Seed World

KWS Grows in a Difficult Market Environment

KWS SAAT SE and its international subsidiaries saw a net sales increase 11.3 percent to EUR 117.2 million in the opening quarter of fiscal 2015/2016, the company announces.
The currencies of countries in some agricultural regions that are important for KWS’ first quarter were devalued or exhibited sharp fluctuations against the euro, which had a negative impact on operating income in the first quarter. Nevertheless, KWS assumes that it will be able to achieve its long-term goal of an EBIT margin of at least 10 percent at the end of the fiscal year.
“Despite the still demanding market environment, we will continue to pursue our long-term corporate strategy in unchanged form, particularly the continuous development of new, high-yield varietal products,” said Hagen Duenbostel, CEO. “For that reason we will continue our investments as planned in new production facilities and research and development.”
Expenditure on research and development increased as planned in the first quarter by 8.7 percentto EUR 45.8 (42.1) million. Along with that, spending to strengthen the company’s distribution structures was increased by 13.6 percentto EUR 36.7 (32.3) million). Administrative expenses increased slightly to EUR 18.0 (17.2) million. EBIT, which is typically negative in the first quarter, was EUR -47.0 (-35.1) million. Negative exchange rate effects and the planned increase in expenditure on distribution and on research and development were the main reasons for the year-on-year decline.
Total capital expenditure in the first quarter was EUR 15.7 (56.2) million. It was sharply higher in the previous year due to the acquisition of the remaining shares in the French cereal breeder SOCIETÉ DE MARTINVAL S.A (MOMONT).
Segment reporting: Corn and Sugarbeet post positive net sales performance
The Corn Segment increased its net sales by 5.2 percentto EUR 50.3 (47.8) million in the first quarter. Revenue in the first quarter is generated in particular from corn and soybean in South America and from winter rapeseed business in Europe. Net sales from corn seed business in South America remained at the level of the previous year, despite low cultivation area and negative exchange rate trends. In contrast, winter rapeseed business in Europe increased. Allowing for negative exchange rate influences, the segment’s income (EBIT) in the first quarter was EUR -45.2 (-34.6) million. It is usually negative at this stage of the fiscal year, since seasonal factors mean that the segment’s seed business in the first quarter accounts for only a small share of its annual net sales.
Net sales at the Sugarbeet Segment rose overall by 70.7 percent to EUR 12.8 (7.5) million. However, the first quarter is not a reliable indicator for the year as a whole; in addition, part of the increase in net sales was due to the sale of a production plant to Japan. Net sales are reduced by expenditures distributed evenly over the year, meaning that the segment’s income decreased to EUR -16.4 (-15.3) million.
Net sales in the Cereals Segment were EUR 56.4 million and thus at the level of the previous year (EUR 56.2 million). The situation on the commodities markets for cereals was still difficult at the time of the sowing season. The price of rye remained far weaker than the already low price of wheat. There were declines in net sales of hybrid rye, although they were compensated for by the previous year’s takeover of MOMONT. The planned increases in expenditure on research and development and on distribution were the main reasons for the fall in the segment’s income (EBIT) in the first quarter to EUR 15.7 (19.6) million.
All cross-segment costs, such as expenditure for all central functions at the KWS Group and long-term research projects, are carried in the Corporate Segment. Its income is therefore always negative. Its EBIT was EUR -16.8 (-17.6) million after the first quarter.
Forecast: Sustainable earnings situation expected for 2015/2016
“Our strategy remains unchanged. Apart from expanding our business activities in growth markets, we will not lose sight of strengthening KWS’ position in our core markets,” noted Eva Kienle, Chief Financial Officer of KWS SAAT SE. “We’re sticking to our long-term objective of an EBIT margin of at least 10 percent.” Expansion of business activities requires further capital-spending projects. A particular focus of that will be on expanding and modernizing production plants in the growth markets of Eastern and Southeastern Europe and in the U.S. and on expanding research and development facilities at several locations. All in all, the Executive Board currently expects net sales to grow between 5 percent and 10 percent and an EBIT margin of at least 10 percent at the end of fiscal year 2015/2016. The R&D intensity is expected to be around 17 percent.