KWS confirms guidance for the year despite restrained start to fiscal 2013/2014 (2013-11-28)
Net sales fall in the first quarter by 9% to €103.1 million – Budget for research and development raised by 13% to around €159 million
KWS SAAT AG (ISIN: DE0007074007), one of the world’s leading seed companies, has followed the outstanding results of previous years with a more restrained start into the new fiscal year 2013/2014 (ending June 30). The KWS Group’s net sales in the first quarter fell by 9% to €103.1 (113.1) million, primarily as a result of lower sales volumes in the Cereals Segment stemming from a sharp drop in prices for cereals for consumption. In contrast, corn and sugarbeet, the main contributors to net sales for the year as a whole, are not sown until the spring. This highly seasonal nature of KWS’ business means that its operating income is usually negative in the first two quarters. In addition, the company has markedly increased its expenditures for research and development as well as for distribution in order to secure its long-term growth. Consequently, operating income (EBIT) fell to € –38.9
Net sales from cereals fall – Corn benefits from South American business
Lower consumer prices dampened trends in the Cereals Segment. As a result, cultivation areas – especially for rye – were reduced significantly in Germany and Poland. Net sales for the segment fell by 15.5% to €58.7 (69.5) million. However, it should be noted in this regard that the rye business experienced a special boost last year because of the exceptional circumstance that rye prices were above those for wheat. The lower contribution margins from the rye business, coupled with additional expenditure on product development and distribution for all cereals, were reflected in an above-proportionate decline in income of 25% to €20.7 (27.6) million.
In contrast, net sales in the Corn Segment rose by almost 11% to €36.2 (32.7) million, primarily as a result of growth in South America. Business with winter rapeseed was at the level of the previous year. The segment’s income fell by 15% to € –28.1 (–24.4) million due to the planned increase in function costs. The greatest growth potential at the KWS Group is still in the Corn Segment, which for seasonal reasons generates only about 5% of annual sales in the first quarter. A crucial factor will be the price of corn for consumption in the spring of 2014, which will influence the planting decisions of North American farmers.
Net sales in the Sugarbeet Segment fell by 24% to €6.8 (9.0) million due to shifts between quarters. The reduction in net sales, and the fact that expenditures are distributed evenly over the year, meant that the segment’s income decreased to € –18.0 (–14.3) million.
Expansion of activities in all central functions
As a result of the planned expansion of activities in all central functions, income at the Corporate Segment was € –13.5 (–11.1) million. The KWS Group’s cross-segment function costs and research expenditures are pooled in this segment.
Capital expenditure on property, plant and equipment was also increased throughout the Group to €18.1 (17.2) million and was thus well above depreciation at €9.1 (8.7) million. The main individual investments related to the expansion of corn production capacities in North America and France.
Outlook: KWS plans to grow net sales with a double-digit return
KWS expects that weaker cereals business and slightly lower revenue from sugarbeet will be more than compensated for by growth in the Corn Segment. The company currently expects to increase net sales overall by 5% to around €1.2 billion (1,147 million) and to post an EBIT margin of 11.5% (13.1%).
Eva Kienle, CFO of KWS, adds: “Up-front costs for developing new products and markets mean a lower margin. In fiscal 2013/2014 we will spend some €159 million, compared with €140.8 million last year, on product development alone. On top of that will be major investments of around €100 million to underpin our future growth.”
Head of Investor Relations
KWS SAAT AG