Einbeck, October 24, 2018. Net sales of the KWS Group (ISIN: DE0007074007) in fiscal 2017/2018 were €1,068.0 million and so about at the same level of the previous year, due to exchange rate effects. If exchange rates had remained constant, net sales would have increased by 3.5%. KWS grew its net sales in Europe on the back of good sugarbeet, corn and cereals seed business. Corn seed business in China expanded again. However, net sales from corn in North and South America declined. The KWS Group’s EBIT remained constant year over year at €132.6 million (previous year: €131.6 million), even though expenditures were around €40 million higher. The company plans to leverage its good earnings in particular to continue expanding research and development and distribution in fiscal 2018/2019.
Selling expenses in the year under review were €201.5 million and so on a par with the previous year (€200.7 million). Research and development expenditure was increased by around 4% to €197.7 million, meaning KWS stuck strictly to its policy of expanding research and development despite the decline in net sales. Administrative expenses totaled €95.8 million, a year-on-year increase of 20%, among other things due to realignment of the company’s organization (see the details for the Corporate Segment below). KWS also incurred higher expenses as part of receivables management in the Middle East in the year under review due to the strained political situation worldwide. Thanks to a higher contribution to net sales by sugarbeet seed and lower royalty payments in North America, the company posted operating income of €132.6 (131.6) million and an EBIT margin of 12.4%, a figure that surpassed its expectations.
"We have one of the most strongly diversified portfolios in the seed industry. That helped us again this year in the face of a challenging corn market. Despite the simultaneous increase in costs and negative currency effects, we were able to record higher earnings than we anticipated – even after tax, thanks to far lower taxes," said Eva Kienle, Chief Financial Officer of KWS SAAT SE, in summing up the annual financial statements of the KWS Group.
Segment reports: Sugarbeet and cereal seed business expanded
Operational business at the Corn Segment was not able to match that of the previous year, and net sales fell by 11.0% to €734.2 (825.3) million. If exchange rates had remained constant, net sales would have been €783.4 million, a decline of 5.1%. Rapeseed business was also transferred to the Cereals Segment in fiscal 2017/2018. Adjustment for that effect would have given net sales of €800.9 million for the previous year. Net sales from corn seed in South America – in particular in Brazil – were below the strong level of the previous year. There was also a decline in net sales in North America. However, KWS grew net sales from its corn business slightly in Europe and China. The segment’s earnings were reduced due to a fall in sales volumes in Brazil and North America and negative exchange rate effects. The segment’s function costs developed in line with net sales and were below the levels of the previous year. As a result, their ratio relative to net sales remained largely the same. The segment’s earnings were €47.4 (58.2) million. After adjustment for the contribution made by rapeseed business, there would have been an imputed EBIT of €52.9 million last year.
In fiscal 2017/2018, KWS was able to maintain its operational business in the Sugarbeet Segment at the level of the previous year thanks to constantly good variety performance. - 2 -
Net sales totaled €455.1 (454.6) million. KWS grew them mainly in Germany, France and Northern and Eastern Europe. On the other hand, there were declines in net sales in the U.S. and Turkey due to exchange rate effects and falls in volumes. Additional marketing activities, for example as part of the launch of CONVISO® SMART varieties, resulted in higher selling expenses. We expanded our research and development activities significantly. Administrative expenses fell, among other things due to lower costs as a result of the fall in value of the US dollar. The reimposition of political sanctions led us to make an allowance for outstanding receivables in the Middle East, which resulted in a reduction in earnings. The segment posted an increase in its EBIT to €160.5 (150.9) million, in part as a result of lower royalty payments.
Net sales in the Cereals Segment rose by around 38% to €151.1 (109.3) million. KWS expanded net sales from rapeseed sharply, due to two factors: the transfer of all rapeseed activities from the Corn Segment and higher demand overall for KWS’ rapeseed varieties. KWS increased net sales from rye seed by 16% thanks to new variety approvals and net sales from wheat seed by 12%, while revenue from barley rose slightly. A higher proportion of revenue from licenses and rapeseed seed resulted in an improvement in the segment’s gross margin. Expenditure on distribution, research and development and administration was higher, primarily due to the transfer of rapeseed operations. Apart from the effects from the organizational restructuring, the segment’s EBIT rose in particular due to an expansion in rye and winter rapeseed seed business by 78.6% to a total of €18.4 (10.3) million.
The Corporate Segment’s net sales are generated mainly from KWS’ farms in Germany. In the past fiscal year they were €4.2 (4.8) million. All cross-segment costs are also allocated to the segment. They include expenses for all central functions of the KWS Group and for long-term research projects. The segment’s net sales cannot cover these expenses. As a result, the EBIT reported by the segment is impacted every fiscal year by increasing costs, in line with the company’s business activity. KWS is reorganizing its global administrative organization to underpin its profitable and sustainable growth with efficient administration. The goals for the coming years include setting up and expanding a location for global shared services in Berlin, establishing Expert Hub structures and providing a global business partner organization. The costs also increased as expected as the project was fleshed out in more detail and its implementation commenced. The segment’s income was also impacted by the costs of tax consulting services and strengthening of the IT infrastructure and was ultimately € –77.3 (–60.6) million.
The difference from the KWS Group’s statement of comprehensive income and segment reporting is due to the requirements of the International Financial Reporting Standards (IFRSs) and is summarized for the key indicators of net sales and EBIT in the reconciliation table below.