KWS Group continues to develop at a high yield – profit exceeds expectations

October 15, 2015

Operating result (EBIT) above original expectations - Technology platform expands - Dividends of €3.00 per share proposed - Generation change at Arend Oetker - Further growth expected for fiscal year 2015/2016.

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KWS SAAT SE (ISIN: DE0007074007) and its international subsidiaries asserted their earning power in the 2014/2015 fiscal year. Despite a difficult market environment and on-schedule increased expenditures for research and development activities (R&D) and sales activities, the KWS Group achieved an operating result (EBIT) in the amount of €138.0 (previous year: 138.4) million. As already announced on September 1, this operating result was above the original expectations and, with 10.9%, significantly above the long-term target of an EBIT margin of 10%. Sales revenues in the KWS Group increased by 7.0% to €1.260 (1.178) billion.

Compared to the previous year, with the first-time application of International Financial Reporting Standard 11 (IFRS 11), neither revenue nor costs of the 50:50 joint ventures may be reported in the KWS Group’s statement of comprehensive income. The numbers from the previous year were converted accordingly so that a comparison is possible within the current annual report.

in € million Sales   EBIT  
  2014/2015 2013/2014 2014/2015 2013/2014
According to segment reporting 1,260.4 1,178.0 138.0 138.4
According to the IFRS statement of comprehensive income
(Application of IFRS 11)
986.0 923.0 113.4 118.3

For the time being, internal corporate management will include the sales contributions and costs of the 50:50 joint ventures. For better assessment and for greater transparency over the operational development of each segment and our investment activities, the numbers shown below also include, as previously proportionate, the 50:50 joint ventures of the KWS Group.

Segment reporting: All product segments with an EBIT margin of more than 10%

Sales revenues in the corn segment increased by 5.5% to €754.4 (714.9) million in the year under review. Significant growth impulses came from regions in North and South America in particular, while overall acreage declined worldwide. Sales revenues totaled €736.0 million and were adjusted for currency effects—positive in the area of the US dollar and the Argentine peso, negative in the area of the Brazilian real, the Russian ruble and the Ukrainian hryvnia. Taking into account the €31.7 million increase in sales and research expenses compared to the previous year, the segment result (EBIT) was €84.2 (100.9) million. This corresponds to an EBIT margin of 11.2% (14.1%).

Sales revenues in the sugarbeet segment, which also includes the seed potato business, increased by 11.2% to €390.5 (351.1) million. Of this amount, €364.4 (318.5) million was accounted for by the sugarbeet seed business and €26.1 (32.6) million by the seed potato business. In particular, the positive development in North America, Russia, Turkey and France was a contributing factor to this overall significant increase. The segment result (EBIT) increased disproportionately to €93.0 (70.2) million. In particular, the strong development in North America, positive exchange rate effects and lower value adjustments to demands had a positive effect here, so that the significant increase in sales and research expenses could be significantly compensated for. The EBIT margin was at 23.8% (20.0%).

Sales revenues in the cereals segment increased by 3.7% to €111.3 (107.3) million. Thus, despite lower consumer grain prices, grain prices for wheat, barley and rapeseed were encouraging; for barley, group-wide sales were even up by approximately 50%. The full acquisition of MOMONT contributed an additional revenue of around €6 million in the year under review. Lower sales of high-quality hybrid rye varieties and the planned expansion of the functional costs led to a decline in the segment result (EBIT) to €12.0 (17.1) million, synonymous with an EBIT margin of 10.8% (15.9%).

The Corporate segment covers all overarching costs, such as expenses for all key functions of the KWS Group and long-term research projects. The earnings statement is thus always negative. In 2014/2015 fiscal year the EBIT was at –€51.2 (–49.7) million due to the increase in R&D costs.

“Despite some turbulence in the agricultural markets and reduced cultivation areas in many places, we were able to retain our growth rate in the past fiscal year,” stated Hagen Duenbostel, Spokesman of the Executive Board of KWS SAAT SE. “Our goal remains sustainable corporate development based on further research and cultivation activities for the development of competitive varieties. In 2014/2015 fiscal year, the R&D budget rose according to plan by 15.9% to €173.8 (150.0) million according to an R&D rate measured in terms of sales of 13.8% (12.7%). Across all crops, the KWS Group received 429 (336) marketing approvals for new varieties, so that the product pipeline is optimally filled. At the same time, the worldwide sales structures were expanded in the course of consistent expansion of the international business activities. Consequently, selling expenses increased by 11.5% to €236.7 (212.3) million. The annual net income amounted to €84.0 (80.3) million.

Additional license agreements

In order to strengthen the technology platforms of KWS and Vilmorin & Cie (listed company of Limagrain), additional long-term agreements for in-licensing of genetically improved traits for corn were concluded. These agreements entitled KWS and Vilmorin & Cie, separate and independent from each other, as well as their joint participants, GENECTIVE and AGRELIANT, to the commercial worldwide use of corn traits developed and sold by Syngenta, including future developments. The payments of the contracting parties will amount to a total of USD 200 million. The payments may increase further depending on new authorizations from Syngenta. Aside from the already existing trait contracts, the future KWS product portfolio was successfully supplemented and expanded through this agreement.

“As an independent seed company, our goal is to provide our customers with first-class products. Due to this renewed agreement, KWS will also be able to meet the requirements of our customers in the future. We will attain this goal by means of our existing corn product lines and the diverse selection of state-of-the-art corn traits. In addition, the agreement puts GENECTIVE in the position to combine its own developments with the leading traits of the industry,” stated Hagen Duenbostel.

Investments increased by 70%

In the 2014/2015 fiscal year, the KWS Group invested a total of €140.6 (82.6) million, i.e. around €58 million more than in the previous year. The focus was on the acquisition of the remaining 51% of the French seed company SOCIETE DE MARTINVAL S.A. (MOMONT) and measures in support of planned future growth, i.e. construction of a corn processing plant in Serbia, as well as various projects for the further expansion of the location in Einbeck.

Unchanged dividends of €3.00 per share proposed

For the 2014/2015 fiscal year, the Executive Board and Supervisory Board want to continue the profit-oriented distribution policy which provides for a distribution rate between 20% and 25% of the KWS Group’s annual net income. Accordingly, their joint profit proposal to the shareholders provides an unchanged dividend of €3.00 per share. Subject to the approval of the annual shareholder meeting on December 17, 2015, €19.8 million are thus distributed out of the net profit of KWS SAAT SE.

Generational change at Arend Oetker

Dr. Arend Oetker informed KWS that 95% of the shares of his asset management company had been transferred in equal parts to the next generation—Marie Schnell, Johanna Oetker, Leopold Oetker, Clara Oetker and Ludwig Oetker—in the course of an anticipated succession. The asset management company holds 25% of the voting rights
in KWS SAAT SE. The corporate responsibility for the KWS shares owned by the Oetker family was transferred by Arend Oetker to his daughter, Dr. Marie Theres Schnell, in Munich.

Since 1994, Arend Oetker has pooled his KWS shares with those of the founder’s family Büchting. The descendants of Arend Oetker have now informed KWS that they, too, have joined this pool effective October 7, 2015. The pool continues to hold the majority of the voting rights of KWS SAAT SE, with which the corporate families Büchting/Oetker guarantee the company’s independence. Both families intend to continue their joint commitment in the long term.

Forecast: Continued sustainable earnings expected for 2015/2016

With the application of the International Financial Reporting Standard 11 (IFRS 11), the forecast for the statement of comprehensive income of the KWS Group will in the future no longer include the sales and cost contributions of the 50:50 joint ventures. In its future financial reporting, KWS will definitively orient itself to this forecast and comment on the sales and earnings profit of the KWS Group according to the new standard.

“Our strategic focus continues to be expanding our business activities in our young growth markets and our already high level of competitiveness in our core markets,” explained Eva Kienle, CFO of KWS SAAT SE. “Accordingly, we will continue to increase our research and development expenses as well as our sales activities.” These measures will be accompanied by extensive investment projects. In particular, the focus is on the expansion and modernization of production facilities in the growth markets of Eastern and Southeastern Europe and the USA and the expansion of research and development facilities at several sites. Overall, in the 2015/2016 fiscal year, the Executive Board expects further sales growth of 5–10% with an EBIT margin of at least 10.5%.

Expectation for 2015/2016 fiscal year

Forecast in € million Sales
for 2015/2016 €
EBIT margin
for 2015/2016 €
According to the IFRS statement of comprehensive income
(Application of IFRS 11)
1,035–1,085 >10.5%

About KWS*

KWS is one of the leading plant breeding companies worldwide. 4,850 employees in 70 countries generated sales of 1.037 billion euros in the 2015/2016 fiscal year, generating earnings before interest and taxes (EBIT) of 113 million euros. KWS has been run autonomously and independently for more than 160 years as a family-owned company. The focus is on plant breeding and the production and sale of corn, sugarbeets, cereals, rapeseed and sunflower seed. KWS uses state-of-the-art methods of plant breeding to further improve yields and resistances to diseases, pests and abiotic stress. In order to achieve this goal, the company invested EUR 182 million in the past fiscal year, accounting for 17 percent of its revenue in research and development. Further information: www.kws.de.

*All figures exclude the shares of the companies accounted for using the equity method AGRELIANT GENETICS
LLC., AGRELIANT GENETICS INC. and KENFENG – KWS SEEDS CO., LTD.