KWS SAAT AG (ISIN: DE0007074007), one of the leading international seed breeding companies, consistently pursues its growth course and implements its investment program as planned. In the first half-year of the 2014/2015 fiscal year, sales revenues increased by 8.5% to €194.0 (previous year: 178.8) million.
“With our increased expenses for the expansion of our distribution and production structures as well as for the research and breeding of new profitable species, we are laying the sustained foundation for our long-term success,” said Hagen Duenbostel, CEO of KWS SAAT AG, illustrating the company strategy oriented towards sustainable management.
In total, additional functional costs were accrued in a volume of around €22.8 million in the first half-year of 2014/2015, so the operating result (EBIT) was –€96.8 (–79.3) million. The result reported in the first half-year of each fiscal year is always negative. The expenses are distributed almost linearly through the entire year, while the two most profitable segments, corn and sugarbeet, generate their major earnings only when sowing starts in the spring. The currency developments in individual regions (positive effects from the strengthening of the US dollar and negative effects from the devaluation of Eastern European currencies) nearly offset each other in total.
Comprehensive investment program
The volume of investments in tangible and intangible fixed assets, carried out in the first half-year of 2014/2015, increased to a total of €77.1 (23.2) million. This increase is mainly due to the acquisition of the remaining 51% of shares in the French seed company SOCIETE DE MARTINVAL S.A. Furthermore, additional capacity expansions are planned in the field of seed processing by the end of the 2014/2015 fiscal year, so that the investment budget will increase to an expected €138 (82.6) million. The expenses for the expansion of distribution structures and for research and breeding of new species will probably surpass the previous year’s figure by 14%.
Opening of the research center in St. Louis, USA
With the KWS Gateway Research Center that was completed by the end of 2014, the KWS Group has a second location for its research activities in addition to the most important location in Einbeck. The gradual expansion of the research center in the USA is planned. Around 25 employees should be hired by KWS in this innovative region of global crop science and breeding by the end of the 2014/2015 fiscal year.
Growth in a challenging market environment
There is currently a sign of decline in corn acreage in favor of soy cultivation in North and South America. Nevertheless, the sales revenues in the corn segment, which, in the first half-year of 2014/2015 mainly included the activities in South America, the European winter rapeseed business and the first sales in North America, increased by 4.2% to €99.6 (95.6) million. Shaped by additional expenses for the expansion of production and distribution structures as well as for variety development, the segment result (EBIT) was –€63.2 (–56.1) million.
The sales revenues in the sugarbeet segment increased by 11.6% to €28.9 (25.9) million in the first half of 2014/2015. Thus, the dynamic development of the first quarter remained unchanged, but will slow down over the rest of the year due to the decreased acreage in Europe, although we would like to virtually offset this effect with a strong development in the American sugarbeet business. The segment result, including the increased function costs and negative currency effects of the development of the ruble, amounted to –€42.2 (–35.3) million.
In light of the lower producer prices, the development in the cereal segment in the first half of 2014/2015 was satisfactory overall. The sales revenues of €83.7 (85.3) million as well as the operating result (EBIT) of €23.7 (25.2) million fell only slightly below the previous year’s level.
The Corporate area includes cross-segment function costs and research expenses, which are solely compensated for by sales revenues from the agricultural farms. The segment result developed within the planned framework and amounted to –€32.6 (–27.6) million in the first half of 2014/2015.
Stable expectations for the entire year: Increase in sales by 6%, EBIT margin of at least 10%
Eva Kienle, CFO of KWS SAAT AG, is confident: “Against the background of an unchanged challenging environment, we expect a stable development for the entire 2014/2015 year.” The acreage-based weaker sales expectations in the corn segment should be partially offset by further improvement of the sugarbeet seeds business. In total, the Executive Board of the KWS Group anticipates an increase in sales of around 6% to around €1.25 billion (previous year: €1.178 billion) and an EBIT margin of at least 10%. At the end of the year, the R&D rate will be around 13% and the distribution costs rate at around 18%.
