KWS: 2012/2013 fiscal year again successful – increase in dividend planned

October 24, 2013

Sales up more than 16% to €1.147 billion – EBIT increases by 7% to just under €151 million – activities in Brazil expanded – dividend to be increased to €3.00 – Moderate sales growth expected for 2013/2014

Philip von dem Bussche, KWS Board Spokesman

Philip von dem Bussche, KWS Board Spokesman

KWS SAAT AG (ISIN: DE0007074007) – one of the leading international seed-breeding companies – achieved growth in all product segments in the 2012/2013 fiscal year (as of June 30). Overall, revenues increased by 16.3% to €1.147 billion, with this increase principally being generated abroad. The increase in the operating result (EBIT)—favored by one-off effects in the previous year—was less than proportionate to sales, but improved by 7% to €150.7 million. In addition, KWS increased its research and development (R&D) activities by 11.2% to €140.8 million in the year under review. An increase in the tax rate to 35% in the 2012/2013 fiscal year resulted in a slightly lower net income of €91.3 million for the year (previous year: €94.4 million). This was due to out-of-period tax expenses and strong earnings growth in countries with higher tax rates. In line with the growth in operating earnings, the Executive Board and the Supervisory Board will propose a dividend increase of €0.20 to €3.00 per share at the annual shareholder meeting.

Strong growth in the corn business – activities in Brazil recorded for the first time

With an increase in sales of 22.8% to €701.7 million, the corn segment was once again the strongest sales driver in the KWS Group. Extreme drought in 2012 and a resulting seed shortage required increased out-of-season seed propagation in South America, which led to higher production costs. In addition, there were higher start-up costs for sales and product development for opening up new markets. Nevertheless, the operating result increased by 18.3% to €92.0 million, corresponding to an EBIT margin of 13.1%. The core markets in Europe and the USA continued to perform gratifyingly well. Activities in Brazil—included for the first time as of July 1, 2012—have already contributed €37 million to the revenue. In the world’s third-largest corn market, by its acquisition of the breeding companies SEMÍLIA and Delta, as well as its partnership with the production and sales company RIBER KWS SEMENTES, KWS has become involved in the subtropical climate zone for the first time. In addition to the Brazilian market, KWS primarily sees growth opportunities in China.

Increased expenses put pressure on segment result for sugarbeets

Development in the sugarbeet segment was influenced by high sugar stocks and good harvests, which together with falling sugar prices worldwide led to an 11% reduction in sugarbeet acreage. KWS counteracted this development with innovative variety products that enabled farmers to create a high level of added value. The sales for the sugarbeet segment, which also includes the seed potato business, increased by 4.9% to €328.6 million. The main growth engine for this was the North American region. The US Department of Agriculture’s decision to once again permit the unrestricted cultivation of the herbicide-tolerant Roundup Ready®sugarbeet ensured that farmers are using these varieties on almost the entire acreage. In the EU-28, the previous year’s revenues were only just maintained due to acreage reductions. Due to higher expenditures in product development and sales, with which KWS intends to safeguard its existing market leadership in seed for sugarbeet in the long term, the previous year’s result was not quite achieved. The segment result was at a high level and amounted to €73.5 (79.9) million, with a return on sales of 22.4%.

Hybrid rye business boosted in cereals segment

The favorable price trend for cereals for consumption prompted many farmers to opt for high-quality seeds from the breeder for winter sowing in 2012/2013. Against this backdrop, revenues in the cereals segment increased by 19.7% to €111.7 million. The main growth was in the hybrid rye business, although sales of wheat and barley also increased. Despite the planned expansion of the breeding and sales activities, the segment result increased by 41.8% to €26.8 million and achieved a return on sales of 24.0%.

Corporate development reflects increased research budget

KWS bundles cross-segment expenses as well as the costs of central administrative functions and long-term research projects that are still far from the market into the corporate segment. The segment result is therefore negative by its very nature. As expected, the significant increase in our research budget reduced earnings to –€41.6 (–35.7) million.

Company growth accompanied by robust balance sheet ratios

Cash earnings in the KWS Group amounted to €109.5 (117.8) million in the 2012/2013 fiscal year, while operating cash flow reached €84.6 (97.9) million. Eva Kienle, CFO of KWS: “The cash flow statement in the KWS Group is shaped by our investments in future growth. Due to the increase in working capital, the operating cash flow is lower than in the previous year, and the cash flow from investment activities amounts to –€88.9 (–56.6) million. This also includes the payment of the purchase price for our Brazilian subsidiary, RIBER KWS SEMENTES. Taking into account the issue of a promissory note loan, the total cash and cash equivalents increased to €202.4 (183.0) million as of the balance sheet date. The liquidity net of financial liabilities thus amounts to €70.6 (75.9) million.”

Equity increased to €667.5 (603.1) million and fully covers long-term assets and inventories. The increase in the balance sheet total to €1,213.3 (1,092.3) million left the equity ratio constant at 55.0% (55.2%).

Research and breeding activities continuously expanded

By continuously expanding its research and breeding activities, the KWS Group is securing its innovative strength and competitiveness for future growth. In the year under review, R&D expenses increased by 11.2% to €140.8 million, as planned. This corresponds to an R&D ratio of 12.3%. Innovation, growth and the value orientation of a family-based, internationally oriented company also make KWS attractive as an employer. The number of employees worldwide increased by more than 15% in 2012/2013 to 4,443. Due to the planned reinforcement of the product development and sales areas, 5,000 employees are expected to be working for KWS by the end of the current fiscal year.

Outlook: KWS to continue growing in 2013/2014

Despite significantly reduced prices for agricultural raw materials in 2013, KWS will continue to grow in the 2013/2014 fiscal year. The planned growth is likely to be achieved almost entirely in the corn segment. There is growth potential in the North and South America regions as well as in Eastern and Southeastern Europe. In the sugarbeet segment, the seed potato business is expected to compensate for the expected decline in sugarbeet activities. In the cereals segment, on the other hand, there is no growth due to the fall in prices for cereals for consumption.

Philip von dem Bussche, CEO of KWS: “We expect the KWS Group to continue its operating growth in the 2013/2014 fiscal year, albeit at a less vigorous level. In terms of sales, we expect an increase of at least 5% in the Group. From today’s perspective, the operating result will decrease by approximately €10 million. However, our return on sales would still remain in the double digits in accordance with our general objectives. To develop our growth markets even further, we have increased the budgets for basic research, product development and sales by 10% each, which will also be reflected in an increase in the employee headcount by about 10%. However, the significantly increased functional costs cannot yet be fully compensated for by the sales growth in the lower profit contribution growth markets.”

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