TOP CONTRIBUTORS

Santiago Burgaleta

www.zacks.com

Syngenta AG is a global provider of agribusiness products and solutions. The company's major products include herbicides, insecticides and fungicides, and field crop, vegetable, and flower seeds. The company was a result of the de-merger of Novartis agribusiness from Novartis AG and of Zeneca agrochemicals business from AstraZeneca PLC. The businesses combined in November 2000 to form Syngenta. The company's combined major research and manufacturing operations are located in over 20 countries around the world. Syngenta's business divides generally into three segments: crop protection, seeds, and plant science.

Favorable Product Mix: crop protection represents approximately 85% of revenue. Syngenta has a broad product range and is number one or two in all of its target segments, which is underpinned by strong worldwide market coverage. Syngenta focuses on all major crops, in particular corn, cereals, vegetables, and rice. It applies its technologies to other crops, such as oilseeds, sugar beets, cotton, fruits, grapes, and to turf and ornamentals. Syngenta is active in herbicides, especially for corn, cereals and rice fungicides mainly for cereals, fruits, grapes, rice, and vegetables insecticides for fruits, vegetables, and cotton and professional products, such as seed treatments, products for public health, and products for turf and ornamentals. Fungicides are products that prevent and cure fungal plant diseases that affect crop yield and quality. Insecticides are products that control chewing pests, such as caterpillars and sucking pests, such as aphids, which reduce crop yields and quality. Professional products are herbicides, insecticides, and fungicides used in markets beyond commercial agricultural. Together with seeds treatments, the insecticides and fungicides protect growth during the early stages. We believe that the depth of this product mix makes Syngenta a safe play on the sector. One of Syngenta's key strengths is its broad base of strong, profitable products in its two main divisions: crop protection and seeds. Syngenta builds on these strengths by continuing to manage crop protection and seeds as independent divisions with strong management focus and accountability, while applying common systems and performance measures to achieve the transparency necessary to meet corporate expectations. Wherever appropriate, Syngenta looks for opportunities to capture synergies across these two divisions, primarily in research and development, manufacturing and marketing, and support services.

Short-term catalyst for the crop protection division: In 2006 we expect an acceleration of revenue growth thanks to new products like Axial, which has received registrations in Canada and the US. It will be launched in these two of the world's five leading cereal markets for the 2006 season, as well as in the UK where the product obtained registration last September. Axial is expected to achieve peak global sales of at least $150 million annually. Also Avicta, a nematicide with potential sales of $75 million, will be launched in 2006. The upbeat comments from Management regarding new pipeline products will drive valuation higher. Callisto and Actara sales will offset some of the slowdown in Soybean Rust fungicides.

The appearance of the Soybean Rust (Asian Rust) virus in the U.S. crop in November 2004 should aid the fungicide division's growth (about 20% of revenue). If the disease were to prove as potent (which so far, it has not) as it has proved to be in Latin America, based on the U.S. Department of Agriculture's (USDA's) initial estimate of the cost of treating a total market in the U.S. at $20.00 per acre, this could lead to a U.S. market of at least $750 million. Although the sales in US have slowed down during the last quarter due to de-stocking of farmers, we are still on track to get to $300-$350 million in sales previously forecasted. We still think Management will execute properly as it has demonstrated by having the fungicide approved in the US, while BAYER AG has not.

Short-term catalyst for the seeds division: Increasing population and diminishing area of cultivable land available are the key long-term positives for the Seeds division. Although it represents about 23% of revenue, the potential for Syngenta increasing its contribution from the seeds division should not be overlooked by investors. The resulting decline in arable land per capita means that yield improvements will be the key to increasing food production. This must come from improving seed technologies as human efforts and irrigation have only a limited impact on the overall yield of agriculture. Low grain inventories should act as a short-term catalyst for farmers to keep yield improvements as a key priority. We believe these factors will increase demand for seeds in the short-to-medium term.

Cost-cutting credentials: At the time of the merger of Novartis agribusiness with Zeneca agrochemicals business to form Syngenta, $525 million of total cost savings were identified through the implementation of synergy programs at an estimated cost of $900 million. This was increased in 2002 to forecast annualized cost savings of $625 million at a projected total cash cost of approximately $1 billion. The cumulative net cash cost to date, related to the merger, integration, and synergy program, is approximately $821 million after sundry associated asset disposal proceeds. Since the start of the program, cumulative annual savings of $559 million have been generated, including an additional $197 million in 2003. It is now expected that the target savings will be achieved in 2004, given the recent successful execution. We think management will properly execute the new cost-cutting program and save Syngenta $300 million per year until 2008, as measured by comparing total costs against 2003 reported costs, excluding variances arising, due to exchange rate movements, changes in sales volumes or mix, and specifically identified expenditures, such as growth projects. This program will include the relocation of assets to lower cost regions, a further reduction of the asset base, an increase in the globalization of purchasing, and the outsourcing of some administrative processes. It remains to be seen if management achieves these targets but its cost-cutting credentials support our view.

Potential for rising pay-outs: A favorable product mix that has given Syngenta earnings stability over the past the cost-cutting measures, which seem attainable, given management's execution capabilities and short-term momentum in revenue growth will ultimately translate to higher cash flows. Given that management has a clear commitment to return cash to shareholders, we believe that the potential for a dividend increase is becoming evident. Investors should not overlook Syngenta's potential for increasing its dividend in the not so medium term, as the recent acquisitions of Advanta and Golden Harvest eliminate the possibility of deploying cash flows in those types of transactions.

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