The strong corn business compensated for falling cereal sales, which declined due to expected unfavorable price developments in the consumer cereals market. Since only the cereal business is largely concluded in the first half of the year and the main sales drivers—corn and sugarbeets—are not sown until spring, the operating result (EBIT) in this period is negative. With simultaneously increased expenditures for research and development as well as for distribution, the EBIT fell disproportionately to –€93.8 million in relation to the previous year (–59.1 million).
Forecast for the full year confirmed
Given the course of business in the first six months, the Executive Board of the KWS Group confirms its forecast for the year and expects sales to increase by up to 5% to around €1.2 billion (1.147 billion) for the full 2013/2014 year and the operating result to decrease by about 8% to approx. €140 million. This corresponds to an EBIT margin of 11.7% (13.1%). “The basis for our long-term corporate growth clearly lies in the purposeful expansion of our research and breeding activities and the continuous strengthening of our sales and production units. For this reason we continue to invest in our future and plan with increasing budgets from year to year—this year alone with additional expenditures of around €40 million,” explained Philip von dem Bussche, CEO of KWS SAAT AG, when describing the growth strategy. Of this amount, around €20 million is attributable to the first half of the year, while most of the revenues and planned growth will only be achieved in the second half of the fiscal year with the sale season of the main earners, corn and sugarbeets.
Strong American business despite negative currency effects
Favored by strong growth in South American business, sales in the Corn segment increased by 15.3% to €95.6 (82.9) million. Together with initial revenues in North America for spring sowing, US business contributed about two-thirds of the sales revenue of the first six months despite negative currency effects. As expected, the segment result declined due to the considerable expansion measures in production and sales structures as well as increased expenditures for variety development. Since the increase in sales partly compensated for this development, the EBIT fell only by 26.6% to –€56.1 (–44.3) million.
In the sugarbeet segment the €25.9 million in sales were almost equivalent to the previous year’s level (25.5 million). This fully compensated for lower revenues in the first three months due to quarterly shifts. About one third of sales were accounted for by the seed potato business, which is attributed to the sugarbeet segment. In this segment as well, rising functional costs reduced the result for the period: The EBIT fell by 21.3% to –€35.3 (–29.1) million.
In the cereals segment, weaker consumer prices led to a sales decline of 9.7% to €85.3 (94.5) million. After record levels in the previous year, the rye price fell again, whereupon farmers—especially in Germany and Poland—significantly reduced their acreage. In addition, wheat and rapeseed prices fell. With simultaneously increased expenditures for product development and distribution, the segment result fell by 32.3% to €25.2 (37.2) million.
With the scheduled increase in all central functions, the result in the corporate area is significantly negative and amounts to –€27.6 (–22.9) million. While the cross-segment functional costs and research expenses of the KWS Group are bundled in this case, these expenses are only offset by income from agricultural operations. In the first six months this was €2.7 (3.4) million.
Total investment significantly above previous year
In addition to increasing the budget for research and development, KWS invested €29.0 (27.6) million in fixed assets in the first half of the year. In this way, investments once again clearly exceeded the depreciation of €14.1 (12.5) million. Major individual investments were made in the expansion of capacity for seed processing for corn production in Europe, North and South America and in the modernization of sugarbeet seed production in North America. Total investment increased by 16.7% to €33.6 (28.8) million, of which more than half was attributable to the corn segment.