ZURICH (Reuters) - Swiss group Syngenta is set to benefit from soaring food prices as farmers invest in products to boost harvests and buy more weed and bug killers from the world’s largest agrochemicals company.
Syngenta, seeking to outperform the market and increase profitability in coming years, posted a forecast-beating set of 2010 figures on Wednesday on the back of strong demand in emerging markets.
The group lifted its dividend a sixth to 7 Swiss francs, above a forecast for 6.14 francs, and said it was launching a $200 million share buyback program.
Syngenta shares, which had gained 12 percent this year, were up 2.9 percent at 0925 GMT to their highest levels since July 2008, outperforming a 0.7 percent rise in the European chemicals sector
“At the current commodity prices, farmers have plenty of opportunity to invest heavily in the crop inputs,” chief executive Mike Mack told Reuters. “It is a good place for 2011.”
Spiraling wheat, corn and soybean costs should encourage farmers to buy more products from Syngenta and rivals such as DuPont and Monsanto as they seek to boost yields.
Mack said the outlook for 2011 was bright as global GDP growth expectations were higher than for 2010, suggesting rising global demand for grain.
“As economic growth goes up people have more means to invest in bigger diets — more meat, more cheese — and this drives demand for grain,” he said.
The surge in food prices has prompted concerns around the world about inflation and rising prices have been blamed in part for protests in Algeria, Tunisia and Egypt.
Prices for both wheat and corn have risen to the highest levels in around 2-1/2 years as major importers such as Algeria ramped up purchases to quell domestic unrest over food price inflation.
Dry conditions in top wheat producer China and freezing cold weather in the U.S. Plains and fires in Russia last year also pushed prices higher.
Soybean prices hit their highest in more than two years this month with dry weather in major exporter Argentina heightening concern about tight supplies.
Net profit at Syngenta slipped 1 percent to $1.40 billion last year, beating a forecast for $1.28 billion in a Reuters poll.
The group, now integrating its crop protection and seeds businesses to gain total annualized cost savings of around $650 million in 2015, is targeting a gross profit margin in the range of 22-24 percent by 2015.
Syngenta, which also makes genetically modified seeds, posted an EBITDA (earnings before interest, tax, depreciation and amortization) margin of 21.5 percent in 2010.
While the group said it was aiming to gain an average of 0.5 percent market share annually across its combined business over the next five years, Mack told Reuters he hoped to beat this target.
“Syngenta reported a good set of results with lower than expected net debt, a better free cash flow generation as well as a higher dividend,” analysts at Julius Baer said in a note, adding investors would also like the restructuring plan.
Syngenta’s positive outlook comes after Dow Chemical saw strong appetite for its fungicides, pesticides and genetically modified seeds from Latin America in the fourth quarter, while Monsanto said last month early orders for spring planting of corn and soybean seeds were up.
Syngenta chief financial officer John Ramsay told Reuters the pricing environment was likely to be stable this year and the group was looking at price hikes in selected markets after facing pricing pressure last year.
Additional reporting by Andrew Thompson in Zurich and Nigel Hunt in London; Editing by Dan Lalor