KWS: Another successful fiscal year in 2012/2013 – Plans to raise dividend (2013-10-24)
Net sales rise by more than 16% to €1,147 million – EBIT increases by 7% to almost €151 million – Brazilian operations expanded – Dividend to be raised to €3.00 – Moderate increase in net sales anticipated for 2013/2014
KWS SAAT AG (ISIN: DE0007074007), one of the world’s leading seed companies, posted growth in all product segments in fiscal 2012/2013 (ending June 30). Revenue rose by 16.3% to a total of €1,147.2 million, largely on the back of net sales generated abroad. The increase in operating income (EBIT), which was aided by special effects last year, was lower relative to net sales, but improved by 7% to €150.7 million. In addition, KWS expanded its research and development activities by 11.2% to €140.8 million in the year under review. The tax rate increased to 35% in fiscal 2012/2013, resulting in a slight reduction in net income for the year to €91.3 million (previous year: €94.4 million). This was due to tax expenses from previous periods and strong income growth in countries with higher tax rates. In line with the growth in operating income, the Executive and Supervisory Boards will propose to the Annual Shareholders’ Meeting that the dividend be increased by €0.20 to €3.00 per share.
Corn business grows strongly – Brazilian operations included for the first time
With an increase in net sales of 22.8% to €701.7 million, the Corn Segment was again the largest contributor to net sales at the KWS Group. Extreme droughts in 2012 and the consequent shortage of seed meant that contra-seasonal multiplication operations had to be conducted on a larger scale in South America, which resulted in higher production costs. In addition, there were higher up-front costs for distribution and product development as part of the drive to tap new markets. Nevertheless, operating income grew by 18.3% to €92.0 million, giving an EBIT margin of 13.1%. The company’s core markets in Europe and the U.S. continued to develop positively. The Brazilian operations, which were included for the first time effective July 1, 2012, already contributed net sales of €37 million. At the beginning of the fiscal year, KWS had acquired in Brazil, the world’s third-largest corn market, the breeding companies SEMÍLIA and Delta and launched a partnership with the production and distribution company RIBER KWS SEMENTES, representing the company’s first activities in the subtropical climatic zone. Other than the Brazilian market, KWS sees growth opportunities especially in China.
Higher expenditures reduce income at the Sugarbeet Segment
The Sugarbeet Segment’s performance was influenced by large stockpiles of sugar and good harvests that, coupled with falling sugar prices worldwide, resulted in an 11% reduction in sugarbeet cultivation area. KWS countered this trend with innovative variety products that give farmers high value added. Net sales at the Sugarbeet Segment, which also includes seed potato business, rose by 4.9% to €328.6 million. The main growth driver was the North American region. The decision by the United States Department of Agriculture to again permit cultivation of herbicide-tolerant Roundup Ready® sugarbeet without restriction led farmers to plant these varieties on just about all the area used to grow the crop. In the EU 28, it was only possible to maintain net sales at just under the level of the previous year due to reductions in area. Higher expenditure on product development and distribution, with which KWS aims to secure its market leadership in sugarbeet seed for the long term, resulted in the segment’s income not quite matching that of the previous year. It was still at the high level of €73.5 (79.9) million, yielding a return on sales of 22.4%.
Cereals segment boosted by hybrid rye business
The good prices for cereals for consumption persuaded many farmers to use high-quality seed from breeders in the 2012/2013 winter sowing season. As a result, revenue in the Cereals Segment rose by 19.7% to €111.7 million. The main contribution to this growth came from hybrid rye business, although sales of wheat and barley also increased. Despite the planned expansion of breeding and distribution activities, the segment’s income rose by 41.8% to €26.8 million, for a return on sales of 24.0%.
Development at Corporate reflects higher research budget
KWS pools its cross-segment expenses, the costs of central administrative functional areas and the costs of long-term research projects whose products are well away from being ready for the market in the Corporate Segment. Its income is therefore negative due to the nature of its activity. The sharp increase in our research budget meant that income fell as anticipated to € –41.6 (€ –35.7) million.
Company growth flanked by stable balance sheet ratios
The KWS Group’s cash earnings in fiscal 2012/2013 were €109.5 (117.8) million, while net cash from operating activities totaled €84.6 (97.9) million. Eva Kienle, CFO of KWS, noted: “The KWS Group’s cash flow statement is impacted by our investments in our future growth. As a result of higher working capital, net cash from operating activities is lower than last year and net cash from investing activities is at € –88.9 (€ –56.6) million. This also includes payment of the purchase price for our Brazilian subsidiary RIBER KWS SEMENTES. Allowing for the issue of a borrower’s note loan, cash and cash equivalents rose to a total of €202.4 (183.0) million on the balance sheet date. Minus borrowings, net liquidity is thus €70.6 (75.9) million.”
Equity rose to €667.5 (603.1) million and fully covers noncurrent assets and inventories. Total assets increased to €1,213.3 (1,092.3) million, meaning that the equity ratio remained constant at 55.0% (55.2%).
Research and breeding activities continuously expanded
By continuously expanding its research and breeding activities, the KWS Group secures its innovative strength, its competitiveness and thus its ability to keep on growing in the future. Research and development (R&D) expenditure increased as planned by 11.2% to €140.8 million in the year under review, or 12.3% of net sales. Innovation, growth and the values that guide our global company with its tradition of family ownership also make KWS an attractive employer. The number of employees worldwide rose by more than 15% to 4,443 in 2012/2013. The headcount at KWS is expected to be 5,000 by the end of the current fiscal year due to planned workforce increases in product development and distribution.
Outlook: KWS intends to keep growing in 2013/2014
Despite a sharp drop in the prices for agricultural raw materials in 2013, KWS will continue its growth in fiscal 2013/2014. It is expected that almost all of the planned increase will be achieved in the Corn Segment, which has growth potential in the regions of North and South America and Eastern and Southeastern Europe. In the Sugarbeet Segment, seed potato business should compensate for the anticipated decline in sugarbeet sales. However, it is likely there will be no growth at the Cereals Segment due to reduced prices for cereals for consumption.
Philip von dem Bussche, CEO of KWS, commented: “We expect the KWS Group to continue its operational growth in fiscal 2013/2014, albeit it at a weaker level. We anticipate that the Group’s net sales will increase by just over 5%. As far as can be seen at present, operating income will fall by around €10 million. As a result, our return on sales would nevertheless remain in the double digits, in line with our general objective. To do an even better job of tapping our growth markets, we have increased our budgets for basic research, product development and distribution by 10% each, which will also be reflected in an increase in the workforce of around 10%. However, it will not be possible to completely compensate for the resultant marked increase in function costs through higher net sales in growth markets with weaker contribution margins.”
Head of Investor Relations
KWS SAAT AG