KWS SAAT AG (ISIN: DE0007074007), one of the world's leading seed companies, performed in line with its planning in the first six months of fiscal year 2013/2014 (ending June 30). Net sales rose by 1.6% to €209.5 (previous year: 206.3) million. Strong corn business compensated for a fall in net sales from cereals, which was caused by the expected unfavorable price trends in the market for cereals for consumption. Since only cereals business is largely completed in the first half of the year and the main revenue drivers corn and sugarbeet are not sown until the spring, operating income (EBIT) is negative in this period. Higher expenditure on research and development and sales reduced EBIT above-proportionately compared to the previous year to € -93.8 (-59.1) million.
Forecast for the fiscal year confirmed
In view of the KWS Group's performance in the first six months, the Executive Board confirmed its forecast for the year and still expects net sales to grow by as much as 5% to about €1.2 billion (1,147 million) and operating income to fall by approximately 8% to around €140 million for fiscal 2013/2014 as a whole, giving an EBIT margin of 11.7% (13.1%). "The foundation for our company's long-term growth clearly lies in systematically expanding our research and breeding activities and continuously strengthening our sales and production units. That's why we are continuing to invest in our future and planning to increase our budgets from year to year - in this year alone by additional expenditure of some €40 million," is how Philip von dem Bussche, CEO of KWS SAAT AG, explained the growth strategy. Around €20 million of that amount was allocated in the first half of the year, although most of the Group's net sales and planned growth is not achieved until the sales season for its revenue drivers corn and sugarbeet in the second half of the fiscal year.
Strong business in the Americas despite negative currency effects
Aided by strong growth in business in South America, net sales in the Corn Segment increased by 15.3% to €95.6 (82.9) million. Together with initial revenue in North America from seed for the spring sowing season, business in the Americas contributed about two-thirds to the segment's net sales in the first six months, despite negative currency effects. As anticipated, the segment's income fell as a result of the considerable expansion of production and sales structures as well as higher expenditure on the development of varieties. Since higher net sales partially compensated for that, EBIT fell only by 26.6% to € -56.1 (-44.3) million.
Net sales at the Sugarbeet Segment were €25.9 million, virtually at the level of the previous year (€25.5 million). The lower revenue in the first three months, which was caused by shifts between quarters, was thus fully offset. Around one-third of net sales came from seed potato business, which is part of the Sugarbeet Segment. Higher function costs likewise reduced this segment's net income for the period: EBIT fell by 21.3% to € -35.3 (-29.1) million.
Weaker consumer prices resulted in the Cereals Segment posting a 9.7% drop in net sales to €85.3 (94.5) million. Following record highs in the previous year, the price of rye fell again, causing farmers - especially in Germany and Poland - to significantly reduce the area used to cultivate it. Wheat and rapeseed prices also fell. That and additional expenditure on product development and sales meant the segment's income dropped by 32.3% to €25.2 (37.2) million.
The planned increases in all central functions meant that the Corporate Segment's income was well in the red at € -27.6 (-22.9) million. The KWS Group's cross-segment function costs and research expenditures are pooled in this segment, while its only source of revenue is from the farming operations, which contributed €2.7 (3.4) million in the first six months.
Total capital expenditure well up year on year
In addition to increasing the research and development budget, KWS invested €29.0 (27.6) million in property, plant and equipment in the first half of the year. Depreciation and amortization was €14.1 (12.5) million, meaning that, once again, investments exceeded depreciation by a significant margin. The main single investments went to expanding production capacities for corn seed processing in Europe and North and South America, as well as modernizing sugarbeet seed production in North America. Total capital expenditure increased by 16.7% to €33.6 (28.8) million, of which more than half was allocated to the Corn Segment.
Forecast for the fiscal year confirmed
In view of the KWS Group's performance in the first six months, the Executive Board confirmed its forecast for the year and still expects net sales to grow by as much as 5% to about €1.2 billion (1,147 million) and operating income to fall by approximately 8% to around €140 million for fiscal 2013/2014 as a whole, giving an EBIT margin of 11.7% (13.1%). "The foundation for our company's long-term growth clearly lies in systematically expanding our research and breeding activities and continuously strengthening our sales and production units. That's why we are continuing to invest in our future and planning to increase our budgets from year to year - in this year alone by additional expenditure of some €40 million," is how Philip von dem Bussche, CEO of KWS SAAT AG, explained the growth strategy. Around €20 million of that amount was allocated in the first half of the year, although most of the Group's net sales and planned growth is not achieved until the sales season for its revenue drivers corn and sugarbeet in the second half of the fiscal year.
Strong business in the Americas despite negative currency effects
Aided by strong growth in business in South America, net sales in the Corn Segment increased by 15.3% to €95.6 (82.9) million. Together with initial revenue in North America from seed for the spring sowing season, business in the Americas contributed about two-thirds to the segment's net sales in the first six months, despite negative currency effects. As anticipated, the segment's income fell as a result of the considerable expansion of production and sales structures as well as higher expenditure on the development of varieties. Since higher net sales partially compensated for that, EBIT fell only by 26.6% to € -56.1 (-44.3) million.
Net sales at the Sugarbeet Segment were €25.9 million, virtually at the level of the previous year (€25.5 million). The lower revenue in the first three months, which was caused by shifts between quarters, was thus fully offset. Around one-third of net sales came from seed potato business, which is part of the Sugarbeet Segment. Higher function costs likewise reduced this segment's net income for the period: EBIT fell by 21.3% to € -35.3 (-29.1) million.
Weaker consumer prices resulted in the Cereals Segment posting a 9.7% drop in net sales to €85.3 (94.5) million. Following record highs in the previous year, the price of rye fell again, causing farmers - especially in Germany and Poland - to significantly reduce the area used to cultivate it. Wheat and rapeseed prices also fell. That and additional expenditure on product development and sales meant the segment's income dropped by 32.3% to €25.2 (37.2) million.
The planned increases in all central functions meant that the Corporate Segment's income was well in the red at € -27.6 (-22.9) million. The KWS Group's cross-segment function costs and research expenditures are pooled in this segment, while its only source of revenue is from the farming operations, which contributed €2.7 (3.4) million in the first six months.
Total capital expenditure well up year on year
In addition to increasing the research and development budget, KWS invested €29.0 (27.6) million in property, plant and equipment in the first half of the year. Depreciation and amortization was €14.1 (12.5) million, meaning that, once again, investments exceeded depreciation by a significant margin. The main single investments went to expanding production capacities for corn seed processing in Europe and North and South America, as well as modernizing sugarbeet seed production in North America. Total capital expenditure increased by 16.7% to €33.6 (28.8) million, of which more than half was allocated to the Corn Segment.
