is particularly important for Latin American business, being the run-up to the southern hemisphere spring sowings period, ahead of harvests early in 2016.

Indeed, Mike Mack, the Syngenta chief executive, said that the group's performance in the region for the full year was "unlikely to meet our original expectations".

In a boost to its profit hopes, the group also unveiled a $200m upfront payment from seed groups KWS and Limagrain over licensing Syngenta genetically modified corn seed technology.

"The creation of additional value through trait outlicensing…. will be an important driver in improving the profitability of our seeds portfolio," said Davor Pisk, the Syngenta chief operating officer.

The group acknowledged that its soybean seed operations had faced a "competitive market with lower-than-expected acreage".

Nonetheless, Syngenta forecast a "mid-single digit decline" in full year group earnings before interest, tax, depreciation and amortisation (ebitda), compared with a previous forecast of a result at "around the 2014 level".

Market reaction

The statement received a cool response from investors, who sent Syngenta shares down 3.3% to SFr288.50 in early deals, their lowest level since late January.

It is also well below the SFr470 per share that Monsanto had proposed in its outline bid.

"Currency continues to be a significant headwind," said Credit Suisse analysts, estimating that, excluding the licensing deal, Syngenta would have been looking at a "10% reduction to guidance, largely due to currency and a deterioration in Latin American market.

"We expect a negative share price reaction to the guidance reduction - albeit challenging markets were flagged by US peers in recent weeks."

Shares in Syngenta - which has, since Monsanto walked away, unveiled a share buyback of more than $2bn and put its vegetable seeds arm up for sale - recovered some ground in late morning deals to stand at SFr289.90, a drop of 2.8% on the day.


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