20-F 1 dp12532_20f.htm FORM 20-F


 
As filed with the Securities and Exchange Commission on February 18, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 20-F
o  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2008
OR
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
o  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number:  1-15152
SYNGENTA AG
(Exact name of Registrant as specified in its charter)
 
SWITZERLAND
(Jurisdiction of incorporation or organization)
Schwarzwaldallee 215, 4058 Basel, Switzerland
(Address of principal executive offices)

James Halliwell
+41 61 323 7074
james.halliwell@syngenta.com /41 61 323 9094
Syngenta International AG
P.O. Box
CH-4002 Basel, Switzerland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class:
Name of each exchange on which registered:
American Depositary Shares, each representing
one-fifth of a common share of Syngenta AG,
nominal value CHF 0.10
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:  None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
96,914,857 Common shares, nominal value CHF 0.10 each
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
x  Yes    o  No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
o  Yes    x  No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
x  Yes    o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x              Accelerated filer o     Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
 
U.S. GAAP o
International Financial Reporting Standards as issued x
Other o
  by the International Accounting Standards Board  
                                                                                              
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
o  Yes                       x  No



 
 
 
 
Syngenta AG (“Syngenta”, the “Company”, “we” or “us”) is a world-leading agribusiness that is involved in the discovery, development, manufacture and marketing of a range of products designed to improve crop yields and food quality.  In addition, Syngenta is a leader in “Professional Products”, through the development of products for markets such as Lawn and Garden, Professional Pest Management, Vector Control and Public Health.  Syngenta is headquartered in Basel, Switzerland and was formed by Novartis AG (“Novartis”) and AstraZeneca PLC (“AstraZeneca”) in November 2000 through an agreement to spin off and merge the Novartis crop protection and seeds businesses with the Zeneca agrochemicals business to create a dedicated agribusiness company whose shares were then the subject of a global offering (the “Transactions”).
 
The Transactions were completed on November 13, 2000 (the “Transaction Date”).  In this annual report, for periods prior to November 13, 2000, we refer to the businesses contributed to Syngenta by Novartis as the “Novartis agribusiness” and we refer to the businesses contributed to Syngenta by AstraZeneca as the “Zeneca agrochemicals business”.
 
 
The statements contained in this annual report that are not historical facts, including, without limitation, statements regarding management’s expectations, targets or intentions, including for sales, earnings and earnings per share, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are based on the current expectations and estimates of Syngenta’s management.  Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially.
 
We identify the forward-looking statements in this annual report by using the words “will” or “would”, or “anticipates”, “believes”, “expects”, “intends” or similar expressions, or the negative of these expressions. We cannot guarantee that any of the events or trends anticipated by the forward-looking statements will actually occur. Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among other things:
 
 
·
the risk that research and development will not yield new products that achieve commercial success;
 
 
·
the risks associated with increasing competition in the industry;
 
 
·
the risk that the current global financial crisis may have a material adverse effect on our results and financial position;
 
 
·
the risk that customers will be unable to pay their debts to Syngenta due to economic conditions;
 
 
·
the risk that Syngenta will not be able to obtain or maintain the necessary regulatory approvals for its business;
 
 
·
the risks associated with potential changes in policies of governments and international organizations;
 
 
·
the risks associated with exposure to liabilities resulting from environmental and health and safety laws;
 
 
·
the risk that important patents and other intellectual property rights may be challenged;
 
 
·
the risk that the value of Syngenta’s intangible assets may become impaired;
 
 
·
the risk of substantial product liability claims;
 
 
·
the risk that consumer resistance to genetically modified crops and organisms may negatively impact sales;
 
 
·
the risk that Syngenta’s crop protection business may be adversely affected by increased use of products derived from biotechnology;
 
i

 
 
·
the risks associated with climatic variations;
 
 
·
the risks associated with exposure to fluctuations in foreign currency exchange rates;
 
 
·
the risks associated with entering into single-source supply arrangements;
 
 
·
the risks associated with conducting operations in certain territories that have been identified by the US government as state sponsors of terrorism;
 
 
·
the risks associated with an earthquake occurring in a key site;
 
 
·
the risks that we now consider immaterial, but that in the future prove to become material; and
 
 
·
other risks and uncertainties that are not known to us or are difficult to predict.
 
Some of these factors are discussed in more detail herein, including under Item 3 “Key Information”, Item 4 “Information on the Company”, and Item 5 “Operating and Financial Review and Prospects”.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected.  Syngenta does not intend or assume any obligation to update these forward-looking statements.
 
ii

 
Introduction
i
Nature of Operations
i
Forward-Looking Statements
i
PART I
1
Item 1    Identity of Directors, Senior Management and Advisers
1
Item 2    Offer Statistics and Expected Timetable
1
Item 3    Key Information
1
Item 4    Information on the Company
8
Item 4A  Unresolved Staff Comments
29
Item 5    Operating and Financial Review and Prospects
30
Item 6    Directors, Senior Management and Employees
60
Item 7    Major Shareholders and Related Party Transactions
84
Item 8    Financial Information
85
Item 9    The Offer and Listing
87
Item 10  Additional Information
89
Item 11  Quantitative and Qualitative Disclosures About Market Risk
99
Item 12  Description of Securities Other Than Equity Securities
101
PART II
102
Item 13  Defaults, Dividend Arrearages and Delinquencies
102
Item 14  Material Modifications to the Rights of Security Holders and Use of Proceeds
102
Item 15  Controls and Procedures
102
Item 16  [Reserved]
102
Item 16A   Audit Committee Financial Expert
102
Item 16B   Code of Ethics
102
Item 16C   Principal Accountant Fees and Services
103
Item 16D   Exemptions from the Listing Standards for Audit Committees
103
Item 16E   Purchases of Equity Securities by The Issuer and Affiliated Purchasers
103
Item 16G   Corporate Governance
104
PART III
105
Item 17   Financial Statements
105
Item 18   Financial Statements
105
Item 19   Exhibits
106
 
 
iii

 
 
 
Not applicable.
 
 
Not applicable.
 
 
 
Financial Highlights
 
Syngenta has prepared the consolidated financial statements in US dollars and in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The basis of preparation of the consolidated financial statements and the key accounting policies are discussed in Notes 1 and 2, respectively, to the consolidated financial statements in Item 18.
 
The selected financial highlights presented on the following page has been extracted from the consolidated financial statements of Syngenta that were prepared in accordance with IFRS. Investors should read the entire consolidated financial statements and not rely on the summarized information. The information includes the results of operations and the net assets of Emergent Genetics Vegetable A/S from June 1, 2006, Conrad Fafard, Inc. from August 1, 2006, Fischer group of companies from July 1, 2007, Zeraim Gedera Ltd. from September 1, 2007, SPS Argentina SA from November 2008, Goldsmith Seeds, Inc. from November 19, 2008 and the pot and garden chrysanthemum and aster business of US flowers producer Yoder Brothers Inc. from December 12, 2008. For further information about these and other acquisitions, see Note 3 to the consolidated financial statements in Item 18.
 
1

 
Selected Financial Data
 
   
Year ended December 31,
 
(US$ million, except where otherwise stated)
 
2008
   
2007
   
2006
   
2005
   
2004
 
Amounts in accordance with IFRS(1)
                             
Income statement data:
                             
Sales
    11,624       9,240       8,046       8,104       7,269  
Cost of goods sold
    (5,713 )     (4,669 )     (3,982 )     (3,950 )     (3,532 )
Gross profit
    5,911       4,571       4,064       4,154       3,737  
Operating expenses
    (4,053 )     (3,107 )     (3,235 )     (3,294 )     (3,196 )
Operating income
    1,858       1,464       829       860       541  
Income before taxes
    1,692       1,419       798       766       466  
Profit for the period from continuing operations
    1,385       1,111       637       626       536  
Profit for the period attributable to Syngenta AG shareholders
    1,385       1,109       634       622       460  
Number of shares basic
    93,916,415       95,973,958       98,165,298       100,017,271       105,208,929  
Number of shares diluted
    94,696,762       97,143,368       99,876,180       101,464,222       106,015,369  
Basic earnings/(loss) per share:
                                       
From continuing operations
    14.75       11.56       6.46       6.22       5.16  
From discontinued operations
                            (0.79 )
Total
    14.75       11.56       6.46       6.22       4.37  
Diluted earnings/(loss) per share:
                                       
From continuing operations
    14.63       11.42       6.35       6.13       5.12  
From discontinued operations
                            (0.78 )
Total
    14.63       11.42       6.35       6.13       4.34  
Cash dividends declared   CHF per share
    4.80       1.60                    
 – US$ per share equivalent
  4.76       1.32                    
Par value reduction          CHF per share
          2.20       3.30       2.70       1.70  
 – US$ per share equivalent
        1.78       2.68       2.10       1.35  
Cash flow data from continuing operations:
                                       
Cash flow from operating activities
    1,466       1,168       928       497       1,309  
Cash flow used for investing activities
    (608 )     (368 )     (411 )     (144 )     (686 )
Cash flow used for financing activities
    (457 )     (781 )     (541 )     (74 )     (679 )
Capital expenditure on tangible fixed assets
    (444 )     (317 )     (217 )     (174 )     (166 )
Balance sheet data:
                                       
Current assets less current liabilities(3)
    3,386       2,606       2,598       1,789       1,757  
Total assets
    14,584       13,280       11,852       11,404       11,786  
Total non-current liabilities(3)
    (4,449 )     (3,361 )     (3,220 )     (2,553 )     (2,908 )
Total liabilities
    (8,683 )     (7,239 )     (6,158 )     (5,973 )     (6,108 )
Share capital
    6       6       142       353       525  
Total shareholders equity
    5,884       6,022       5,666       5,403       5,658  
Other supplementary income data:
                                       
Diluted earnings per share from continuing operations,
excluding restructuring and impairment(2)
    16.26       11.45       8.73       7.67       7.19  

2

 
Notes

(1)  
Syngenta has prepared the consolidated financial statements in US dollars and in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
 
The basis of preparation of the consolidated financial statements and the key accounting policies are discussed in Notes 1 and 2, respectively, to the consolidated financial statements in Item 18.
 
(2)  
Diluted earnings per share from continuing operations, excluding restructuring and impairment, is a non-GAAP measure.  A non-GAAP measure is a numerical measure of financial performance, financial position or cash flow that either:
 
includes, or is subject to adjustments that have the effect of including, amounts that are excluded in the most directly comparable measure calculated and presented under IFRS as issued by the IASB, or
 
excludes, or is subject to adjustments that have the effect of excluding, amounts that are included in the most directly comparable measure calculated and presented under IFRS as issued by the IASB.
 
 
Restructuring represents the effect on reported performance of initiating business changes which are considered major and which, in the opinion of management, will have a material effect on the nature and focus of Syngentas operations, and therefore requires separate disclosure to provide a more thorough understanding of business performance. Restructuring includes the effects of completing and integrating significant business combinations and divestments. Restructuring and impairment includes the impairment costs associated with major restructuring and also impairment losses and reversals of impairment losses resulting from major changes in the markets in which a reported segment operates. The incidence of these business changes may be periodic and the effect on reported performance of initiating them will vary from period to period. Because each such business change is different in nature and scope, there will be limited continuity in the detailed composition and size of the reported amounts which affect performance in successive periods. Separate disclosure of these amounts facilitates the understanding of underlying performance. Further discussion on the reason for including disclosure of this and other non-GAAP measures is included in Appendix A at the end of the Operating and Financial Review and Prospects.
 
 
Restructuring and impairment charges for 2008, 2007 and 2006 are analyzed in Note 6 to the consolidated financial statements in Item 18. Restructuring and impairment for 2005 and 2004 mainly related to the Operational Efficiency program announced in 2004 representing the costs of closure of certain manufacturing and research and development sites and refocusing of other continuing sites. A detailed reconciliation of profit for the period and earnings per share before restructuring and impairment to profit for the period and earnings per share according to IFRS is presented in Appendix A at the end of the Operating and Financial Review and Prospects.
 
(3)  
“Current assets less current liabilities” and “Total non-current liabilities” amounts for 2004 through 2007 have been affected by the reclassifications described in footnote (1) to the consolidated balance sheet included in the consolidated financial statements in Item 18. As a result, Current assets less current liabilities” increased/(decreased) from the amounts previously reported as follows: 2007, US$139 million decrease; 2006, US$20 million increase; 2005, US$42 million increase; and 2004, US$428 million decrease, and Total non-current liabilities” increased from the amounts previously reported as follows: 2007, US$47 million; 2006, US$30 million; 2005, US$45 million; and 2004, US$24 million.
 
3

 
Risk Factors
 
Syngenta’s business, financial condition or results of operations could suffer material adverse effects due to any of the following risks.  We have described below the risks that we consider material.
 
The Resources Syngenta Devotes to Research and Development May Not Result in Commercially Viable Products
 
Syngenta’s success depends in part on its ability to develop new products.  Research and development in the agribusiness industry is expensive and prolonged, and entails considerable uncertainty.  The process of developing a novel crop protection product, plant variety or trait typically takes about six to ten years from discovery through testing and registration to initial product launch, but this period varies considerably from product to product and country to country.  Because of the complexities and uncertainties associated with chemical and biotechnological research, compounds or biotechnological products currently under development may neither survive the development process nor ultimately receive the requisite regulatory approvals needed to market such products.  Even when such approvals are obtained, there can be no assurance that a new product will be commercially successful.  In addition, research undertaken by competitors may lead to the launch of competing or improved products which may affect sales of Syngenta’s new products.
 
Syngenta Faces Increasing Competition in Its Industry
 
Syngenta currently faces significant competition in the markets in which it operates.  In most segments of the market, the number of products available to the grower is steadily increasing as new products are introduced, although this trend can be partly offset by the withdrawal of some products because they are not re-registered or are subject to voluntary range reduction programs to reduce the range of products offered.  At the same time, an increasing number of products are coming off patent and are thus available to generic manufacturers for production.  As a result, Syngenta anticipates that it will continue to face significant competitive challenges.
 
The Current Global Financial Crisis May Have a Material Adverse Effect on Our Results and Financial Position
 
Declines in commodity crop prices can indirectly affect Syngenta’s results by adversely affecting the income and financial position of Syngenta’s customers and of the users of Syngenta’s products.  This may result in reduced sales, competitive price pressure in Syngenta’s markets and in slower collection of accounts receivable. These occurrences may negatively impact Syngenta’s business, results of operations or cash flows. Because of the high proportion of costs which are fixed in nature, Syngenta may not be able to compensate fully for these effects in the short term through measures such as reducing expenses.
 
While Syngenta views its current credit facilities as adequate for its needs, the current crisis in the banking sector may restrict Syngenta’s ability to raise additional funds or increase the cost of such funding. The current crisis may limit the amount of business Syngenta’s customers and suppliers can transact with Syngenta.
 
Further significant declines in asset prices, or changes to long-term assumptions may cause funding levels in Syngenta’s externally funded defined benefit pension plans to fall below stipulated regulatory levels. This may require Syngenta to pay additional contributions to restore funding to required levels. Please see Notes 2 and 22 to the consolidated financial statements in Item 18 for further information about Syngenta’s defined benefit pension plans and the assumptions used to measure the related pension liabilities.
 
Syngenta’s Customers May Be Unable to Pay Their Debts to Syngenta Due to Economic Conditions
 
Normally Syngenta delivers its products against future payment.  Syngenta’s credit terms vary according to local market practice, with credit terms for customers usually ranging from 30 to 180 days, except for customers in emerging markets, where credit terms may range from cash on delivery to 240 days.  Syngenta’s customers, particularly in developing economies and in economies particularly affected by the current global economic downturn, may be exposed to business and financial conditions impacting their ability to pay their debts, which could adversely affect Syngenta’s results. While Syngenta uses barter and other security arrangements to reduce customer credit exposure in some emerging markets, it may still be exposed to risk of material losses in these markets.
 
Syngenta May Not Be Able to Obtain or Maintain the Necessary Regulatory Approvals for Some of Its Products, and This Would Restrict Its Ability to Sell Those Products in Some Markets
 
Syngenta’s products must receive regulatory approval before they can be marketed, but Syngenta may not be able to obtain such approvals.  In most markets, including the United States and the EU, crop protection products must be registered after being tested for safety, efficacy and environmental impact.  In most of Syngenta’s principal markets, after a period of time:
 
Syngenta must also re-register its crop protection products and show that they meet all current standards, which may have become more stringent since the prior registration.  For seeds products, in the EU, a new plant variety will be registered only after it has been shown that it is distinct, uniform, stable, and better than existing varieties.
 
4

 
Regulatory standards and trial procedures are continuously changing.  Responding to these changes and meeting existing and new requirements may be costly and burdensome. In addition, changing regulatory standards may affect Syngenta’s ability to maintain its products on the market.
 
Changes in the Agricultural Policies of Governments and International Organizations May Prove Unfavorable
 
In subsidized markets such as the United States, EU and Japan, reduction of subsidies to growers may inhibit the growth of crop protection and seeds markets.  In each of these areas there are various pressures to reduce subsidies.  However, it is difficult to predict accurately whether, and if so, when such changes will occur.  We expect that the policies of governments and international organizations will continue to affect the income available to growers to purchase crop protection and seeds products and accordingly the operating results of the agribusiness industry.
 
Syngenta Is Subject to Stringent Environmental, and Health and Safety Laws, Regulations and Standards Which Can Result in Compliance Costs and Remediation Efforts That May Adversely Affect Its Operational and Financial Position
 
Syngenta is subject to a broad range of increasingly stringent laws, regulations and standards in all of its operational jurisdictions.  This results in significant compliance costs and can expose it to legal liability.  These requirements are comprehensive and cover many activities including: air emissions, waste water discharges, the use and handling of hazardous materials, waste disposal practices, the clean-up of existing environmental contamination and the use of chemicals by growers.
 
Environmental and health and safety laws, regulations and standards expose Syngenta to the risk of substantial costs and liabilities, including liabilities associated with assets that have been sold and activities that have been discontinued.  In addition, many of Syngenta’s manufacturing sites have a long history of industrial use.  As is typical for businesses like Syngenta’s, soil and groundwater contamination has occurred in the past at some sites, and may be identified at other sites in the future.  Disposal of waste from its business at off-site locations also exposes Syngenta to potential remediation costs.  Consistent with past practice Syngenta is continuing to investigate and remediate, or monitor soil and groundwater contamination at a number of these sites.  Despite its efforts to comply with environmental laws, Syngenta may face remediation liabilities and legal proceedings concerning environmental matters.
 
Based on information presently available, Syngenta has budgeted expenditures for environmental improvement projects and has established provisions for known environmental remediation liabilities that are probable and capable of estimation.  However, it cannot predict environmental matters with certainty, and the budgeted amounts and established provisions may not be adequate for all purposes.  In addition, the development or discovery of new facts, events, circumstances, changes in law or conditions, including future decisions to close plants which may trigger remediation liabilities, could result in increased costs and liabilities or prevent or restrict some of Syngenta’s operations.
 
Third Parties May Challenge Some of Syngenta’s Intellectual Property Rights or Assert That Syngenta Has Infringed Theirs
 
Scientific and technological innovation is critical to the long-term success of Syngenta’s businesses. However, third parties may challenge the measures that Syngenta takes to protect processes, compounds, organisms and methods of use through patents and other intellectual property rights and, as a result, Syngenta’s products may not always have the full benefit of intellectual property rights.
 
Third parties may also assert that Syngenta’s products violate their intellectual property rights.  As the number of biotechnological products used in agriculture increases and the functionality of these products further overlap, Syngenta believes that it may continue to be subject to infringement claims.  Even claims without merit are time-consuming and expensive to defend.  As a result of these claims, Syngenta could be required to enter into license arrangements, develop non-infringing products or engage in litigation that could be costly.
 
The Value of Syngenta’s Intangible Assets, Including Goodwill Arising from Acquisitions, May Become Impaired
 
Syngenta has a significant amount of intangible assets, including goodwill, on its consolidated balance sheet and, if it continues to acquire businesses in the future, may record significant additional intangible assets and goodwill. As described in Note 2 to the consolidated financial statements in Item 18, Syngenta regularly tests its intangible assets for impairment. Upon completing its testing for 2008, which included subjecting the assumptions used in the testing to a sensitivity analysis, Syngenta has concluded that its intangible assets are not impaired at December 31, 2008. However, unforeseen events that occur in the future, including a more severe impact on Syngenta’s business from the global economic crisis than is currently anticipated, may result in actual future cash flows for Syngenta’s businesses being different from those forecasted. As a consequence, Syngenta’s intangible assets could become impaired and the resulting impairment losses could have a material adverse impact on Syngenta’s financial position and results of operations.
 
Syngenta May Be Required to Pay Substantial Damages as a Result of Product Liability Claims for Which Insurance Coverage is Not Available
 
Product liability claims are a commercial risk for Syngenta, particularly as we are involved in the supply of chemical products which can be harmful to humans and the environment.  Courts have levied substantial damages in the United States and elsewhere against a number of crop protection and seeds companies in past years based upon claims for injuries allegedly caused by the use of their products.  
 
5

 
While we have a global insurance program in place, a substantial product liability claim that is not covered by insurance could have a material adverse effect on Syngenta’s operating results or financial condition.
 
Consumer and Government Resistance to Genetically Modified Organisms May Negatively Affect Syngenta’s Public Image and Reduce Sales
 
Syngenta is active in the field of genetically modified organisms in the seeds area and in biotechnology research and development in seeds and crop protection, with a current focus on North and South America.  However, the high public profile of biotechnology and lack of consumer acceptance of products to which Syngenta has devoted substantial resources could negatively affect its public image and results.  The current resistance from consumer groups, particularly in Europe, to products based on genetically modified organisms because of concerns over their effects on food safety and the environment, may spread to and influence the acceptance of products developed through biotechnology in other regions of the world, which could limit the commercial opportunities to exploit biotechnology.  In addition, some government authorities have enacted, and others in the future might enact, regulations regarding genetically modified organisms which may delay and limit or even prohibit the development and sale of such products.
 
Syngenta’s Crop Protection Business May Be Adversely Affected by Increased Use of Products Derived Through Biotechnology
 
The adoption of the products derived through biotechnology could have a negative impact on areas of Syngenta’s traditional crop protection business.  This may not be offset, in whole or in part, by the opportunities presented to Syngenta’s seeds and business development businesses, which are more actively pursuing products and traits developed through biotechnology.  Crop protection accounted for approximately 80% of sales in 2008, whereas seeds accounted for approximately 20% of sales.  The areas of Syngenta’s crop protection business which are most affected by genetically modified seeds are those of selective herbicides and insecticides for use on oilseed crops, corn and cotton.
 
Syngenta’s Results May Be Affected by Climatic Variations
 
The agribusiness industry is subject to seasonal and weather factors, which make its operations relatively unpredictable.  The weather can affect the presence of disease and pests in the short term on a regional basis, and accordingly can affect the demand for crop protection products and the mix of products used (positively or negatively).
 
Currency Fluctuations May Have a Harmful Impact on Syngenta’s Financial Results or May Increase Its Liabilities
 
Syngenta reports its results in US dollars; however a substantial portion of sales and product costs are denominated in currencies other than the US dollar.  Fluctuations in the values of these currencies, especially in the US dollar against the Swiss franc, British pound, Euro and Brazilian real, can have a material impact on Syngenta’s financial results. Fluctuations in the exchange rate against the US dollar of certain emerging market foreign currencies where hedging products are expensive or of limited availability may directly impact Syngenta’s results through recognition of currency losses.
 
Syngenta Maintains a Single Supplier for Some Raw Materials, Which May Affect Its Ability to Obtain Sufficient Amounts of Those Materials
 
While Syngenta generally maintains multiple sources of supply and obtains supplies of raw materials from a number of countries, there are a limited number of instances where Syngenta has entered into single-source supply contracts or where Syngenta routinely makes spot purchases from a single supplier in respect of active ingredients, intermediates or raw materials for certain important products where there is no viable alternative source or where there is sufficient commercial benefit and security of supply can be assured.  Such single supplier arrangements account for approximately 30% of Syngenta’s purchases of active ingredients, intermediates and raw materials, as determined by cost.  Syngenta’s ability to obtain sufficient amounts of those materials may be adversely affected by the unforeseen loss of a supplier.
 
Syngenta Conducts Business in Most Countries of the World, Including in Certain Territories that Have Been Identified by the US Government as State Sponsors of Terrorism
 
Syngenta conducts business in most countries of the world, and thus it has minor operations in high risk territories, including Cuba, Iran, Syria and the Sudan, some of which have been identified by the US government as state sponsors of terrorism.  Syngenta’s operations in these countries are quantitatively immaterial, and it is Syngenta’s belief that supporting agriculture in these countries is beneficial to their wider population, for whom food is often in short supply.  However, certain investors may choose not to hold investments in companies that have operations of any size in these countries and several US states have enacted, and others may in the future enact, legislation requiring public entities with investments in companies with operations in these countries to disclose this fact or in some cases to divest these investments.  Any such divestment is not currently expected to have a material impact on the value of Syngenta shares.
 
Earthquakes Could Adversely Affect Syngenta’s Business
 
Syngenta’s Corporate headquarters and other facilities are located near an earthquake fault line in Basel, Switzerland. Additionally, other major facilities of Syngenta’s Crop Protection and Seeds businesses are located in earthquake zones around the globe. In the event of a major earthquake, Syngenta could experience loss of life, destruction of facilities and/or business interruptions which could have a material adverse effect on its business.
 
6

 
Syngenta’s Share Price May Be Volatile and Subject to Sudden and Significant Drops
 
The trading price of Syngenta shares and ADSs has been, and could in the future continue to be, subject to significant fluctuations in response to variations in Syngenta’s financial performance, regulatory and business conditions in its industry, general economic trends and other factors, some of which are unrelated to the operating performance of Syngenta.
 
If You Hold Syngenta ADSs It May Be More Difficult for You to Exercise Your Rights
 
The rights of holders of Syngenta ADSs are governed by the deposit agreement between Syngenta and The Bank of New York Mellon. These rights are different from those of holders of Syngenta shares in several respects, including the receipt of information, the receipt of dividends or other distributions, the exercise of voting rights and attendance at shareholders’ meetings.  As a result, it may be more difficult for you to exercise those rights.
 
7


 
 
History and Development of the Company
 
The Company
 
Syngenta AG was formed on November 12, 1999 under the laws of Switzerland.  In November 2000, Syngenta’s business operations were created by Novartis AG (“Novartis”) and AstraZeneca PLC (“AstraZeneca”) through an agreement to spin off and merge the Novartis agribusiness and the Zeneca agrochemicals business to create a dedicated agribusiness company whose shares were then the subject of a global offering.  Both the Novartis and AstraZeneca agribusinesses had existed since the 1930’s through a variety of legacy companies.
 
Syngenta is domiciled in and governed by the laws of Switzerland.  It has its registered office and principal business office at Schwarzwaldallee 215, 4058 Basel, Switzerland.  The telephone number of Syngenta is +41-61-323-1111.  Syngenta’s registered agent for service of process in the United States is CT Corporation System.  CT Corporation System’s address is 111 Eighth Avenue, New York, New York 10011, United States.
 
Syngenta became a publicly listed company on November 13, 2000. As at December 31, 2008, the company is listed on the SIX Swiss Exchange under the symbol SYNN and the New York Stock Exchange under the symbol SYT.  
 
 
Investments and Divestments
 
Investments
 
On April 3, 2008, Syngenta acquired a 49 percent share in the Chinese company, Sanbei Seeds Co. Ltd., which specializes in the production and sale of hybrid corn seeds. In November 2008, Syngenta purchased SPS Argentina SA (SPS), a company primarily specialized in the development, production and marketing of soybean, corn and sunflower. On November 19, 2008, Syngenta acquired Goldsmith Seeds, Inc. (Goldsmith). Goldsmith breeds, produces and sells a broad range of pot and bedding products, including major crops such as cyclamen, impatiens and petunia. On December 12, 2008, Syngenta acquired the pot and garden chrysanthemum and aster business of US flowers producer Yoder Brothers Inc. The combined purchase price of these acquisitions was $173 million, subject to final purchase price adjustments on certain of the transactions.

In March 2008, Syngenta acquired the exclusive worldwide rights to distribute a sprayable formulation of 1-methylcyclopropene under the trademark  InvinsaTM from Rohm & Haas Co. and its subsidiary Agrofresh Inc. The InvinsaTM  technology protects crop yields during extended periods of high temperature, mild-to-moderate drought and other crop stresses. In September 2008, Syngenta acquired from E.I. du Pont de Nemours and Company (DuPont) an exclusive worldwide license to develop mixture products containing Cyazypyr™, a new broad spectrum insecticide. Cyazypyr™ is complementary to the DuPont Rynaxypyr® insect control product that Syngenta is developing in mixtures with its own leading insect control products. Under the agreement, Syngenta will grant DuPont access to mesotrione, the active ingredient in Callisto®.

During 2007 and early 2008, following a public offer to minority shareholders of Syngenta India Ltd. (SIL), Syngenta increased its shareholding in SIL from 84% to 96%, at a cash cost of US$71 million. SIL delisted from the Mumbai and Kolkata stock exchanges on June 20, 2007. Syngenta intends to invest further in India as a manufacturing and research and development center for its global business.
 
On January 31, 2007, Syngenta acquired the assets of Gromor International Corporation which consist of peat extraction rights over certain land in Manitoba, Canada. On July 17, 2007, Syngenta acquired the outstanding 20% of Agrosem S.A. which it did not already own. On June 25, 2007, Syngenta purchased 100% of the business of the Fischer group of companies through purchases of shares and assets. The Fischer group specializes in the breeding and marketing of flower crops.  On August 31, 2007, Syngenta purchased 100% of the shares of Zeraim Gedera Ltd., which specializes in the breeding and marketing of high value vegetable seeds, including tomato, pepper and melon. The combined purchase price of these acquisitions was US$108 million.
 
On June 1, 2006, Syngenta purchased 100% of the shares of Emergent Genetics Vegetable A/S (EGV). On August 1, 2006, Conrad Fafard Inc., (Fafard) merged with a Syngenta subsidiary so that Syngenta acquired control of Fafard and its subsidiaries in exchange for cash paid to, or for the account of, Fafard’s former shareholders and settlement of certain liabilities of Fafard. On November 16, 2006, Syngenta acquired the remaining 50% of the shares of Longreach Plant Breeders (LRPB) that it did not already own. LRPB was held as an asset held for resale until its partial divestment in November 2007. The combined purchase price of these acquisitions was US$148 million.
 
8


 
In March 2006, Syngenta acquired from DuPont an exclusive worldwide license to develop DuPont’s new insecticide chlorantraniliprole (formerly referred to as Rynaxypyr®(1)) in mixtures with its own insects control products. At the same time, Syngenta sold to DuPont worldwide rights to Syngenta’s strobilurin fungicide pycoxystrobin, sold as ACANTO® (1).
 
Divestments
 
There were no significant business or product divestments in 2008.
 
On May 30, 2007, Syngenta completed the disposal of the part of the Rosental site in Basel that was seen as in excess of Syngenta’s medium term needs.  Net proceeds from this transaction were approximately US$145 million.
 
On November 2, 2007, Syngenta sold a controlling equity interest in LRPB to Pacific Seeds Pty Ltd., an associate of United Phosphorus Ltd., for US$11 million. Syngenta retains a non-controlling equity interest in LRPB.

There were no major business or product divestments in 2006 other than the ACANTO® transaction noted above.

Syngenta’s strategy
 
Syngenta’s goal is to create value for its shareholders through innovative research and technology to raise agricultural productivity worldwide. The key elements of this strategy are described below.
 
Drive land productivity through innovation
 
The optimal use of agricultural technology increases yield and thereby maximizes land productivity while conserving scarce resources such as water.  Syngenta’s research is targeted at discovering and bringing to market new products with improved efficacy and safety profiles which contribute to the development of sustainable agriculture.
 
Alongside the introduction of new active ingredients, we aim to harness the full potential of established products and technologies through the introduction of innovative mixtures, formulations and programs. These extend product lifecycles by providing new effects and opportunities for growers.
 
Build leadership in plant performance
 
Syngenta is taking the scope of its business beyond pest control and is delivering full crop programs and solutions which also increase crop vigor and yield.  Beyond this we aim to take yields to a new level through the physiological enhancement of crops.
 
Capitalize on Seeds investment
 
Accelerating technology penetration is enabling us to expand our sales of both genetically modified and conventional seeds.  This expansion will reflect our increased level of investment in biotech and native traits as well as in germplasm. The roll-out of our technology underpins our expectation of achieving a significant increase in Seeds profitability over the medium term.  We plan to deliver a pipeline offering new advantages not only to growers but also to the end-users of crops.
 
Expand emerging markets
 
We recognize the particular importance of achieving yield improvements in emerging markets which are the focus of population growth and dietary change.  Our aim is to expand the range of products available in these markets while providing a wide range of advisory and support services.  We will continue to make significant investments in these markets in terms of people, portfolio and the supply chain.
 

(1)        Rynaxypyr® and ACANTO® are trademarks of DuPont.
 
9

 
Create new businesses
 
Syngenta is active in furthering new businesses and business models to adapt to fast changing market dynamics.  The growth in our Seed Care business demonstrates our ability to spearhead technology shifts.  Our emerging Lawn & Garden business is another example of the potential we have to leverage our active ingredient portfolio and to offer our customers integrated solutions covering both plant protection and seeds.
 
Maintain cost efficiency
 
Syngenta continues to optimize its structures in order to attain the highest levels of cost efficiency.  The current Operational Efficiency program announced in 2007 aims to achieve annualized savings net of inflation of $290 million by 2011.  The cost of the new program is now estimated at US$550 million in cash and US$180 million in non-cash charges in the period up to 2011. Cash spent under the program in 2008 totaled approximately US$90 million and since inception totaled approximately US$160 million. The savings are targeted primarily at General & Administrative and Research & Development costs to enable continued investment in growth initiatives.
 
Outperform the industry
 
Syngenta aims to gain market share through continuous innovation accompanied by outstanding customer support.  We offer value-adding solutions tailored to local customer needs and supported by a sales force with outstanding capability.  We believe that the breadth of our business, spanning Crop Protection, Seeds, Traits and Seed Care gives us a unique ability to offer integrated crop technology to growers.
 
10

 
Business Overview
 
Industry Overview
 
Syngenta is a world leading agribusiness operating in the Crop Protection and Seeds businesses.  Crop Protection chemicals include herbicides, insecticides and fungicides to control weeds, insects and diseases in crops, and are essential inputs enabling growers around the world to improve agricultural productivity and food quality.  Many of these products also have application in the professional products sector in areas such as public health, turf and ornamental markets.  The Seeds business operates in two high value commercial sectors: seeds for field crops including corn, oilseeds, cereals and sugar beet; and vegetable and flower seeds.  Through its Business Development research, Syngenta is applying biotechnology to areas including biofuels.  Syngenta aims to be the partner of choice for grower customers with its unparalleled product offer and innovative marketing, creating value for customers and shareholders.
 
Syngenta’s Business
 
Syngenta’s business is divided into three segments: Crop Protection, Seeds and Business Development.  These segments are described in greater detail below.
 
The following information, which appears in other parts of this Form 20-F, is incorporated herein by reference:
 
·
Item 5 – Operating and Financial Review and Prospects – Results of Operations, the tabular information regarding sales information by product line and by region for the Crop Protection and Seeds segments.
 
Full year sales and operating income for the segments, as presented in Item 5 of this report, are seasonal and weighted towards the first half of the calendar year, which largely reflects the Northern Hemisphere planting and growing cycle.
 
CROP PROTECTION
 
Products
 
Syngenta is active in herbicides, especially for corn, cereals, soybean and rice; fungicides mainly for corn, cereals, fruits, grapes, rice, soybean and vegetables; insecticides for fruits, vegetables and field crops; seed care, primarily in corn, soybean, cereals  and cotton; and professional products, such as products for public health and products for turf and ornamentals.  Herbicides are products that prevent or reduce weeds that compete with the crop for nutrients, light and water.  Herbicides can be subdivided into (i) selective herbicides, which are crop-specific and control weeds without harming the crop and (ii) non-selective herbicides, which reduce or halt the growth of all vegetation with which they come in contact. 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.  Seed care products are insecticides and fungicides used to protect growth during the early stages.  Professional products are herbicides, insecticides and fungicides used in markets beyond commercial agriculture, and include a broad range of premium growing media mixes for professional flower growers.
 
Syngenta has a broad product range, making Syngenta number one or two in all of its target segments, underpinned by strong worldwide market coverage.  Syngenta focuses on all major crops – in particular, corn, cereals, soybean, fruits and vegetables,  and applies its technologies to other crops, such as oilseeds, sugar beets, rice and cotton, and to turf and ornamentals.
 
Key Marketed Products
 
Selective Herbicides
 
Syngenta has a broad range of selective herbicides that control grasses and broad-leaved weeds and are applicable to most crops with a special emphasis on corn and cereals.
 
 
·
Atrazine (AATREX®/GESAPRIM®) acts mainly against annual grasses and broad-leaved weeds. Although Atrazine was introduced in 1957 and has been off patent for a number of years, it remains an important product for broad-leaved weed control in corn.
 
·
Clodinafop (TOPIK®/HORIZON®/ CELIO®/ DISCOVER®) is a grass herbicide which provides the broadest spectrum of annual grass control currently available in wheat. To further increase crop safety in cereals the active substance Clodinafop is mixed with the safener Cloquintocet, which selectively enhances the degradation of Clodinafop in wheat but not in the grass weeds.
 
·
Fluazifop-P-Butyl (FUSILADE®) is one of the leading products for post-emergence control of grass weed. It is registered for use in over 60 crops with major outlets in cotton and soybeans in the United States and sugar beet and oilseed rape in Europe.  The selective action of FUSILADE® allows growers to target applications when grass weeds appear, allowing cost-effective weed control.
 
·
Mesotrione (CALLISTO® family)  is a post-emergent herbicide with a very broad spectrum against key broad-leaved weeds in corn.
 
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·
S-metolachlor (DUAL GOLD®/ DUAL MAGNUM®) is a lower rate replacement for metolachlor.  Its use has not only reduced the amount of product sprayed on fields, thus responding to the pesticide reduction goals established by many countries, but has also decreased the energy required to produce, transport and store the product, as well as decreasing total packaging material. S-metolachlor is well tolerated and can be safely used on more than 70 different crops.
 
Non-Selective Herbicides
 
Syngenta has a series of non-selective herbicides, which reduce or halt the growth of all vegetation with which they come in contact.
 
 
·
Glyphosate (TOUCHDOWN®), a non-selective herbicide with systemic activity, is a premium product in the market for glyphosate-based products.  The product has been enhanced by the launch of the IQ® technology which positions the product at the top end of glyphosate performance. Differentiated from other herbicides of its class by its speed of action and tolerance of heavy rain, TOUCHDOWN® is now registered in over 90 counties, including for use on herbicide tolerant soybeans in the United States.
 
·
Diquat (REGLONE®), a non-selective contract herbicide, is mainly used as a desiccant to allow easier harvesting and reduce drying costs.
 
·
Paraquat (GRAMOXONE®) is a non-selective contact herbicide first introduced in 1962. Paraquat is one of the world’s largest selling herbicides.  It has been a vital product in the development of minimum tillage cropping systems, the adoption of which continues to increase because of benefits such as the reduction of soil erosion.
 
Fungicides
 
Syngenta has a whole range of Fungicides that prevent and cure fungal plant diseases that affect crop yield and quality.
 
 
·
Azoxystrobin (AMISTAR®), a strobilurin fungicide introduced in 1997 and launched widely in 1998 and 1999, is the world’s best selling proprietary fungicide and our largest selling product.  It is registered for use in approximately 100 countries and for approximately 120 crops.  In Brazil, it is successfully being used to control Asian rust in soybeans in a mixture branded as PRIORI XTRA®. Mixtures of azoxystrobin with triazoles (cyproconazole or propiconazole) or chlorothalonil have been developed to tackle diseases in cereal crops, primarily in the intensive markets of Europe where growers and advisors value the strong rust control performance and yield enhancing properties of azoxystrobin.  Mixtures are also used in corn as part of a complete plant performance program where significant yield increases are achieved.
 
·
Chlorothalonil (BRAVO®), acquired in 1998, is a world-leading fungicide.  With its multi-site mode of action, it is a good partner for AMISTAR® and is being increasingly integrated into disease control programs which use both products.
 
·
Cyproconazole (ALTO®) is a systemic fungicide with broad-spectrum activity, especially against rust and leaf spot in cereals, soybean, sugar beet and coffee. Pursuant to the commitments given to the European Commission upon the formation of Syngenta, Syngenta granted an exclusive license to manufacture, use and sell cyproconazole directly in the European Economic Area to Bayer, under Bayer’s own trade name. Syngenta has re-commence sales of cyproconazole directly, under the ALTO® and other brand names.
 
·
Cyprodinil (UNIX®/STEREO®(2)/SWITCH®/CHORUS®) is a powerful fungicide for use on cereals.  It is used to control eyespot, powdery mildew and leaf spot diseases.  Because it has a specific mode of action, it is a particularly effective solution where resistance to other fungicides has developed.  CHORUS® and SWITCH® are cyprodinil-based formulations which are used on pome fruit such as apples and pears or on grapes and vegetables, respectively.
 
·
Difenoconazole (SCORE®/DIVIDEND®) is a systemic triazole fungicide with broad-spectrum activity against plant diseases, particularly leaf spots of pome fruit, vegetables, field crops and plantation crops.  Long-lasting protective and strong curative activity make it well suited for threshold based plant disease management whereby the plant is treated only when the development of the disease has passed a certain point.  Target crop pathosystems include cercospora, alternaria, septoria and other leaf spots, powdery mildews and scabs in wheat, bananas, sugar beets, peanuts, potatoes, pome fruits, grapes, rice and vegetables.
 
·
Fluazinam(3) (SHIRLAN®) is a fungicide for control of potato blight.
 
·
MEFENOXAM(4)(APRON® XL/ RIDOMIL GOLD®/FOLIO GOLDTM/APRONT®XL/ SUBDUE®) is used for the control of seeds and soil-borne diseases caused by fungi such as pythium, phytophtora and downy mildews.  It is used worldwide on a wide variety of crops, including field, vegetable, oil and fiber crops.
 
(2) Pursuant to the commitments given to the European Commission, Syngenta granted an exclusive right to Makhteshim Agan Industries Ltd. to use and sell STEREO® formulation for use on cereals for the duration of its registration in Denmark, Finland and Sweden. 
(3) Fluazinam is distributed, but not manufactured, by Syngenta. 
(4) In the United States Mefenoxam is a generic expression whereas in other countries MEFENOXAMTM is a trademark of Syngenta Participations AG to denominate the active ingredient Metalaxyl-M (ISO name).
 
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·
Propiconazole (TILT®/ BANNER®), originally licensed from Janssen, was introduced in 1980 and has developed into our most successful foliar fungicide for broad spectrum disease control in cereals, bananas, rice, corn, peanuts, sugar beet, turf and other food and non-food crops.  Propiconazole is systemic and provides a strong curative and protective activity against a wide range of plant pathogens including powdery mildews, rusts and other leaf spot pathogens of cereals, bananas, rice, corn, peanuts, sugar beet, and turf.  Pursuant to the commitments given to the European Commission, Syngenta has agreed to grant an exclusive right to Makhteshim Agan Industries Ltd. to use and sell its TILT® 250EC and TILT® 6.25GL formulations for use on cereals in Denmark, Finland and Sweden for the duration of their registrations.
 
·
Trinexapac-ethyl (MODDUS®) is a plant growth regulator.  In cereals it reduces growth so that treated plants stay shorter and have stronger stems, enhancing their ability to withstand storms and remain upright until harvest.  In sugarcane it is a yield enhancer and harvest management tool.
 
Insecticides
 
Syngenta has a broad range of Insecticides that control chewing pests such as caterpillars and sucking pests such as aphids, which reduce crop yields and quality. These products can be either applied to the soil or sprayed onto the foliage.
 
 
·
Abamectin (VERTIMEC® or AGRIMEC®/AGRIMEK®) is produced by fermentation.  This potent insecticide and acaricide is used at very low dose rates against mites, leafminers and some other insects in fruits, vegetables, cotton and ornamentals.  Abamectin rapidly penetrates the plants, and is a useful product for integrated pest management.
 
·
Emamectin Benzoate (PROCLAIM® or AFFIRM®) provides control of caterpillars on vegetables, cotton and fruits, combining a unique mode of action with extremely low use rates and is compatible with integrated pest management.  It has been launched in major markets such as Japan, Korea, the United States, Mexico, Australia and India and is under registration in a number of other countries.
 
·
Lambda-cyhalothrin (KARATE®/ICON®) the world’s leading agricultural pyrethroid brand, is one of our largest selling insecticides.  A novel product branded KARATE® with ZEON® technology was launched in the United States in 1998, offering performance benefits and enhanced user and environmental safety.
 
·
Lufenuron (MATCH®) is an insect growth regulator that controls caterpillars in corn, potatoes, cotton, vegetables and fruits.  It is a leading insecticide in terms of sales in its chemical class.
 
·
Thiamethoxam (ACTARA®) is highly active at low use rates against a broad spectrum of soil and sucking insects.  It is highly systemic and well suited for application as a foliar spray, drench or drip irrigation.  It is fast acting, works equally well under dry and wet conditions and has a favorable safety and environmental profile.  Its mode of action differs from that of older products, which makes it effective against insect strains that have developed resistance to those products.  It is being developed on a broad range of crops, including vegetables, potatoes, cotton, soybeans, rice, pome fruits, stone fruits (such as peaches or plums) and tobacco.
 
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Seed Care
 
The use of seed care products is an effective, efficient, and targeted method to protect the seedling and the young plant against diseases and insects during the period when they are most vulnerable. Our broad range of fungicides and insecticides allows us to provide a modern portfolio of safe and highly effective products. As seeds increase in value, seed protection becomes more important.
 
 
·
Difenoconazole (DIVIDEND®) is active against a broad range of diseases including bunts, smut and damping off on cereals, cotton, soybeans and oilseed rape.  This product is highly systemic and provides a long lasting, high-level effect.  It is safe for the seed and the seedling and provides for a faster germination than other products in the market.
 
·
MEFENOXAM™(5)  (APRON® XL) is used for the control of seed and soil-borne diseases caused by fungi such as pythium, phytophtora and downy mildews.  It is used worldwide on a wide variety of crops, including field crops, vegetables, oil and fiber crops.  MEFENOXAM™ is also used as a mixing partner for seed protection at low use rates.
 
·
Fludioxonil (MAXIM® or CELEST®) is a contact fungicide with residual activity.  Derived from a natural compound, fludioxonil combines crop tolerance with low use rates.  Its spectrum of targets includes seed and soil-borne diseases like damping off, bunt, smut and leaf stripe on cereals.  Used alone or in mixtures with other active substances, it is also effective on corn, rice, cotton, potatoes and peas.
 
·
Thiamethoxam (CRUISER®) is an insecticide with systemic activity in a wide range of crops including cereals, cotton, soybeans, canola, sugar beet, corn, sunflower and rice. Its properties are such that it provides a consistent performance under a wide range of growing conditions. Thiamethoxam acts against a wide range of early season sucking and chewing, leaf feeding and soil-dwelling insects like aphids, thrips, jassids, wireworms, flea beetles and leafminers.
 
Professional Products – Lawn & Garden and Home Care
 
In the Lawn and Garden sector, Syngenta offers a range of specialized products for use in turf (golf courses and sports fields), ornamentals (cut flowers, bedding plants and nurseries), vegetation management (roads, railroads and rights-of-way) and for home and garden use.
 
 
·
Prodiamine (BARRICADE®) is a leading pre-emergence grass and broad-leaved weed herbicide in turf.
 
·
Azoxystrobin (HERITAGE®) is a leading fungicide for use on turf, primarily used on golf courses.
 
·
Trinexapac-ethyl (PRIMO MAXX®) is a plant growth regulator for turf that increases stress tolerance and decreases clippings.
 
·
Growing Media. FAFARD® is a premium brand in the USA growing media market specializing in custom mixes for producers of ornamental plants.
 
 
In Home Care, Syngenta offers a range of products for use in controlling mold and insect pests.
 
 
·
Lambda-cyhalothrin (ICON®) is used in public health outlets for control of malaria and other tropical diseases and nuisance pests, such as house flies and cockroaches.  It was the first pyrethroid to be approved for malaria control by the World Health Organization.  In addition to being sprayed, it can be incorporated into bednets to offer added protection.
 
·
Cypermethrin (DEMON®) is a pyrethroid insecticide that provides a lasting soil treatment to prevent termites from attacking homes and other structures.
 

(5) In the United States Mefenoxam is a generic expression whereas in other countries MEFENOXAMTM is a trademark of Syngenta Participations AG to denominate the active ingredient Metalaxyl-M (ISO name).
 
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Recently Launched Products (last 3 years)
 
Selective Herbicides
 
 
·
Pinoxaden (AXIAL®) was successfully launched in a number of countries in 2006. It is an innovative post-emergent selective grassweed herbicide, for use in both wheat and barley. It offers the grower efficacy, selectivity and flexibility.
 
Fungicides
 
·
Mandipropamid (REVUS®) is a new fungicide for fruit and vegetables to combat late blight and downy mildew, which complements our existing product range. REVUS® was launched during 2007 and is currently sold in 8 countries.
 
Insecticides
 
·
Chlorantraniliprole mixtures (DURIVO®; AMPLIGO®; VOLIAMTM; VIRTAKO®). RynaxypyrTM(6) is a chemical of the bisamide class characterized by unique systemic properties and outstanding activity on all major lepidoptera pests.
 
Professional Products
 
·
AVICTA®, a new seed treatment for the control of nematodes in cotton, was launched in the USA in January 2006.
 
Products in Late Stage Development
 
Syngenta has a rich pipeline which extends beyond 2012 with projects covering all product lines.
 
Selective Herbicides
 
·
449, a new broad-spectrum selective herbicide for use in corn and sugar cane which complements our existing product range.
 
Fungicides
 
·
520, a new broad-spectrum cereal fungicide which complements the existing range and provides additional resistance management opportunities.
 
·
524, a new fungicide seed treatment which complements our existing product range.
 
Insecticides
 
·
Cyazypyr TM(6), Syngenta is actively involved in development projects in bisamide chemistry. Following completion of the acquisition from DuPont of exclusive rights to Cyazypyr in mixtures with Syngenta insect control products, announced on June 24, 2008, these projects were integrated with the Cyazypyr program. Cyazypyr™ is a new broad spectrum insecticide for the control of lepidoptera and sucking pests. Cyazypyr™ is complementary to Chlorantraniliprole insect control product that Syngenta is developing in mixtures with its own leading insect control products.
 
Stress Tolerance
 
·
INVINSA TM(7), a sprayable formulation of 1-methylcyclopropene (1-MCP), will be the first-ever product introduced into field crop markets to specifically protect crop yield during extended periods of high temperature and mild-to-moderate drought.
 
 

 
(6)
Rynaxypyr™ and Cyazypyr™, are DuPont trademarks.
   
(7)
Invinsa™ is an AgroFresh Inc. trademark.

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Production
 
The manufacture of crop protection products can be divided into three phases:
 
·
manufacture of the active substance
 
·
formulation of products from these active substances into a form which optimizes the efficacy and safety of the product in the field
 
·
packaging of the products to closely align them with local customer needs
 
Syngenta’s major production sites for active ingredients are located in Switzerland, the United States, the United Kingdom, China and India.  While individual active substances are normally produced at one manufacturing site, formulations are produced and packaged at several different strategically located plants, close to the principal markets in which those products are sold.  Syngenta operates major formulation and packing plants in Belgium, Brazil, China, France, India, South Korea, Switzerland, the United Kingdom and the United States.
 
Syngenta manages its supply chain globally and on a product-by-product basis, from raw materials through delivery to the customer, in order to maximize both cost and capital efficiency and responsiveness.  Syngenta outsources the manufacture of a wide range of raw materials, from commodities through fine chemicals to dedicated intermediates and active ingredients.  Sourcing decisions are based on a combination of logistical, geographical and commercial factors.  Syngenta has a strategy of maintaining, when available, multiple sources of supply.  Most purchases of supply chain materials are directly or indirectly influenced by commodity price volatility, due to price dependence on gas and oil. Total raw material spending is approximately 30% of sales.
 
Significant cost savings have been realized in global manufacturing and supply following the merger of the Novartis agribusiness and the Zeneca agrochemicals business due to optimizing production capacity and closing redundant facilities.  From 48 sites at the time of the formation of Syngenta, the company now operates on 26 production sites around the world.
 
Marketing and Distribution
 
Syngenta has marketing organizations in all our major markets with dedicated sales forces that provide customer and technical service, product promotion and market support.  Products are sold to the end user through independent distributors and dealers, most of whom also handle other manufacturers’ products.  Our products are normally sold through a two-step or three-step distribution chain.  In the two-step chain Syngenta sells its products to cooperatives or independent distributors, which then sell to the grower as the end user.  In the three-step system, Syngenta sells to distributors or cooperative unions who act as wholesalers and sell the product to independent dealers or primary cooperatives before on-selling to growers.  Syngenta also sells directly to large growers in some countries.  Our marketing network enables us to launch our products quickly and effectively and to exploit our range of existing products.  Syngenta focuses on key crop opportunities in each territory.  In those countries where Syngenta does not have its own marketing organization, we market and distribute through other distribution channels.  Generally, the marketing and distribution system in a country does not vary by product.
 
Our marketing activities are directed towards the distributors, agricultural consultants and growers.  They consist of a broad range of advertising and promotional tools, such as meetings with growers and distributors, field demonstrations, advertisements in specialized publications, direct marketing activities, or information via the Internet.  Syngenta is also in constant contact with the food and feed chain to evaluate current and future needs and expectations.
 
A key element of our marketing is grower support and education.  This is particularly important with respect to small growers in developing countries.  For many years, Syngenta has held numerous courses around the world for growers as a result of which tens of thousands of people have been trained in the safe and sustainable use of crop protection products.  Syngenta also trains agricultural extension workers and distributors so that they can further disseminate good practice and reach an even wider audience.
 
Research and Development
 
Syngenta has major crop protection research centers in Stein, Switzerland; Jealott’s Hill, England; and Goa, India.  The total spent on research and development in crop protection was US$556 million in 2008, US$496 million in 2007 and US$490 million in 2006.
 
Syngenta is continuously improving the research process, building on well-established platforms in chemistry, biology and biotechnology.  Syngenta’s investment in genomics underpins all of the product outputs, and the increasing emphasis on integrated crop solutions is leading to converging research goals and programs across chemicals, seeds and traits.  Novel tools, methods and information services allow us to evaluate a greater range of diverse chemicals more quickly and efficiently than ever before.  Syngenta uses high throughput screening to test over two hundred thousand compounds each year using in-vivo test systems.  Combinatorial chemistry and high-speed synthesis have been advanced in order to prepare a sufficient number of compounds for these tests.  A crucial feature is library design, a structured approach to combinatorial chemistry which ensures that the chemical entities possess properties which relate to the desired product profile.  Compounds showing promising activity are further characterized in screening systems consisting of a series of project-specific, customized greenhouse and growth-chamber tests, including indicator tests for environmental parameters (e.g., soil persistence, leach-ability) and tests to provide early indications of safety issues for humans.  
 
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Those compounds showing advantages in efficacy and safety over the best commercial standards are broadly evaluated in the field.
 
Once Syngenta selects a compound for development, we test it worldwide on the most important crops under different climatic conditions and in varying soils.  In parallel, an industrial scale manufacturing process is identified and optimized, and appropriate formulations and packages are developed.  The use of multidisciplinary research teams to refresh the existing product range is key to continued success in the face of competition, even after patent expiry.
 
Syngenta performs an extensive investigation of all safety aspects relating to our products.  The human safety assessments address potential risks to both the users of the product and the consumers of food and feed, while in environmental safety Syngenta seeks assurance that the product will not adversely affect soil, water, air, flora and fauna.
 
In addition to our own research and development efforts, Syngenta has strengthened our business platform through targeted acquisitions.  Syngenta has also entered into a number of research and development agreements around the world for combinatorial chemical libraries, high throughput screening and follow-up of leads.
 
Environment
 
Syngenta designed its environmental management program with the aim of ensuring that our products and their manufacture pose minimal risks to the environment and humans.  The crop protection industry is subject to environmental risks in three main areas: manufacturing, distribution and use of product.  Syngenta aims to minimize or eliminate environmental risks by using appropriate equipment, adopting best industry practice and providing grower training and education.
 
The entire chain of business activities, from research and development to end use, operates according to the principles of product stewardship.  Syngenta is strongly committed to the responsible and ethical management of our products from invention through ultimate use.  Syngenta employs environmental scientists around the world who study all aspects of a product’s environmental behavior.
 
Specially designed transportation and storage containers are used for the distribution of hazardous products and efficient inventory control procedures minimize the creation of obsolete stocks.
 
Syngenta has developed a rigorous screening and development process in order to mitigate risks relating to the use of our products.  All active substances and products must meet both our internal standards and regulatory requirements.
 
Syngenta provides support to growers on a local level such as training in application techniques and assistance in calibrating spray equipment in order to promote safe handling of our products.  Syngenta extends product stewardship long after sales in several ways, for example, by collecting and safely destroying outdated products, and providing returnable containers to reduce waste.
 
Crop protection products are subject to rigorous registration procedures, which are aimed at ensuring safe product usage in the field.  In addition to complying with these regulatory requirements, Syngenta has adopted its own Health, Safety and Environment (“HSE”) management system.  This provides a clear framework of management processes applicable at all sites, whatever the regulatory requirements in the country in which the site is situated.
 
Syngenta maintains a register of sites to identify manufacturing and distribution sites and locations that may have been contaminated in the past.  The register is the basis for the allocation of appropriate provisions and action programs regarding measures to be taken.  A risk portfolio is prepared for each site and reviewed annually.  The risk portfolio is also applied to third-party manufacturers in order to identify and exclude poorly performing companies.
 
See Notes 2 and 25 to Syngenta’s consolidated financial statements in Item 18 for a further discussion of environmental matters.
 
Intellectual Property
 
Syngenta protects its investment in research and development, manufacturing and marketing through patents, design rights and trademarks.  In addition to patent protection for a specific active substance, patent protection may be obtained for processes of manufacture, formulations, assays, mixtures, and intermediates.  These patent applications may be filed to cover continuing research throughout the life of a product and may remain in force after the expiry of a product’s per se patents in order to provide ongoing protection.  The territorial coverage of patent filings and the scope of protection obtained vary depending on the circumstances and the country concerned.
 
Patents relating to gene-based crop protection and enhancement may cover transgenic plants and seeds gene effects, genetic constructs and individual components thereof and enabling technology for producing transgenic plants and seeds.
 
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Trademark protection may be obtained to cover a trademark for a specific active substance and there may be more than one trademark covering the same active substance.  Other trademarks may cover formulations, mixtures, intermediates and a variety of ancillary services.  The trademarks may remain in force after the expiry of a product’s patents in order to provide ongoing protection.  The territorial cover of trademark filings and the scope of protection obtained vary depending on the circumstances and the country concerned.
 
Registration and re-registration procedures apply in all major markets.
 
Products must obtain governmental regulatory approval prior to marketing.  The regulatory framework for crop protection products is designed to ensure the protection of the consumer, the grower and the environment.
 
Most of our principal markets have regular re-registration procedures for crop protection products.  Within certain time periods a product’s technical dossier is reviewed with the goal of ensuring that it adheres to all standards, which may have changed or been added to since the product was initially registered.  The standards and requested trial protocols change over time.  Re-registration of a product or compound may not be granted if the registration package fails to meet the then current requirements.
 
Syngenta enforces its intellectual property rights, including through litigation if necessary.
 
Competitive Environment
 
The leading companies in the crop protection industry are mainly dedicated agribusinesses or large chemical companies based in Western Europe and North America.  Companies compete on the basis of strength and breadth of product range, product development and differentiation, geographical coverage, price and customer service.  Market pressures and the need to achieve a high level of research and development capability, particularly with the advent of biotechnology, have led to consolidation in the industry.  The top six such companies account for about 70% of the worldwide market.  Syngenta’s key competitors include BASF, Bayer, Dow, DuPont and Monsanto.  In many countries, generic producers of off-patent compounds are additional competitors to the research-based companies in the commodity segment of the market.
 
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SEEDS
 
Products
 
Syngenta develops, produces and markets seeds and plants that have been developed using advanced genetics and related technologies. Syngenta sells seed products in all major territories.
 
Our seed portfolio is one of the broadest in the industry, offering over 200 product lines and over 6,000 varieties of our own proprietary genetics. Syngenta has a leading market share in vegetables, flowers, corn, soybean, sugar beet and sunflower. Seed products are derived from a germplasm pool and trait portfolio and developed further utilizing sophisticated plant-breeding methods. Syngenta divides its products into field crops such as corn, oilseeds and sugar beet, and horticultural crops, which consist of flowers and vegetables. In 2008, Syngenta launched around 600 new varieties and hybrids. Through Syngenta’s enhanced corn breeding and trait conversion capabilities, around 130 new products were brought into production in NAFTA in 2008 for customer use in the 2009 crop year. Fifty of these products are Agrisure® 3000GT, containing Syngenta corn borer, rootworm and glyphosate tolerance traits. These new products will greatly enhance Syngenta’s presence in the genetically modified (GM) trait and trait stack market spaces, while also leveraging the elite new genetic combinations resulting from the integration of acquired germplasm resources from the Garst, Golden Harvest and CHS acquisitions. In November 2008, Syngenta acquired SPS to increase its presence in the important corn and soybean market in Argentina. In the flowers segment, Syngenta acquired Goldsmith Seeds Inc. in November 2008 and acquired the pot and garden chrysanthemum product lines from Yoder Brothers Inc. This significantly strengthens the Flowers business providing leading positions in chrysanthemum and a wide range of pot and bedding plants. The combined offer of the two acquisitions with the existing Syngenta product range is by far the most complete offer in the ornamental flowers industry.

 
Key Marketed Products
 
Field Crops
 
·
Corn (NK®/Garst®/Golden Harvest®) hybrids are sold by Syngenta via established distribution channels covering a full range of countries and maturities. In addition, hybrids and inbred lines are licensed to other seed companies via the GreenLeaf Genetics LLC 50:50 joint venture with Pioneer Hi-Bred International, Inc. Syngenta hybrids are characterized by their high yield potential, stability of performance, uniformity and vigor. Many of Syngenta’s elite hybrids are offered as AGRISURE® 3000GT products which provide built-in insect protection against corn borers, corn rootworms and tolerance to glyphosate herbicide.  Competitive hybrids in early maturities, some of them developed through marker assisted breeding, are sold for silage and grain markets.
 
·
Sugar beet (Hilleshög®) seeds are bred to develop high yielding varieties with good stress and disease tolerance, high sugar content, low soil tare and improved juice purity.
 
·
Oilseeds (NK®) include: sunflowers, soybeans and oilseed rape. Syngenta sunflower seed varieties are bred for high yield as well as heat stress tolerance, disease resistance, herbicide tolerance and oil quality. Syngenta’s soybean varieties combine high yield and genetic superiority and herbicide tolerance, which gives growers flexibility in their weed control. The company’s oilseed rape varieties offer good oil production and plant health. In 2007, Syngenta launched NK® PETROL, the first product of a new hybridization technology called Safecross™ for oilseed rape.
 
·
Cereals (NK®/NFC New Farm Crops®/AgriPro® – Coker®/C.C. Benoist®). Wheat and Barley varieties combine high yield, superior disease resistance and agronomic characteristics coupled with excellent grain quality for the malting and milling industry.
 
Vegetables and Flowers
 
·
Vegetables (S&G®/Rogers®/Daehnfeldt®/Zeraim Gedera®). Syngenta offers a full range of vegetable seeds, including tomatoes, peppers, melons, watermelons, squash, cauliflower, cabbage, broccoli, lettuce, spinach, sweet corn, cucumbers and oriental radish. Syngenta breeds varieties with high-yield potential that can resist and tolerate pests and diseases. Syngenta develops genetics that address the needs of consumers as well as processors and commercial growers. During 2008, Syngenta launched approximately 200 new varieties in the high value segments worldwide.
 
·
Flowers (Syngenta Flowers®/ Goldsmith®/ Fischer®/ S&G®/ Yoder/ GoldFisch®). Syngenta offers a full range of flower seeds, plugs and vegetative multiplication material (cuttings) which it sells to professional growers of horticultural crops. Syngenta focuses on breeding a full range of innovative flower varieties, including popular bedding plants such as viola, begonia, New Guinea impatiens, pelargonium and petunia; pot plants, such as cyclamen and poinsettia; cuttings for, amongst others, the growing market of hanging baskets, such as impatiens and verbena; and a wide range of attractive perennials.
 
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Recently Launched Products (last 3 years)
 
The following recently launched products illustrate our capability as a technology integrator and our commitment to the food chain:
 
Field Crops
 
 
·
Syngenta launched Agrisure® CB/LL/RW, its double stacked corn containing Agrisure® corn borer and corn rootworm traits at the beginning of 2007.  In 2008, Syngenta launched Agrisure® 3000GT, combining Agrisure® CB/LL/RW with Syngenta’s proprietary glyphosate herbicide tolerance. Agrisure® 3000GT provides Syngenta customers with a full package of Syngenta proprietary traits focused on the customers’ priority pests, coupled with resistance to the herbicide glyphosate.
 
·
High yielding Corn Hybrids (NK®) across a variety of maturities in Europe.
 
·
Soybean varieties with high yield performance and disease resistance.
 
·
Early maturing and high yielding varieties of Sunflowers across Europe.
 
·
A number of high yielding Barley varieties have been launched with excellent disease resistance. These have included both malting varieties suitable for brewing and feed type.
 
·
In Wheat, a number of new products have been launched across the Spring and Winter wheat ranges with high yield, good disease tolerance and high bread making qualities.
 
·
Sugar beet varieties with Roundup Ready®(8tolerance in the US, high sugar content and multiple resistances across a number of geographies.
 
·
Syngenta launched NK® Petrol in 2007. This is the first product of an entirely new hybridization system for oilseed rape, which provides higher yields and better resistance to environmental stress.
 
Vegetables and Flowers
 
In Vegetables and Flowers, Syngenta continues to launch and test market new and attractive consumer products in the United States, Europe and other parts of the world. Some examples of recently launched products include:
 
 
·
In Tomatoes, Rosso Bruno, a sweet tasting tomato with a dark colored skin and Dunne, a mini cluster of tomatoes.
 
·
Solinda™, a watermelon with a full flavour and super-sweet, juicy fruit.
 
·
Caliope™, geranium cuttings series with unique semi-trailing habit and large semi-double blooms.
 
·
Plush™, petunia series with early blooming trailing type from seeds.
 
 
Products in Late Stage Development
 
Syngenta seeks to produce improved hybrid and varietal seeds to meet the varying circumstances and demands of our customers and to work towards further improvement of traits advantageous to the grower, i.e., input traits, such as resistance to diseases and insects, and greater yield. Syngenta is also concentrating on developing products that are advantageous to the food and feed industry and to the consumer, i.e., output traits such as improved digestibility and protein utilization for crops used for animal feed, oilseeds that produce higher quantities or healthier oils. In Vegetable Seeds, Syngenta develops new products to provide consumers with consistent high quality, improved appearance, taste and texture. Powerful analytical science has been expanding knowledge of taste, flavor and nutrition. Combined with advanced breeding technology, this is accelerating the introduction of novel varieties.
 

(8) Roundup Ready® is a registered trademark of Monsanto Technology LLC.
 
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Below are examples of products in Late Stage development:
 
Field Crops
 
·
Optimizing plants’ water use could make a major contribution to saving vital resources, particularly for water-intensive crops such as corn. Syngenta is now drawing on native corn genes as well as genes derived from arid-land plants to develop water optimization traits which we are testing across a wide range of moisture conditions in North and South America.
 
·
Syngenta is working towards developing corn seeds across a variety of maturities - with high yield, stress tolerance and improved agronomic characteristics.
 
·
Broad lepidopteran insect control in corn which expands the scope of key yield reducing insect pests. This technology will be combined with triple stack technology for a differentiating, industry leading whole plant protection.
 
·
An expanded portfolio with corn triple stack input traits (Agrisure® 3000GT). Combined glyphosate tolerance, European corn borer and corn rootworm control.
 
·
Stacking multiple modes of action for the same target insects (trait pyramiding) to improve efficacy, combat insect resistance and provide long term product sustainability.
 
·
Biofuel products in corn, focusing on amylase and high ethanol corn hybrids.
 
·
Soybean with high yield, herbicide tolerance, cyst nematode resistance, phytophthora root rot, aphid resistance and overall disease resistance. The industry’s best soybean aphid management system which combines genetics, a naturally occurring trait, and seed treatment products for a total integrated pest management approach.
 
·
Healthy oil varieties in oilseeds.
 
·
Broomrape, herbicide and disease resistant sunflowers.
 
·
High yield Safecross hybrids with improved disease resistance and drought tolerance in winter oilseed rape.
 
·
In wheat, Fusarium tolerance, high yield, improved and novel quality, new disease resistance and drought tolerance, “White” wholemeal flour.
 
·
Next generation malting barley with improved enzyme characteristics.
 
·
Sugar beet with second generation nematode tolerance for the European market and with broad spectrum disease and virus resistance in combination with Roundup Ready®(9) tolerance for the NAFTA market.
 
Production
 
Independent contract growers tend and harvest our seed near Syngenta facilities throughout the world. After the harvest, the raw seed is sent to our processing facilities, where it is cleaned, calibrated, treated and packaged. The largest facilities are located in Argentina, Brazil, France, Hungary, India, Morocco, the Netherlands, Spain, Sweden, Thailand and the United States. For large seed products, seed production tends to occur as close to the intended markets as possible, in order to achieve cost effectiveness and match the seeds with the growing conditions that are optimal for the variety. This also eases logistics for seed products that require secure storage and timely delivery for the use season.
 
Due to Syngenta’s global presence, it can engage in seed production year-round and reduce the weather-related seed production risk. In addition, because our facilities are located in both the Northern and Southern hemispheres, Syngenta can shorten the time from seed breeder to commercial production so that we can produce marketable quantities more quickly than if we were dependent on only one growing season.
 
 

(9) Roundup Ready® is a registered trademark of Monsanto Technology LLC.
 
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Marketing and Distribution
 
Syngenta products are marketed throughout the world through well-known brands, some of which have been established for over 100 years. Our flagship brands are NK®, Golden Harvest®, Garst®, Hilleshög®, S&G, Rogers®, Zeraim Gedera® and Fischer®. The NK® brand is used for corn, soybean, sunflowers and oilseed rape, and several other specialty crops. Golden Harvest® and Garst® are predominantly used in North America in corn, soybeans, alfalfa and sorghum. Corn and Soybean germplasm and traits are marketed via the GreenLeaf Genetics LLC 50:50 joint venture with Pioneer Hi-Bred International, Inc. Proprietary corn traits are marketed under the Agrisure® trademark. The Hilleshög® brand is used in sugar beets and appears in every major market in Europe, Japan and the United States. For vegetables, the S&G® brand is a leading brand in Europe, the Middle East, Africa and Asia. The Rogers® brand is well known in the Americas to growers and the food-processing industry. Through the acquisition of Zeraim in 2007, Syngenta gained access to their global brand Zeraim Gedera®. In 2008, the Syngenta Flowers brand was introduced as an umbrella brand representing the entirety of Syngenta’s offer in flower seeds, cuttings and young plants. Syngenta Flowers continues to use the Fischer®, S&G®, and Goldfisch® brands as well as the recently acquired Goldsmith® and Yoder® brands. Our sales force markets the majority of our brands either to customers directly, in partnership with distributors, or through a network of dealers.
 
Seed and crop protection products have traditionally been marketed separately. However, to provide integrated crop solutions and services, especially those tailored to local customer needs, our seeds business is increasingly working together with our crop protection business to develop joint marketing approaches and initiatives. The objective has been to combine and capitalize on the strength of each segment to maximize their competitive advantages. This strategy is primarily focused on corn, soybeans, vegetables and cereals. Where beneficial, crop protection and seed sales forces coordinate customer approaches and jointly promote products offering crop solutions that include broad product combinations and services. An example of this joint marketing strategy in practice is the AgriEdge® program in US Corn which is capitalizing on the breadth of the Syngenta offer by offering Syngenta seeds and traits, coupled with seed care and crop protection. This program has benefited both the Crop Protection and Seeds businesses.
 
Research and Development
 
Syngenta operates around 100 breeding and germplasm enhancement centers, which focus on advancing the performance, stability and quality of seed varieties for over 50 food, feed and flower crops. Because our customers need locally adapted crop varieties, our centers are strategically located around the world. At these centers, over 1500 permanent employees leverage our global germplasm, trait, biotech and knowledge resources to focus our research efforts on creating new varieties with greater productivity, tolerance to pests and other environmental stresses, and better quality characteristics such as nutritional composition, safety, consumer appeal and shelf life.
 
Syngenta operates biotechnology and seed technology research sites in Brazil, France, Germany, United Kingdom, the Netherlands, Spain, Sweden, India and the United States. During 2008, an additional biotechnology center in Beijing, China, was established. At these sites, we apply advanced biotechnology research, marker-assisted breeding, seed processing, pelleting, coating and upgrading technologies to create, develop and enhance seed products. Total research and development spending in Seeds was US$343 million in 2008, US$283 million in 2007 and US$232 million in 2006.
 
Syngenta expects that end users such as livestock feeders, grain processors, food processors and other partners in the food chain will continue to demand specific qualities in the crops they use as inputs. Syngenta has entered into a number of targeted alliances with other enterprises in order to broaden further our germplasm and trait base that enables us to create more valuable products. None of these alliances are currently material to our business, and it is difficult to predict which of these alliances is most likely to produce a successful product in the future. In most cases, royalties are payable upon commercial exploitation. The list below is a sample of the alliances in which Syngenta is currently engaged:
 
 
·
Secobra Recherche SA, a minority shareholding in a malting barley research consortium with major malting and brewing interests.
 
 
·
Maisadour Semences SA, a minority shareholding in a corn and sunflower seed company in France.
 
 
·
Koipesol Semillas SA, a majority shareholding in a sunflower seeds company, the other party to which is SOS, a leading Spanish company in the edible oil and food industry.
 
 
·
LongReach Plant Breeders, a minority shareholding in an Australian wheat research company.
 
 
·
Chromatin, Inc., Molecular stacks and mini-chromosome technology.
 
 
·
Performance Plants, Inc., collaboration on the development of GM (Genetically Modified) drought tolerance in corn and soybean.
 
 
·
Pioneer Hi-Bred International, Inc., collaboration on the development of GM traits for our branded businesses and GreenLeaf Genetics™.
 
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·
Metabolon, Biochemical profiling and plants response to environmental stresses.
 
 
·
Athenix, Collaboration to discover novel corn insect and soybean cyst nematode resistance genes
 
 
·
Institute of Genetics and Developmental Biology (IGDB), Beijing, China, collaboration to develop genes essential for drought and other key agronomic traits.
 
In addition, Syngenta has entered into a number of research and development agreements with other companies and academic institutions around the world.
 
In 2008, Syngenta announced :
 
 
·
an agreement with Monsanto on corn and soybean technologies that enables both companies to develop and deliver new innovative herbicide-tolerant and Bt insect-protection products in corn, soybean and cotton; and
 
 
·
an agreement with Pioneer that enables Syngenta’s novel broad lepidopteran-control technology to be used in Pioneer germplasm.
 
Competitive Environment
 
The main competitive factor in the seeds industry remains the quality of genetics and increasing importance of traits. Historically, competition in the seeds industry has been fragmented, with small producers competing in local markets. With the emergence of biotechnology, the seeds industry is now research intensive. Technological advances requiring higher research and development spending have forced new alliances and created greater competition in product development, marketing and pricing. This environment favors the companies that have a biotechnological platform and a broad genetic range. At present, Syngenta’s main competitors in the seeds business are: Monsanto, DuPont, Vilmorin, KWS, Bayer, Dow, Ball, Sakata and Takii.
 
Intellectual Property
 
Syngenta maintains the ownership, and controls the use, of our seeds (inbreds and varieties) and genomics-related products and processes by means of intellectual property rights, including, but not limited to, the use of patents, trademarks, licenses, trade secrets, plant variety protection certificates and contractual language placed on packaging. The level of protection varies from country to country according to local laws.
 
Syngenta licenses its intellectual property rights to third parties and also holds licenses from other parties relating to certain of Syngenta’s products and processes.
 
Regulatory Approval
 
Genetically modified crops are regulated by the United States Department of Agriculture (USDA), the Food and Drug Administration (FDA), and under some circumstances the Environmental Protection Agency. In the United States, conventional seed is not subject to this regulation. Similar approvals are required in Canada and Mexico for cultivation of genetically modified crops and their use in food and feed.
 
In the EU, new varieties of vegetable and agricultural (field crop) species, whether transgenic or not, must be registered on an Official List before they may be commercialized. Such varieties are subjected to field tests at an official examining institute and must be distinct from other known varieties, as well as be sufficiently uniform and stable. New agricultural plan varieties are additionally subjected to tests for agronomic or agricultural value. The agronomic value of the new variety must be better than that of the existing varieties.
 
With respect to genetically modified crops, the EU has adopted legislation specific to genetically modified organisms, including Directive 2001/18/EEC on the deliberate release of genetically modified organisms, and Regulation (EC) No. 1829/2003, which addresses food and feed safety. Approval under Directive 2001/18/EEC and/or Regulation 1829/2003 is a prerequisite for the registration of each new genetically modified variety on the Official List.
 
In APAC countries, genetically modified crops are also regulated by key importing and cultivating countries including Australia, New Zealand, China, Japan, Korea, Taiwan, Philippines and India, to confirm the safety from food, feed and environmental aspects. Guidelines for food, feed and processing will become effective in Indonesia in January 2009. Conventional seed is not subject to such regulations.

The International Seed Testing Association has established standards for seed purity, which are required to be met by all seed certified for trade between countries of the Organisation for Economic Cooperation and Development (OECD). There are different categories of seed (basic seed, certified seed, standard seed), which have their own minimum standards. In addition, there are minimum national standards.
 
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BUSINESS DEVELOPMENT
 
From improved food to biofuels, biotechnology holds enormous promise for humanity.  Biotechnology has had a significant impact on agriculture, however, the products introduced to date only hint at the benefits that are possible for growers and consumers alike.  With its strong research capabilities, intellectual property and leadership across multiple areas of agribusiness, Syngenta believes it is well positioned to realize the potential of this science.
 
The Business Development business is built around a core of independent business teams with responsibilities for specific market segments.  The mission of Business Development is to capitalize upon the company’s considerable strengths and marshal the resources needed to take Syngenta to the forefront of commercial biotechnology.
 
Business Development directs early stage research and technology expenditure as well as expenditure for development and marketing activities to create new business opportunities.  This sharp focus allows Syngenta to identify the best new ideas in biotechnology.
 
Recently Launched Products (last 3 years)
 
·
Tropical Sugar Beet. In 2007, Syngenta introduced in India a sugar beet suitable for cultivation in tropical climates. The beet delivers similar yields to sugar cane and can be processed either for food or for bioethanol. Tropical sugar beet grows in relatively dry areas, using substantially less water than is typically required by sugar cane. It also grows faster and can be harvested after 5 months, allowing farmers to raise a second crop on the same land.
 
Products in Development
 
Syngenta expects future income to arise from new product development, licensing and other arrangements.  To drive near term success, Business Development has put emphasis on the commercialization of close-to-market projects that are aligned with the strengths of the Syngenta Crop Protection and Seeds businesses.
 
Enzymes for biofuels represent an opportunity for Syngenta. Development of a corn produced alpha amylase enzyme continued during 2008 with significant regulatory and development milestones achieved. FDA food and feed approval was gained and the first industrial scale testing of the enzyme began. The research and development agreement signed in 2006 with Diversa Corporation (now Verenium) focuses on the discovery and development of a range of novel enzymes to convert pre-treated cellulosic biomass economically to mixed sugars.
 
The Business Development projects described below are expected to be commercially available within five years.
 
·
Corn amylase, development of the first enzyme to be bred into corn, and which is essential in converting corn into bioethanol, continues the bulk testing at industrial scale that began in 2007. It promises to simplify production and provide significant value from a broad range of process components, and has successfully completed the US Food and Drug Administration’s consultation process for food and feed safety.
 
·
In Cotton, VIPCOTTM for improved resistance to insects.
 
Production
 
Business Development is producing corn amylase for use in full scale production trials. Production is carried out via contract with growers under a USDA permit.
 
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Research and Development
 
Syngenta maintains its primary center for biotechnology research at Syngenta Biotechnology, Inc. (SBI) in Research Triangle Park in the United States.  This site is dedicated to research in agricultural genomics and biotechnology. In-house work is complemented and strengthened through numerous alliances and collaborations.
 
Syngenta and Verenium Corporation, in which Syngenta holds a minority interest, have an agreement focusing on discovery and evolution of proprietary enzymes in the areas of biofuels.
 
The following are key capabilities in developing transgenic crops:
 
·
Ability to find useful genes:  Syngenta is capitalizing on its pioneering work in mapping the rice genome and also accessing external sources through its collaborations with various university laboratories around the world and through its Verenium strategic alliance.
 
·
Plant transformation:  This is the process of introducing new genes into the existing genetic constitution of plants.  Pioneering work in this area is done in Syngenta’s research center at SBI.
 
·
Use of marker genes:  There has been significant public and regulatory debate over the use of microbial antibiotic resistance as a marker technology.  Syngenta has developed and patented an alternative sugar based system trademarked “Positech™” that is widely used by researchers.
 
·
Trait expression:  This is the process of regulating genes to achieve various levels of expression in different tissues.  This is achieved through specialized promoter DNA sequences.  Syngenta’s work with the rice genome has resulted in the discovery and patenting of a wide range of promoters.
 
All biotechnology products are subject to intense regulatory scrutiny.  An extensive Syngenta network of regulatory specialists around the world ensures continued dialogue and compliance with the authorities regarding regulatory dossier submissions, insect resistance management programs and participation in further development of the biotech regulatory framework.
 
Total research and development spending for Business Development was US$70 million in 2008, US$51 million in 2007 and US$74 million in 2006.
 
Syngenta Business Development division has entered into a number of targeted alliances with other enterprises in order to broaden further our research and development scope.  None of these alliances are currently material to our business, and it is difficult to predict which of these alliances is most likely to produce a successful product in the future.  In most cases, royalties are payable upon commercial exploitation.  The list below is a sample of the alliances in which Syngenta’s Business Development division is currently engaged:
 
 
·
Queensland University of Technology – Biofuels, with concentration on development of sugar cane transformation and gene expression tools.
 
 
·
Verenium (ex-Diversa) – Enzyme discovery mainly for biofuels.
 
 
·
Institute for Genetics and Developmental Biology, Beijing, China – Yield, drought trait gene discovery.
 
 
·
Proteus – Enzyme discovery mainly for biofuels.
 
Principal Markets
 
The market environment for products enhanced through biotechnology is complex.  In the Americas, Australia and Asia, benefits such as better protection from pests and improved farming efficiency have been realized and the technology widely accepted.  Although there has been progress recently in the European market, consumer opinion is mixed and the regulatory framework remains stalled.
 
25

 
Competition
 
The major investors in biotechnology are the main crop protection and seed companies: Monsanto, Pioneer, Syngenta, Bayer and Dow.  The majority of the transgenic products commercialized to date are traits that improve performance and farming efficiency in major world crops such as corn, soya, cotton and canola (input traits).  As a result, access to germplasm as a platform for trait commercialization is a key competitive advantage.  In the future, Syngenta expects that increased emphasis will be placed on developing products that provide benefits to food and feed processors, fuel production, retail trade and consumers (output traits).  One future competitive advantage is expected to be the ability to develop partnerships to allow delivery of biotechnology traits to the target market sectors.  In the future, Syngenta’s move into new markets may result in other companies becoming competitors including, for example, major companies such as DSM, Novozymes, Danisco and BASF.
 
Intellectual Property
 
Intellectual property laws protect products developed through biotechnology in the countries in which they are made and marketed.  Syngenta takes advantage of the full spectrum of intellectual property laws, including utility patents, plant variety protection certificates, plant breeders’ rights, plant patents, trade secrets, and trademarks.  The level and type of protection varies from country to country according to local laws and international agreements.  Syngenta has one of the broadest patent and trademark portfolios in the industry.  In addition to income from development and commercialization of transgenic products, income is generated from licensing arrangements.  Syngenta respects the intellectual property rights of others and will defend its intellectual property rights as necessary.
 
Government Regulation
 
The field-testing, production, import, marketing and use of our products are subject to extensive regulation and numerous government approvals.
 
Registration and re-registration procedures apply in all major markets.
 
Products must obtain governmental regulatory approval prior to marketing. The regulatory framework for such products is designed to ensure the protection of the consumer, the grower and the environment.  Examples of the regulatory bodies governing the science include the US Environmental Protection Agency and the US Food and Drug Administration.
 
Regulatory bodies can require ongoing review of products derived from biotechnology based upon many factors including the need for insect resistance management.  Even after approval, products can be reviewed with the goal of ensuring that they continue to adhere to all standards, which may have changed or been added to since the product was initially approved.  This type of ongoing review applies in most major markets.
 
Government regulations, regulatory systems, and the politics that influence them vary widely among jurisdictions.  Obtaining necessary regulatory approval is time consuming and costly, and there can be no guarantee of the timing or success in obtaining approvals.
 
26

 
Organizational Structure
 
The following are the significant legal entities in the Syngenta group of companies (the “Group”). Please refer to Note 2 to the consolidated financial statements in Item 18 for the appropriate consolidation method applied to each type of entity.
 
Country
Percentage owned by Syngenta
 
Share capital in
local currency(10)
Function of company
Argentina
       
Syngenta Agro S.A.
100%
ARS
1,998,205
Sales/Production
Bermuda
       
Syngenta Reinsurance Ltd
100%
USD
120,000
Insurance
Brazil
       
Syngenta Proteção de Cultivos Ltda.
100%
BRL
1,172,924,609
Sales/Production/Research
Canada
       
Syngenta Crop Protection Canada, Inc.
100%
CAD
1,700,000
Sales/Research
France
       
Syngenta Seeds S.A.S.
100%
EUR
50,745,240
Sales/Production/Development
Syngenta Agro. S.A.S.
100%
EUR
22,543,903
Sales/Development
Germany
       
Syngenta Agro GmbH
100%
EUR
2,100,000
Sales
Italy
       
Syngenta Crop Protection S.p.A.
100%
EUR
5,200,000
Sales/Production/Research
Japan
       
Syngenta Japan K.K.
100%
JPY
475,000,000
Sales/Production/Research
Mexico
       
Syngenta Agro, S.A. de C.V.
100%
MXN
157,580,000
Sales/Production
Netherlands
       
Syngenta Seeds B.V.
100%
EUR
488,721
Holding/Sales/Production/Research
Syngenta Finance N.V.
100%
EUR
45,000
Finance
Syngenta Treasury N.V.
100%
EUR
45,000
Finance
Panama
       
Syngenta S.A.
100%
USD
10,000
Sales
Russian Federation
       
OOO Syngenta
100%
RUB
675,000
Sales
Singapore
       
Syngenta Asia Pacific Pte Ltd.
100%
SGD
1,588,023,595
Sales
Switzerland
       
Syngenta Supply AG
100%
CHF
250,000
Sales
Syngenta Crop Protection AG(11)
100%
CHF
257,000
Holding/Sales/Production/Research
Syngenta Agro AG
100%
CHF
2,100,000
Sales/Production/Research
Syngenta Participations AG(11)
100%
CHF
25,000,020
Holding
United Kingdom
       
Syngenta Limited
100%
GBP
85,000,000
Holding/Production/ Research
USA
       
Syngenta Crop Protection, Inc.
100%
USD
1
Sales/Production/Research
Syngenta Seeds, Inc.
100%
USD
­
Sales/Production/Research
Syngenta Corporation
100%
USD
100
Holding/Finance
Garst Seed Company
90%
USD
101
Sales/Research
Golden Harvest Seeds Inc.
90%
USD
Sales


(10) Currency code used is according to ISO 4217. 
(11) Direct holding of Syngenta AG.
The main changes from 2007 are capital reductions in Syngenta Limited, which reduced the share capital from GBP 464,566,941 to GBP 85,000,000 and in Syngenta Proteção de Cultivos Ltda., which reduced the share capital from BRL 1,620,211,424 to BRL 1,172,924,609.

27

 
Property, Plants and Equipment
 
Our principal executive offices are located in Basel, Switzerland.  Our businesses operate through a number of offices, research facilities and production sites.
 
The following is a summary of our principal properties (production sites are crop protection unless otherwise stated):
 
Locations
Freehold/Leasehold
Approximate area
(square feet)
Principal Use
Rosental, Basel, Switzerland
Freehold
281,700
 
Headquarters, Global Functions(1)
Dielsdorf, Switzerland
Freehold
1,049,490
 
Administration, marketing
Greensboro, North Carolina, USA
Freehold
2,970,000
 
United States Headquarters, research
St. Gabriel, Louisiana, USA
Freehold
54,663,400
 
Production
Jealott’s Hill, Berkshire, UK
Freehold
26,910,000
 
Research center
Monthey, Switzerland
Freehold
10,515,160
 
Production
Huddersfield, West Yorkshire, UK
Freehold
10,756,200
 
Production
Cold Creek, Alabama, USA
Freehold
9,539,900
 
Production
Goa, India
Freehold
8,668,100
 
Production
Grangemouth, Falkirk, UK
Freehold
1,000,000
 
Production
Landskrona, Sweden
Freehold
8,072,900
 
Research, production and marketing(2)
Greens Bayou, Texas, USA
Freehold
5,898,800
 
Production
Enkhuizen, The Netherlands
Freehold
3,536,700
 
Administration, research and marketing(2)
Stein, Switzerland
Freehold
1,948,700
 
Research center
Research Triangle Park, North Carolina, USA
Freehold
1,176,120
 
Research center
Aigues-Vives, France
Freehold
1,538,680
(3)
Production
Nérac, France
Freehold
586,870
 
Production(2)
Saint-Sauveur, France
Freehold
1,395,650
 
Administration, research(2)
Nantong, China
Leasehold
1,496,000
 
Production
Münchwilen, Switzerland
Freehold
610,300
 
Production
Kaisten, Switzerland
Freehold
124,808
(4)
Production
St Pierre, France
Freehold
1,506,946
 
Production
Seneffe, Belgium
Freehold
2,475,690
 
Production
Omaha, Nebraska, USA
Freehold
1,829,520
 
Production
Paulinia, Brazil
Freehold
6,860,000
 
Production
Hillscheid, Germany
Freehold
1,174,600
 
Administration, research(2)
Pollen, Kenya
Freehold
1,103,903
 
Production(2)
Thika, Kenya
Freehold
2,690,975
 
Production(2)
Koka, Ethiopia
Freehold
1,291,668
 
Production(2)
Amatitlan, Guatemala
Freehold
3,119,993
 
Production(2)
San Jose Pinula, Guatemala
Freehold
1,654,655
 
Production(2)
Jalapa, Guatemala
Freehold
4,417,690
 
Production(2)
Gilroy, California, USA
Freehold
4,208,332
 
Production(2)
 

(1)
In May 2007, Syngenta completed a partial sale of this site.
(2)
Used for Seeds business.
(3)
Only 875,850 square feet are currently used and developed.
(4)
Surface area of building/factory which is owned; land itself (143,000 square feet) is owned by a third party.
 
Please also see Item 4 “Information on the Company—Business Overview” for a description of the products produced at the various properties listed above.
 
28

 
 
 
Capacity expansion program
 
In July 2008, Syngenta announced a Crop Protection capacity expansion program in order to increase capacity and improve productivity primarily for two key active ingredients. This increase in production capacity is required to capture current growth opportunities and to meet forecasted demand growth. The program is estimated to have a total tangible asset cost of $600 million, phased over 2008 to 2010. It is expected to be financed entirely from internal cash flows and to be earnings accretive from 2010. Total program spending in 2008 was US$40 million.
 
The capacity expansion is focused on the production of Azoxystrobin at Grangemouth in the United Kingdom and of CCT, a precursor to Thiamethoxam, at Monthey in Switzerland. Azoxystrobin is a Fungicide in AMISTAR® and Thiamethoxam is an Insecticide used in the key products ACTARA® and CRUISER®. To accompany this, there is related expansion for chemical intermediates as well as for formulation, filling and packing and investments in supply contracts and technology.
 
In the Seeds business we are expanding Corn and Soybean production facilities in the USA and Brazil in line with the roll-out of our broad technology offer.  In Vegetables, we made a significant investment in sweetcorn in the USA.
 
 
Not Applicable.
 
29


 
 
Introduction
 
The following discussion includes forward-looking statements subject to risks and uncertainty. See "Cautionary statement regarding forward-looking statements" at the end of this document. This discussion also includes non-GAAP financial data in addition to GAAP results. See Appendix A to this section and Note 2 to the financial highlights in Item 3 for a reconciliation of this data and explanation of the reasons for presenting such data.
 
Constant exchange rates
 
Approximately 64% of Syngenta’s sales and 64% of Syngenta’s costs in 2008 were denominated in currencies other than US dollars. Therefore Syngenta’s results for the period covered by the review were significantly impacted by the movements in exchange rates. Sales in 2008 were 26% higher than 2007 on a reported basis, but were 21% higher when calculated at constant rates of exchange. The Company therefore provides analysis of results calculated at constant exchange rates (CER) and also actual results to allow an assessment of performance before and after taking account of currency fluctuations. To present CER information, current period results for entities reporting in currencies other than US dollars are converted into US dollars at the prior period’s exchange rates, rather than the exchange rates for this year. An example of this calculation is included in Appendix A to this section.
 
Overview
 
Syngenta is a world leading agribusiness operating in the Crop Protection and Seeds businesses. Crop Protection chemicals include herbicides, insecticides and fungicides to control weeds, insect pests and diseases in crops, and are essential inputs enabling growers around the world to improve agricultural productivity and food quality. Many of these products also have application in the professional products and lawn and garden sectors in areas such as public health and turf and ornamental markets. The Seeds business operates in high value commercial sectors: seeds for field crops including corn, soybean, other oilseeds and sugar beet as well as vegetable and flower seeds. Syngenta also has a Business Development segment, which is engaged in the development of enzymes and traits with the potential to enhance agronomic, nutritional and biofuel properties of plants. Syngenta aims to be the partner of choice for Syngenta’s grower customers with its unparalleled product offer and innovative marketing, creating value for customers and shareholders.
 
Syngenta’s results are affected, both positively and negatively, by, among other factors: general economic conditions; weather conditions, which can influence the demand for certain products over the course of a season; commodity crop prices and exchange rate fluctuations. Government measures, such as subsidies or rules regulating the use of agricultural products, genetically modified seeds, or areas allowed to be planted with certain crops, also can have an impact on Syngenta’s industry. Syngenta’s results are also affected by the growing importance of biotechnology to agriculture and the use of genetically modified crops.
 
Syngenta operates globally to capitalize on its technology and marketing base. Syngenta’s largest markets are Europe, Africa and the Middle East (EAME), and NAFTA(1), which represent approximately 37% and 31% respectively of consolidated sales in 2008 (2007: 36% and 34%; 2006: 36% and 36%). Both sales and operating profit are seasonal and are weighted towards the first half of the calendar year, which largely reflects the Northern Hemisphere planting and growing cycle.
 
Syngenta’s most significant manufacturing and research and development sites are located in Switzerland, the United Kingdom (UK), the United States of America (USA) and India. Syngenta is establishing a new biotech research & technology center in Beijing, China, to complement its biotech research activities in the USA.
 
References in this document to market share estimates utilize, where possible, information published by major competitors and are supplemented by Syngenta marketing staff estimates.
 
The consolidated financial statements are presented in US dollars, as this is the major currency in which revenues are denominated. However, significant, but differing proportions of Syngenta’s revenues, costs, assets and liabilities are denominated in currencies other than US dollars. Approximately 21% of sales in 2008 were denominated in Euros, while a significant proportion of costs for research and development, administration, general overhead and manufacturing were denominated in Swiss francs and British pounds sterling (21% in total). Sales in Swiss francs and British pounds sterling together made up 4% of total sales. Marketing and distribution costs are more closely linked to the currency split of the sales. As a result, operating profit in US dollars can be significantly affected by movements in exchange rates, in particular movements of the Swiss franc, British pound sterling and the Euro relative to the US dollar, and the relative impact on operating profit may differ from that on sales.
 

(1) NAFTA – North American Free Trade Association comprising the USA, Canada and Mexico.
 
30

 
The effects of currency fluctuations have been reduced by risk management strategies such as hedging. For further information please refer to Note 27 of the consolidated financial statements in Item 18.
 
The consolidated financial statements are based upon Syngenta’s accounting policies and, where necessary, the results of management estimations. Syngenta believes that the critical accounting policies and estimations underpinning the financial statements are (i) adjustments for doubtful receivables, (ii) environmental provisions, (iii) impairment, (iv) post employment benefits, (v) uncertain tax positions, (vi) recognition of deferred tax assets, (vii) foreign currency translation of intercompany funding and (viii) restructuring. These policies are described in more detail in Note 2 to the consolidated financial statements in Item 18.
 
Summary of results

Syngenta’s main selling season is in the first half of the year as its key European and NAFTA markets are in the Northern hemisphere. The prices of the main agricultural commodities, particularly corn and soybean, were very strong in the first half of 2008, boosting grower profitability. As a result, growers increased planted acreage and increased their usage of yield and quality enhancing crop protection products and increased demand for higher value seeds. In this positive market environment, Syngenta capitalized on its extensive product portfolio and global position to produce significantly higher sales in both Crop Protection and Seeds.
 
Sales growth was particularly strong in emerging markets in Latin America and Eastern Europe and sales in emerging markets now make up approximately a third of total sales. Crop Protection sales increased 27% in 2008, 22% at constant exchange rates, following on from 14% sales growth in 2007, 11% at constant exchange rates. Sales increased across all regions, with particularly strong results in Latin America at 43%. Overall, Syngenta estimates to have gained market share for the fourth consecutive year in 2008 largely as a result of its modern product portfolio and effective marketing and sales programs. Seeds sales grew 21%, 16% at constant exchange rates, with significant growth in all product lines. Seeds sales also grew particularly strongly in emerging markets in Latin America and Eastern Europe. In the USA, sales growth and estimated market share gain in soybean was offset by the impact of lower acres in corn. Other contributing factors included the full year impact of the 2007 acquisitions of Fischer and Zeraim Gedera, which increased reported sales in Flowers and Vegetable seeds respectively. The late 2008 acquisitions of Goldsmith Seeds and the chrysanthemum and aster business of Yoder Brothers did not significantly contribute to sales in 2008. Acquisitions contributed 1% to Syngenta’s overall sales growth and 5% to sales growth in Seeds in 2008.
 
During the second half of 2008, agricultural commodity prices declined to near 2007 levels as the financial crisis developed. While lower liquidity and crop price uncertainty had some impact on Syngenta’s sales in the Southern hemisphere, particularly Latin America, this was partly offset by weaker currency exchange rates versus the US dollar, which improved the profitability of farmers with export crops. Consequently, the negative impact of the financial crisis on overall 2008 reported sales was not significant. For discussion of the possible impact of the financial crises on sales in 2009, see "Future prospects" later in this review.
 
Gross profit margin in 2008 was higher than in 2007, with improvements in both Crop Protection and Seeds. In Crop Protection, higher sales prices, particularly in glyphosate where global supplies were tight, and the non-recurrence of the 2007 increase in environmental provisions, was partly offset by higher raw material costs, with increased glyphosate input costs and the impact of high oil prices in the first half of the year. The Seeds gross profit margin improved slightly with more sales of seed containing Syngenta proprietary traits offset by increased inventory provisions.
 
Syngenta increased spending in marketing, distribution and general and administrative costs, reflecting higher sales volumes, increased spending in emerging markets and costs related to further development of its US corn business. The onset of the financial crisis and increased exchange rate volatility in the final quarter of 2008 required increased provisions for doubtful receivables. General and administrative expenses in 2007 were also net of a US$50 million change of control payment received following Delta & Pine Land’s acquisition by Monsanto, a reduction in liability provisions and higher compensation from third parties using Syngenta registration data. Research and development spending was 17% higher than 2007, 15% at constant exchange rates, with an increased pipeline in Crop Protection and further development of corn and soybean traits in Seeds. Restructuring and impairment in 2008 largely related to the Operational Efficiency program announced in February 2007, but also included impairments of two of Syngenta’s available-for-sale investments following significant share price declines in the year. In 2007, restructuring and impairment was net of a US$109 million gain on sale of part of a site at the Headquarters in Basel. Net financial expense was US$127 million higher than 2007, largely due to exchange losses in emerging markets in the highly volatile currency markets in the final quarter.
 
The result of these combined elements is 25% growth in net income attributable to Syngenta AG shareholders and a 28% increase in diluted earnings per share.
 
31

 
In 2007 compared to 2006, the Crop Protection market had also been strong following the start of the increased crop commodity prices. Crop Protection is estimated to have gained market share in the growing market, with sales growth of 14%, 11% at constant exchange rates. Seeds sales grew 16%, 12% at constant exchange rates, with increased Corn & Soybean sales on increased corn acreage. Gross profit margin was lower in 2007 than 2006 with increased environmental provisions in Crop Protection and an adverse mix in Seeds, with higher sales in corn offset by lower sales in soybean. In 2007, gross profit in soybean in the USA was higher than that of corn containing non-proprietary traits. Increased marketing and distribution spending reflected higher volumes and spending in Corn & Soybean in the USA. Research and development expenditure was increased to progress trait development in Corn and Soybean. General and administrative costs in 2007 were net of the US$50 million Delta & Pine Land payment and other factors noted above. Restructuring and impairment charges were also net of the site divestment gain noted above. Financial expense, net, was higher than in 2006, which included gains on restructuring an over-capitalized British pound sterling balance sheet. Together, these factors contributed to an increase in net income attributable to Syngenta AG shareholders of 75% and growth in diluted earnings per share of 80%.
 
Acquisitions and divestments

On April 3, 2008, Syngenta acquired a 49 percent share in the Chinese company Sanbei Seeds Co. Ltd., which specializes in the production and sale of hybrid corn seeds. In November 2008, Syngenta purchased SPS Argentina SA (SPS), a company primarily specialized in the development, production and marketing of soybean, corn and sunflower. On November 19, 2008, Syngenta acquired Goldsmith Seeds, Inc. (Goldsmith). Goldsmith breeds, produces and sells a broad range of pot and bedding products, including major crops such as cyclamen, impatiens and petunia. On December 12, 2008, Syngenta acquired the pot and garden chrysanthemum and aster business of US flowers producer Yoder Brothers Inc. The combined purchase price of these acquisitions was US$173 million, subject to final purchase price adjustments.
 
In March 2008, Syngenta acquired the exclusive worldwide rights to distribute a sprayable formulation of 1-methylcyclopropene under the trademark Invinsa™ from Rohm & Haas Co. and its subsidiary Agrofresh Inc. The Invinsa™ technology protects crop yields during extended periods of high temperature, mild-to-moderate drought and other crop stresses. In September 2008, Syngenta acquired an exclusive worldwide license to develop mixture products containing Cyazypyr™, a new broad spectrum insecticide, from E.I. du Pont de Nemours and Company (DuPont). Cyazypyr™ is complementary to the DuPont Rynaxypyr® insect control product that Syngenta is developing in mixtures with its own leading insect control products. Under the agreement, Syngenta granted DuPont access to mesotrione, the active ingredient in Callisto®.
 
During 2007 and early 2008, following a public offer to minority shareholders of Syngenta India Ltd. (SIL), Syngenta increased its shareholding in SIL from 84% to 96%, at a cash cost of US$71 million. SIL delisted from the Mumbai and Kolkata stock exchanges on June 20, 2007. Syngenta intends to invest further in India as a manufacturing and research and development center for the global business.
 
On January 31, 2007, Syngenta acquired the assets of Gromor International Corporation which consist of peat extraction rights over certain land in Manitoba, Canada. On July 17, 2007, Syngenta acquired the outstanding 20% of Agrosem S.A. which it did not already own. On June 25, 2007, Syngenta purchased 100% of the business of the Fischer group of companies through purchases of shares and assets. The Fischer group specializes in the breeding and marketing of flower crops. On August 31, 2007, Syngenta purchased 100% of the shares of Zeraim Gedera Ltd., which specializes in the breeding and marketing of high value vegetable seeds, including tomato, pepper and melon. The combined purchase price of these acquisitions was US$108 million.
 
On November 2, 2007, Syngenta sold a controlling equity interest in Longreach Plant Breeders (LRPB) to Pacific Seeds Australia, an associate of United Phosphorus Ltd., for US$11 million. Syngenta retains a non-controlling equity interest in LRPB.
 
These transactions are described in Note 3 to the consolidated financial statements in Item 18.
 
Operational Efficiency programs
 
In 2007, Syngenta began a further Operational Efficiency Restructuring Program in addition to that announced in 2004 (described in the following paragraph) to drive cost savings to offset increased expenditure in research and technology, marketing and product development in the growth areas of Seeds, Professional Products and emerging country markets. Savings are targeted in both cost of goods sold and other operating expenses. The cost of this program is now estimated at US$550 million in cash and US$180 million in non-cash charges in the period up to 2011. The program cost estimate was reduced from US$700 million cash and US$250 million non-cash reported last year following a re-evaluation of manufacturing restructure plans due to the strong market growth in 2007 and 2008. Cash spent under the program in 2008 and 2007 totaled US$92 million and US$68 million, respectively.
 
32

 
The Operational Efficiency Cost Saving Program announced in 2004 to realize further cost savings after completion of the integration of the former Novartis and Zeneca businesses and in response to low underlying growth in the Crop Protection markets seen at the time, was largely completed in 2007. Cash spent under the program in 2008 related largely to cost run-offs from site closures and amounted to US$56 million. Cash spent from 2004 to the end of 2008 totaled US$411 million and even with some expected further site closure costs in 2009, it is expected that the final amount spent under the program will be less than the initial estimate of US$500 million. Aggregate program non-cash charges of approximately US$290 million are also lower than the US$320 million previously estimated. Cost savings under the program have been partly offset by the impact on crop protection raw material costs of higher oil prices in the period up to June 2008.
 
Results of operations
2008 compared to 2007
 
Sales commentary

Total Syngenta consolidated sales for 2008 were US$11,624 million, compared to US$9,240 million in 2007, a 26% increase year on year. At constant exchange rates sales growth was 21%. The analysis by segment is as follows:
 
(US$ million, except growth %)
 
Growth
Segment
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Crop Protection
9,231
7,285
16
6
22
5
27
Seeds
2,442
2,018
12
4
16
5
21
Business Development
24
5
Inter-segment elimination
(73)
(68)
Total
11,624
9,240
15
6
21
5
26
 
Sales by region were as follows:
 
(US$ million, except growth %)
 
Growth
Region
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Europe, Africa and Middle East
4,290
3,350
14
3
17
11
28
NAFTA
3,633
3,108
10
5
15
1
16
Latin America
2,245
1,565
29
15
44
44
Asia Pacific
1,456
1,217
14
4
18
2
20
Total
11,624
9,240
15
6
21
5
26

 
Crop Protection

Crop Protection sales growth accelerated in 2008, growing 27% to US$9,231 million, up 22% at constant exchange rates. Markets for agricultural products were strong globally during 2008 on the back of high crop prices, in particular during the first half of the year. The impact of lower crop commodity prices in the second half of 2008 is described in the Summary of Results above. Syngenta benefited from its broad product portfolio and successful marketing strategies and internal estimates indicated a fourth consecutive year of market share gain. Higher volumes in 2008 accounted for 16% of the sales increase while increased local currency sales prices contributed 6%. Growth was particularly strong in TOUCHDOWN®, AMISTAR®, and ACTARA®/CRUISER®, which together grew by 49% at constant exchange rates and made up over US$2.3 billion of Crop Protection sales. Sales of products launched after 2006, which include AVICTA®, AXIAL®, DURIVOTM and REVUS®, totaled US$263 million, up 85% at constant exchange rates over 2007.
 
Double digit sales growth was achieved in all regions, with Latin America in particular showing continued strong growth. Sales in Europe, Africa and the Middle East grew by 26% over 2007, 16% at constant exchange rates. Strong commodity prices during the first half of the year and the elimination of the European Union set-a-side requirement drove increased acreage for cereals and corn and further increased use of technology. In NAFTA, sales grew by 18% over 2007 at constant exchange rates, including local currency price increases of 6%, due to an expanded fungicide market for corn plant performance and wheat, strong growth in TOUCHDOWN® and the continuing expansion of Seed Care. In Asia Pacific, sales grew by 19%, 17% at constant exchange rates due to strong growth of key crops, primarily rice, in emerging markets and improved weather conditions in Australia. The strong 43% sales growth in Latin America was driven by acreage expansion and favorable pricing, as growers increased their investment in both corn and soybean crops in Brazil and Argentina.
 
Professional Products sales, excluding Seed Care which is now reported as a separate product line, grew by 11%, 8% at constant exchange rates led by strong sales of growing media by Fafard and increased sales in the professional turf segment.
 
Seed Care sales grew by 37%, 33% at constant exchange rates and benefited from the global expansion of CRUISER®, higher soybean acres in the USA, increased adoption by seed companies and a registration in France.
 
 
33

 
Sales by product line are set out below:
 
(US$ million, except growth %)
 
Growth
Product line
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Selective Herbicides
2,412
2,019
8
5
14
5
19
Non-Selective Herbicides
1,329
902
19
24
43
4
47
Fungicides
2,620
2,004
21
4
25
6
31
Insecticides
1,423
1,205
12
3
15
3
18
Seed Care
830
604
30
3
33
4
37
Professional Products
527
475
7
1
8
3
11
Others
90
76
7
12
19
1
20
Total
9,231
7,285
16
6
22
5
27

 
Herbicides are products that prevent or reduce weeds that compete with the crop for nutrients and water. Selective Herbicides are crop-specific and capable of controlling weeds without harming the crop. Non-Selective Herbicides reduce or halt the growth of all vegetation with which they come into contact.
 
Fungicides are products that prevent and cure fungal plant diseases that can drastically 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.
 
Seed Care treatments are fungicides and insecticides used to protect seeds and improve overall yield and vigor.
 
Professional Products are herbicides, insecticides and fungicides used in markets beyond commercial agriculture such as public health, and turf and ornamentals and, since the acquisition of Fafard, growing media.
 
Selective Herbicides: major brands AXIAL®, CALLISTO® family, DUAL®/BICEP® MAGNUM, ENVOKE®, FUSILADE®MAX and TOPIK®
 
AXIAL®, Syngenta’s new cereal herbicide, grew rapidly in an expanding cereals market with launches in key European countries and further expansion in NAFTA and Western Europe. The CALLISTO® family of products saw double digit growth with a continuation of its successful roll-out outside the USA. Soybean herbicides staged a resurgence in sales as a result of acreage growth in Latin America and weed glyphosate-resistance issues in the USA.
 
Non-Selective Herbicides: major brands GRAMOXONE®, TOUCHDOWN®
 
TOUCHDOWN® sales increased significantly driven by growth in key markets including the USA, Brazil, Argentina and Canada where glyphosate-tolerant acres continued to expand. Sales also benefited from a favorable pricing environment which offset higher sourcing costs. GRAMOXONE® continued to prove its effectiveness in rapid weed burn-down and also benefited from the tightness of glyphosate supply.
 
Fungicides: major brands ALTO®, AMISTAR®, BRAVO®, REVUS®, RIDOMIL GOLD®, SCORE®, TILT®and UNIX®
 
In 2008, Syngenta strengthened its world leading position in fungicides in a market characterized by increased grower usage intensity and focus on plant performance. Growth in AMISTAR® reflected the success of a variety of combination products used across crops. AMISTAR®, where annual sales have now reached US$1 billion, is now sold on 120 crops in 100 countries and has proven a yield-boosting effect in addition to excellent disease control. In the USA, fungicide use on corn and wheat grew rapidly, with QUILT® establishing a leadership position in an expanding corn fungicide market. In Latin America, fungicide growth was broad based across the region with PRIORI Xtra® now the leading product in Brazil for the prevention and treatment of soybean rust.
 
Insecticides: major brands ACTARA®, DURIVO®, FORCE®, KARATE®, PROCLAIM®, VERTIMEC®
 
ACTARA® sales continued to grow strongly, notably in Latin America. KARATE® sales showed strong growth particularly in the USA, benefiting from a major outbreak of soybean aphids and from new opportunities for mixtures with fungicides. The successful launch of DURIVO® in Indonesia marked a significant step in the strengthening of Syngenta’s rice insecticide portfolio. Growth of FORCE® in Europe due to the spread of corn rootworm more than offset a reduction of sales in NAFTA.
 
34

 
Seed Care: major brands AVICTA®, CRUISER®, DIVIDEND®, MAXIM®
 
In Seed Care, reported as part of Professional Products in prior years, sales increased by one third. The global expansion of CRUISER® led to strong growth in all regions as growers recognized its unique vigor effect in multiple crops. CRUISER® also benefited from higher soybean acres in the USA and a registration in France.
 
Professional Products: major brands FAFARD®, HERITAGE®, ICON®
 
Turf and Ornamentals saw strong sales of growing media by Fafard, growth of HERITAGE® on turf in Asia Pacific and the introduction of new products in Latin America. Home Care strengthened its sales performance in vector control and materials protection.
 
Commentary on regional performance

(US$ million, except growth %)
 
Growth
Region
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Europe, Africa and Middle East
3,214
2,545
13
3
16
10
26
NAFTA
2,693
2,238
12
6
18
2
20
Latin America
2,037
1,423
28
15
43
43
Asia Pacific
1,287
1,079
13
4
17
2
19
Total
9,231
7,285
16
6
22
5
27
 
 
Sales in Europe, Africa and the Middle East were higher as growers in both Western and Eastern Europe significantly increased their use of technology to raise yields and increased cereal and corn acreage in order to capitalize on strong commodity prices in the first half of 2008. Increased acreage in Western Europe also partly reflected elimination of European Union set-a-side. Rapid growth in Eastern Europe – notably in Russia, Ukraine and Kazakhstan – reflected ongoing expansion of Syngenta’s product range and an extension of Syngenta’s leading market position.
 
Strong sales growth in NAFTA reflected the expansion of the fungicide market for corn and wheat, strong growth in TOUCHDOWN® and the continuing expansion of Seed Care. AXIAL® achieved excellent penetration in an expanded wheat market.
 
In Latin America, strong sales growth was driven by acreage expansion and the breadth of Syngenta’s product range. Growers increased their crop investment in both corn and soybean in Brazil and Argentina. While economic conditions deteriorated in the second half, growers continued to invest in crops. Sales also benefited from more favorable pricing.
 
In Asia Pacific, sales growth came primarily from emerging markets including India, China, Indonesia and Vietnam with growers investing in inputs for key crops including rice and vegetables. A significant increase in sales in Australia reflected improved weather conditions and product launches.
 
Seeds
 
Seeds sales grew 21%, 16% at constant exchange rates, with higher sales in all product lines and particularly strong growth in emerging markets. Syngenta benefited from the scale of its presence in emerging markets, where the trend in favor of high value seeds is a key part of the modernization of farming practice.
 
Corn and Soybean sales grew strongly in Latin America and Europe. In the USA, the impact of growth in soybean acres and an estimated soybean market share gain was offset by lower corn acres. Sales of Diverse Field Crops grew by 32%, 23% at constant exchange rates, with strong growth in all regions. Good sales growth in Vegetables was supplemented in 2008 by the full year effect of the acquisition in 2007 of Zeraim Gedera. Flowers sales growth was driven by the 2007 acquisition of Fischer.
 
Syngenta in 2008 continued the transformation of its Seeds business with the acquisitions of SPS in Corn & Soybean in Argentina and of Goldsmith and the pot and garden chrysanthemum and aster business of Yoder Brothers Inc. (Yoder) in the USA, which further reinforced Syngenta’s position as the world leader in Flowers.
 
35


 
(US$ million, except growth %)  
Growth
Product line
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Corn & Soybean
1,040
893
9
4
13
3
16
Diverse Field Crops
462
351
15
8
23
9
32
Vegetables
603
502
12
4
16
4
20
Flowers
337
272
15
1
16
8
24
Total
2,442
2,018
12
4
16
5
21

 
Corn & Soybean: major brands AGRISURE®, NK®, GARST®, GOLDEN HARVEST®, SPS®
 
In the USA, sales of NK® soybean benefited from an acreage shift in favor of soybean and from a further market share gain reflecting crop yield outperformance. In corn, the proprietary triple stack product under the AGRISURE® brand was successfully launched and incorporation of these traits into Syngenta’s elite germplasm is accelerating. Sales of corn in Europe expanded rapidly, with increased acreage and a broadening of Syngenta’s portfolio across maturities. In Latin America, sales increased significantly in strong corn and soybean markets, as customers responded positively to new combinations of genetically modified technology and top quality germplasm.
 
Diverse Field Crops: major brands NK® oilseeds, HILLESHÖG® sugar beet
 
Diverse Field Crops showed strong sales growth reflecting Syngenta’s leading position in sunflower and increased share in winter oilseed rape. Eastern European growers in particular are responding to growing demand for healthy oils and have expanded acreage while adopting improved varieties. Sugar beet sales increased with the launch of glyphosate-tolerant varieties in the USA leading to a substantial gain in market share.
 
Vegetables & Flowers: major Vegetables brands DULCINEA®, ROGERS®, S&G®, Zeraim Gedera; major Flowers brands Fischer, Goldsmith, S&G®, Yoder
 
Strong growth in Vegetables across all regions was supplemented by the full year consolidation of Zeraim Gedera. Syngenta’s strong developed market presence is being enhanced by a leadership position in the rapidly growing Latin American market and by increased market penetration in Asia Pacific. In Flowers the main driver was the full year consolidation of Fischer acquired in 2007.
 
Commentary on regional performance

(US$ million, except growth %)
 
Growth
Region
2008
2007
Volume %
Local price %
CER %
Currency %
Actual %
Europe, Africa and Middle East
1,077
818
15
5
20
12
32
NAFTA
979
916
5
1
6
1
7
Latin America
216
146
34
14
48
48
Asia Pacific
170
138
16
8
24
(1)
23
Total
2,442
2,018
12
4
16
5
21
 
Sales in Europe, Africa and the Middle East continued their strong growth trend, particularly in Corn & Soybean, with an estimated market share gain. Sales of Diverse Field Crops were particularly strong in Eastern Europe. The full year sales of Zeraim Gedera in Vegetables and the Fischer portfolio in Flowers, which were acquired in late 2007, contributed to strong sales growth in these product lines.
 
In NAFTA, strong sales of soybean, with an estimated gain in market share and increased acreage, offset the impact of lower corn acres. Diverse Field Crops grew by over 50% and Flowers grew by over 20% including the impact of the 2007 Fischer acquisition.
 
Sales growth in Latin America was strong, particularly in Corn and Soybean due to increased acres and an estimated market share gain. Syngenta’s Bt 11 corn trait was approved in Brazil, with initial sales in the second planting season at the end of 2008.
 
In Asia Pacific, sales also grew by over 20% led by Corn and Soybean, which grew by over 50% due to favorable market conditions for Syngenta’s products, combined with strong crop prices.
 
36

 
Operating income
 
Variances in the tables below reflect the profit impact of changes year on year. For example, an increase of sales or a decrease in costs is a positive variance and a decrease in sales or increase in costs is a negative variance.
 
Operating Income/(loss) (US$ million)
2008
2007 
Actual %
Crop Protection
2,038
1,502
36
Seeds
(36)
(16)
(225)
Business Development
(132)
(19)
Inter-segment profit elimination
(12)
(3)
Total
1,858
1,464
27
 
Operating income increased by US$394 million, 27%, over 2007, despite a US$164 million increase in net charges for restructuring and impairment and the receipt in 2007 of a US$50 million non-recurring change of control payment from Delta & Pine Land following their acquisition by Monsanto. High commodity prices and strong agricultural markets contributed to a 26% growth in sales, 21% at constant exchange rates. Gross profit margins increased approximately 1%, with margin improvement in both Crop Protection and Seeds. Marketing and distribution costs were 24% higher, 21% at constant exchange rates, with higher sales volume, increased spending in emerging markets, but also increased provisions for doubtful receivables in emerging markets following the exchange rate volatility and impacts of the financial crisis in the final quarter of 2008. Research and development spending was increased by 17%, 15% at constant exchange rates, with an increased Crop Protection development pipeline and further investment in Seeds traits. General and administrative costs were 41% higher than in 2007, 32% at constant exchange rates, with 2007 including the above Delta & Pine Land receipt, a reduction in liability provisions and increased compensation from third parties using Syngenta registration data. Restructuring and impairment in 2007 was net of US$109 million gain on the sale of part of the site at the Headquarters in Basel and in 2008 included US$37 million of impairments in available-for-sale financial assets mainly related to a significant decline in the share price of Verenium (previously Diversa) Corporation. Cash restructuring costs in 2008 were similar to 2007 at approximately US$125 million.
 
Movements in exchange rates, particularly the relative weakness of the US dollar in the key first half sales season, increased operating income by approximately US$154 million including the net result of the EBITDA hedging program. The EBITDA (earnings before interest, depreciation and amortization) hedging program is designed to protect forecast transactions from adverse movements in exchange rates, using options and forward contracts to reduce volatility in EBITDA. The net result of the hedging program, which is reported in general and administrative costs was a gain of US$13 million in 2008 compared to a gain of US$17 million in 2007.
 
Crop Protection operating income

 
Total as
reported under IFRS
Restructuring
and impairment
Before Restructuring
and impairment(1)
   
(US$ million, except growth %)
2008
2007
2008
2007
2008
2007
Growth
Actual %
Growth
CER %
Sales
9,231
7,285
9,231
7,285
27
22
Cost of goods sold
(4,425)
(3,605)
(4,425)
(3,605)
(23)
(19)
Gross profit
4,806
3,680
4,806
3,680
31
25
as a percentage of sales
52%
51%
   
52%
51%
   
                 
Marketing and distribution
(1,474)
(1,167)
(1,474)
(1,167)
(26)
(23)
Research and development
(556)
(496)
(556)
(496)
(12)
(10)
General and administrative
(655)
(516)
(655)
(516)
(27)
(19)
Restructuring and impairment
(83)
1
(83)
1
Operating income
2,038
1,502
(83)
1
2,121
1,501
41
34
as a percentage of sales
22%
21%
   
23%
21%
   

This table does not represent an income statement prepared under IFRS. Please refer to the segmental information reported in Note 4 to the consolidated financial statements in Item 18.
 
(1) Amounts before restructuring and impairment are non-GAAP measures. Please refer to Appendix A of the Operating and Financial Review and Prospects for a more detailed description.

37

 
Sales in 2008 increased by 27% over 2007, 22% at constant exchange rates, including an average 6% increase in local currency prices. Gross margin increased by 1% over 2007 as the impact of higher volumes, sales price increases and the effect of the 2007 increase in environmental provisions more than offset increased raw material costs. Marketing and distribution costs increased during 2008 due to higher sales volumes, increased resources in emerging markets and higher charges for doubtful receivables in response to deteriorating liquidity in some emerging markets in the final quarter. Research and development costs were 12% higher, 10% at constant exchange rates, from increased projects in the development pipeline. Increased general and administrative costs reflect further investment in emerging markets as well as lower compensation from third parties using Syngenta registration data and lower liability provision reductions than in 2007.
 
Restructuring and impairment is defined in Note 6 to the consolidated financial statements in Item 18. Restructuring and impairment for 2008 relates primarily to the Operational Efficiency Program announced in 2007. The increase over 2007 is mainly because of the inclusion in 2007 of the profit on the partial sale of the Rosental and Dielsdorf sites in Switzerland. Further details on restructuring and impairment can be found later in this section.
 
Operating income in 2008 of US$2,038 million was 36% higher than 2007, after absorbing a US$84 million increase in net restructuring and impairment charges, due to the strong sales growth and improved operating margin.
 
The US dollar was generally weak in the first half of the year, which increased reported sales, but strengthened in the fourth quarter when currency exchange markets were volatile and thereby reduced reported Swiss franc and British pound sterling costs. The net effect of the US dollar movements was to increase the segment’s operating income by approximately US$116 million relative to 2007, after a US$6 million lower net hedging result.
 
Seeds operating income/(loss)

 
Total as
reported under IFRS
Restructuring
and impairment
Before Restructuring
and impairment(1)
   
(US$ million, except growth %)
2008
2007
2008
2007
2008
2007
Growth
Actual %
Growth
CER %
Sales
2,442
2,018
2,442
2,018
21
16
Cost of goods sold
(1,331)
(1,123)
(9)
(6)
(1,322)
(1,117)
(18)
(15)
Gross profit
1,111
895
(9)
(6)
1,120
901
24
(17)
as a percentage of sales
45%
44%
   
46%
45%
   
                 
Marketing and distribution
(555)
(465)
(555)
(465)
(19)
(17)
Research and development
(343)
(283)
(343)
(283)
(21)
(19)
General and administrative
(173)
(125)
(173)
(125)
(38)
(31)
Restructuring and impairment
(76)
(38)
(76)
(38)
Operating income/(loss)
(36)
(16)
(85)
(44)
49
28
75
(59)
as a percentage of sales
-1%
-1%
   
2%
1%
   

This table does not represent an income statement prepared under IFRS. Please refer to the segmental information reported in Note 4 to the consolidated financial statements in Item 18.

(1) Amounts before restructuring and impairment are non-GAAP measures. Please refer to Appendix A of the Operating and Financial Review and Prospects for a more detailed description.
 
Seeds sales in 2008 were 21% higher than 2007, 16% at constant exchange rates. The gross profit margin increased by 1% from favorable currency movements, improved crop mix including increased proprietary trait sales and a favorable litigation settlement with Monsanto, offset by increased input costs due to higher crop prices, which form the basis of the contract grower purchase cost in corn and soybean, and an increase in inventory provisions. Marketing and distribution costs and General and administrative costs increased reflecting the full year consolidations of Fischer and Zeraim Gedera, higher sales volumes, an increase in provisions for doubtful receivables in emerging markets and increased resources in emerging markets. The increase in Research and development spending in 2008 was driven by continued transformation of the US corn and soybean range, the addition of costs from acquired companies and increased spending in other product lines.
 
Restructuring and impairment costs in 2008 include US$46 million to integrate and achieve synergies following the 2007 acquisitions, particularly that of Fischer. Restructuring costs also include US$11 million rationalizing Seeds operating units under the Operational Efficiency program announced in 2007 and US$16 million to restructure systems and back office infrastructure to enable increased back office consolidation. Costs in 2007 included US$9 million of integration costs associated with the 2006 and 2007 Vegetables and Flowers acquisitions and US$32 million related to the new Operational Efficiency Program, of which US$13 million related to the restructuring of a long term supply contract and US$16 million to the reorganization of the US Corn and Soybean business with integrated support functions.
 
Restructuring and impairment charges in cost of goods sold include the reversal of the purchase accounting inventory step up for Zeraim Gedera in 2008 and both Zeraim Gedera and EGV in 2007.
 
The weaker average US dollar against the Euro and other core currencies in 2008 resulted in an approximately US$38 million increase in operating income.
 
38

 
Business Development operating loss

 
Total
Restructuring
and impairment
Before Restructuring
and impairment(1)
   
(US$ million, except growth %)
2008
2007
2008
2007
2008
2007
Growth
Actual %
Growth
CER %
Sales
24
5
24
5
Cost of goods sold
(18)
(6)
(18)
(6)
Gross profit
6
(1)
6
(1)
as a percentage of sales
25%
25%
                 
Marketing and distribution
(10)
(6)
(10)
(6)
(67)
(52)
Research and development
(70)
(51)
(70)
(51)
(37)
(37)
General and administrative
(21)
37
(21)
37
Restructuring and impairment
(37)
2
(37)
(2)
Operating loss
(132)
(19)
(37)
(2)
(95)
(21)

This table does not represent an income statement prepared under IFRS. Please refer to the segmental information reported in Note 4 to the consolidated financial statements in Item 18.

(1) Amounts before restructuring and impairment are non-GAAP measures. Please refer to Appendix A of the Operating and Financial Review and Prospects for a more detailed description.

 
Sales increased in 2008 due to a one-time sale of technology. Research and development spending increased 37% reflecting development of Biofuels projects including corn amylase, which is an enzyme that improves the productivity of ethanol plants. General and administrative expenses in 2007 were net of US$50 million one-time payment from Delta & Pine Land following their acquisition by Monsanto. Restructuring and impairment charges in 2008 are comprised mainly of impairments of available-for-sale financial assets, particularly the equity holding in Verenium (previously Diversa) Corporation, where the share price had declined significantly in 2008.
 
Defined benefit pensions
 
Defined benefit pension expense decreased from US$108 million in 2007 to US$79 million in 2008 because the strong plan asset performance in 2007 led to lower actuarial loss amortization expense in 2008. In addition, the restructuring cost component of the expense decreased by US$13 million, from US$15 million in 2007 to US$2 million in 2008, and the effect of currency translation reduced the expense compared to 2007.
 
During 2008, the funded status of all defined benefit pension plans, which is the market value of plan assets divided by the benefit obligation valued using the projected unit credit actuarial method, reduced from 99% to 92%. Asset returns of all plans were negative and this outweighed the significant favorable impact on the UK pension plan funded status of higher UK corporate bond yields compared to December 31, 2007. Excluding restructuring costs, defined benefit pension expense in 2009 is expected to be approximately US$40 million more than in 2008, mainly because plan asset market values declined significantly during the second half of 2008 as a result of the turmoil in global financial markets.
 
Employer contributions to defined benefit plans, excluding contributions related to restructuring, were US$113 million in 2008, compared to US$124 million in 2007. Syngenta’s main defined pension plans are in Switzerland, the UK and the USA. Minimum funding commitments result from the funded status of the plans on a statutory valuation basis. For the UK, minimum funding commitments related to past service are currently US$7 million, payable by March 2011. This commitment is subject to review as part of the statutory valuation required during 2009. In Switzerland, funded status is determined annually and additional funding is one of several permitted options to remedy any funding shortfall. No minimum funding commitments are expected to result from the US pension plan valuation.
 
39

 
Restructuring and Impairment

The following table analyzes restructuring and impairment charges for each of the periods indicated:
 
For the year ended December 31 (US$ million)
2008
2007
Reversal of inventory step-up (in cost of goods sold)
   
(9)