KWS starts sales growth in 2014/2015 fiscal year

November 26, 2014

Revenues up 7.8% in the first quarter, compared to the same period in the previous year - Functional costs to strengthen long-term growth increased as planned - Expectations for full year confirmed

KWS SAAT AG (ISIN: DE0007074007), one of the world’s leading seed companies, started the new 2014/2015 fiscal year with a sales growth of 7.8% to €105.3 (previous year: 97.7) million. Functional costs, in particular sales, and research & development expenses, increased as planned in the first quarter of 2014/2015, in line with the long-term growth strategy. “Our goal is to continue developing new sales markets for us. At the same time, we want to expand our leading market position in established markets through high-yielding new varieties,” explained Philip von dem Bussche, CEO of KWS SAAT AG, outlining the basis for further growth.

Traditionally, the first quarter is dominated by the grain business and increasingly by corn activities in South America. The two top-selling segments, corn and sugarbeet, are not able to generate their main revenues until sowing starts in the spring. Accordingly, the operating result (EBIT) in the first two quarters is always negative. The EBIT decreased during the reporting period to –€35.1 (–26.8) million. This includes additional expenses for research & development, sales and administration in a volume of €12.1 million compared to the same quarter of the previous year. To prepare for the planned growth in the coming years, KWS is also increasing its investments, above all in terms of capacity expansions in the field of seed processing. Investments in the first quarter of 2014/2015 increased by €24.2 million to €37.2 million, of which €20.2 million was attributable to fixed assets.

Sales revenues in the Corn segment benefited from strong growth in South America and a positive trend in the winter grain rapeseed business, which improved by a good 15%. Overall, sales increased by 32.0% to €47.8 (36.2) million. Taking into account the planned increase in functional costs, the segment result (EBIT) was –€34.6 (–28.1) million.

The revenues of the sugarbeet segment rose by 10.3% to €7.5 (6.8) million. Against a background of high yields and sugar stocks and an expected decline in acreage in the 2015 growing season, however, this cannot be considered a trend for the entire fiscal year. Segment results (EBIT) amounted to –€15.3 (–18.0) million.

Low consumer prices negatively impacted on development in the first quarter of the 2014/2015 fiscal year the cereals segment. Revenue decreased by 4.3% to €56.2 (58.7) million. Higher expenses for product development and sales, together with reduced contribution margins from the hybrid rye business, led to a 5.3% decline in segment earnings (EBIT) to €19.6 (20.7) million.

The company includes cross-segment functional costs as well as basic research expenditures in the corporate segment, so that the earnings statement is always negative. The segment result in the first quarter of 2014/2015 was –€17.6 (–13.5) million.

French grain activities fully acquired

With effect from September 30, 2014, KWS acquired the remaining 51% interest in the French seed company Société de Martinval S.A. from the Momont family. With the established MOMONT brand, which is being maintained, KWS is strengthening its wheat breeding activities in France and planning to step up its research, production and marketing of cereal seed and rapeseed in this important market.

Outlook: Confirmed forecast despite a difficult market environment

High crop yields in the 2014 growing year are currently leading to low consumer prices for corn, soybeans and wheat in the agricultural sector. The world market price for sugar has dropped significantly. Despite this rather difficult market environment, the company confirmed its forecast at the segment level. Accordingly, revenue growth of a good 5% to approximately €1.25 billion is expected for the 2014/2015 fiscal year with a continued double-digit EBIT margin. “We have decided to submit the forecast and segment information based on our internal management, so that we can also transparently report on our operational development in accordance with the new version of IFRS 11 and the associated necessary adjustment of the consolidation methods,” explained Eva Kienle, CFO of KWS SAAT AG. “The forecast and presentation of segment results continue to be based on the proportionate inclusion of our 50:50 joint ventures. On the other hand, we will report the earnings contributions of these companies in the income statement in the financial result.”