Syngenta: A sustainable growth strategy – we talk to John Ramsay

The finance function exists so an organisation can efficiently execute its strategy without excess risk. Redefining strategy, therefore, requires finance to adapt quickly. And it's a huge challenge when the change happens in a multinational corporation, requiring a global restructuring of the finance function. To make a transition of this magnitude, there needs to be a clear pay-off.

One company implementing this kind of transformation is Syngenta, a world-leading agribusiness that promotes sustainable agriculture through its innovative research and technology. With over 26,000 employees in more than 90 countries, any change across the entire organisation has to be carefully planned and rigorously executed, and Syngenta spent two years preparing for changes which are currently underway.

In broad terms, Syngenta's strategic goal remains the same: to maximise the productivity of agricultural land through sustainable technological innovation. But its execution is changing. The company has two main business lines - crop protection and seeds - and the new strategy brings them together globally to provide a suite of integrated solutions to the growers, ie customers.

Ultimately, Syngenta hopes to harness the power of its annual $1 billion R&D activities to drive more rapid innovation and create solutions tailored to its customers' needs. By mid-2012, the commercial integration should be complete, and by 2015, it will generate around $150 million in annual cost savings and an additional $500 million from procurement and supply-chain efficiencies.

"The new strategy is driven by the recognition that agricultural production must step up to meet insatiable demand," explains John Ramsay, CFO of Syngenta. "That has been the trend over the last 10 years, with population and GDP growth in emerging markets, especially China, which increases calorie consumption and demand for better quality of food as incomes rise.

"Through the financial crisis, there's been a decrease in world GDP growth, but the demand for agricultural produce has been unaffected and continues to grow," he continues. "Production needs to increase. Farmers need broad-based solutions to increase yield sustainably. That brings opportunities in all our businesses - crop protection, seed care and seeds - which have led to the new strategy we have developed over the last two years."

Combining technologies and R&D activities in Syngenta's crop protection and seeds businesses is intended to create broader solutions for its customers. The new strategy divides the company's operations into 19 territories, each in charge of the day-to-day delivery of its solutions, and it's hoped that there will be a significant cross-fertilisation.

"It means lots of organisational change," says Ramsay. "We want to make dramatic changes while managing risk. We have a unique strategic position as our competitors don't have the same breadth of offering across two business areas we have, so we have evidence that a lot of value could come from the changes we are making." The change impacts everything from strategic planning and financial policy to currency management, so building a finance function to meet the needs of the new organisation is a priority.

Centralised financial control

"For finance, the goal is to establish a single back-office finance services function in the context of the entire suite of Syngenta Business Services, which also includes HR and IT and comprises both insourced and outsourced services," explains Ramsay. "The idea is to be able to service our territories in a globally consistent way. Before, each territory had its own systems and processes.
"Standard global processes give us the ability to exercise internal control to a very high standard. We have a common language for each market's financial processes to refer to. It also gives us flexibility of resource, so that if there are hotspots that need a particular resource in finance, we can move people around."

Syngenta's finance function consists of finance services, business partnering and corporate finance. All exist within one coherent, global finance team. "The lines of reporting are clear and there is much greater visibility across the business, so it is easier to get strategic alignment," he remarks.

The flexibility this gives the finance function is very useful for addressing what Ramsay refers to as 'hotspots', such as the European sovereign debt crisis. "We are exposed to every European market, including Greece, but we won't stop selling there," he says. "So we need to put more focus on the credit position, just as in other 'at risk' countries, although it is less easy to act on the issue of the banking system and changes to the financial situation.

"We must maintain a strong balance sheet," he continues. "We are often asked why we don't borrow more at cheap rates and return more cash to shareholders; but the answer is that we want enough cash to manage our affairs in an uncertain environment while looking very closely at counterparty risk. We have chosen to spread our risk around different banking groups." The rapid growth of emerging markets is another major challenge.

"The growth opportunity for us comes largely from emerging markets in Asia, Latin America and Eastern Europe, so we need to develop the right skill sets," says Ramsay. "Syngenta's parent companies AstraZeneca and Novartis have seen crises very often through the 80s and 90s. Shortly after the company became independent in 2000, we saw problems in Brazil and Argentina which we had to move rapidly to address."

This experience taught Syngenta a lot about handling the sometimes volatile development of emerging economies. "We have financial modules like the barter programme that links security of payment to the crop growers' harvest through offtakes and the use of derivatives," Ramsay remarks. "We know that we must be aware of risk in emerging markets, so we manage currency and inventory intelligently and we are astute around compliance. Credit management needs close attention, too."

Another key issue facing the finance team is commodity price volatility. Hedging this risk is essentially an issue for Syngenta's customers, but the company is more than willing to co-operate with farmers on risk management. "We can't tell farmers to take all the risk having taken our technology," says Ramsay. "We want to help growers manage risk, so the financial solutions team puts together programmes through which they can access our ability to hedge against changes in commodity prices. We can do this because of the way we integrate marketing, credit management and financial solutions.

"We are often the financier for growers, especially in markets like Eastern Europe, so we must manage that risk well. We classify customers by risk category, and our new structure means we can have a combined credit management programme across the business. Within that we have an established risk management function that provides a structure and the expertise for the organisation to manage risk globally," he explains.

From planning to implementation

The benefits of the new strategy, and the centralised finance function that drives it, are clear; there are many challenges along the path to implementing the change. "We all need to put effort into new ways of working," Ramsay stresses. "The interfaces that make the company operate effectively need to be made to work, which takes some finesse. The leadership challenge is getting engagement with the change at all levels. There was a lot of automatic sign-on to the new strategy, as the company is moving forward in an exciting way, but it is requiring a lot of hard work from many people across the organisation to make it work."

Syngenta is hoping to gain an annual average of around 0.5% in global market share over the next five years. It's also targeting a group EBITDA margin of 22-24% by 2015 and aims to continue to deliver cashflow return on investment in excess of 12%. Furthermore, it will target a continuous increase in the dividend and execute tactical share buybacks.

"We now have a reporting mechanism across the organisation," says Ramsay. "The flexibility of the model means there is a high level of responsibility and global competencies within a standard model. The priority in the finance function now is to get a period of stability in which to take stock and get coherence across finance services, business partnering and corporate finance. We need to define the cross-functional boundaries and re-establish links in a way that people can relate to, as well as make sure we have clear measures and goals, which are very important internally and for investor confidence."?