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KWS SAAT AG continues its profitable growth

KWS SAAT AG (ISIN: DE0007074007), one of the world-s leading seed companies, surpassed its operational targets in the fiscal year 2009/2010, which ended on June 30. It continued to grow profitably, largely unaffected by economic crises and strong fluctuations in the prices for agricultural raw materials. The KWS Group-s net sales rose by 5.1% to ?754.1 million. The cost of product development increased by 9% to around ?98 million, but was offset by operational growth. In addition, provisions were able to be reversed. As a result, earnings before interest and taxes (EBIT) improved by 5.8% to ?82.4 million. Net income for the year was negatively impacted by a drop in net financial income due to lower interest on investments, but at ?51.5 million was still ?1.4 million above last year-s figure. Shareholders will participate in these improved earnings with a dividend per share of ?1.90, up once again by ?0.10. Earnings per share were ?7.51 (previous year: ?6.98).
Good varietal performance ensures continuing growth
The corn business performed very well again in the period under review. “Above all, good varietal performance was the key to our success,” said Philip von dem Bussche, Chief Executive Officer of KWS SAAT AG. “We won market share, especially in Europe.” One of the contributing factors in this strong showing was the approximately 20% increase in sales of energy corn in Germany. KWS generated a total of 17% of its consolidated net sales from seed for plants that are to be used for producing energy. “The high world market prices for sugar stimulated an increase in sugarbeet cultivation area,” added von dem Bussche. “Sugarbeet seed business stabilized in the countries covered by the European Sugar Market Regime and even picked up significantly outside the EU 27.” Sales of herbicide-tolerant Roundup Ready® sugarbeet in the U.S. also remained positive. “The cereals business,” continued von dem Bussche, “was not able to match its net sales for the exceptional previous year as a result of low world market prices at the time of the fall 2009 sowing season. However, it made a good contribution to our consolidated income.”
Solid financing on the back of an equity ratio of 58 percent
Chief Financial Officer Dr. Hagen Duenbostel explained that the further expansion of operations had led to a sharp increase in working capital. Consequently, net cash from operating activities fell from ?82.0 million to ?27.4 million. In order to increase the capacities required and improve on its high standards of quality in seed production, KWS invested roughly the same amount in the year under review as in the previous year. Net cash used in investing activities was ?55.4 (?59.4) million, resulting in a free cash flow of ? -28.0 (22.6) million. On the balance sheet date, cash and cash equivalents were ?113.7 (125.6) million and, after deduction of financial borrowings, net liquidity was ?81.4 (117.0) million. Equity increased by ?58.4 million as a result of the strong profit. The KWS Group remains solidly financed, with an equity ratio unchanged at 57.5%.
KWS creates new jobs
KWS- good performance is attributable to the achievements of all its employees in 70 countries. In the year under review, the KWS Group employed an average of 3,492 (3,215) people, almost 9% more than a year ago. KWS intends to adapt its structures and administrative processes – particularly in international business – to support its future growth. “Central administrative functions,” said Duenbostel, “will be pooled at regionally responsible Service Centers and strengthened to create the capacities needed for future growth. That will relieve the workload in our core activities – developing varieties and producing and selling seed. The objective of this reorganization is to improve the quality of internal services and secure further growth through cost-effective means.”
Intensive research secures KWS- future
KWS has grown continuously over the past five years. “The challenge in the future will be to meet steadily growing demand for agricultural products despite a constant cultivation area and the increasing impact of diseases and pests and negative weather influences. We are tackling that by continuously expanding our research and development activities,” noted von dem Bussche, pointing to the company-s R&D budget of around ?100 million. “More than 150 years of experience in breeding plants, our independence as a medium-sized company with a long tradition of family ownership and a solid equity base enable us to conduct intensive research at a consistently high level. As a result, we have managed to double the sugar yield per hectare to its current level of twelve tons over the past 50 years, for example. Our objective is to increase this figure to 20 tons by 2020,” added von dem Bussche.
Outlook: Continued growth and profitability
In the current fiscal year 2010/2011, KWS expects good growth opportunities in corn and cereals and stable performance in sugarbeet. It plans to grow net sales in the Corn Segment again by approximately 5%. The weak cereal harvests in the 2010 growing season have caused a sharp increase in consumer prices. In view of this fact, KWS anticipates greater demand for high-quality, certified seed in the current winter cereal sowing season.
KWS aims to retain the Sugarbeet Segment-s good level of net sales and income in the current fiscal year. One key to the segment-s performance is the North American market, where 95% of all sugarbeet farmers already plant genetically modified, herbicide-tolerant Roundup Ready® sugarbeet. As a result of legal action initiated against the U.S. Department of Agriculture, permission to sell and produce these special products was suspended in August 2010. “The decision is based on a formal defect in the approval process, and not on safety concerns. It also does not mean a permanent ban on growing these sugarbeets,” said von dem Bussche. As part of the reapproval process, the USDA will compile an expanded environmental impact statement – presumably by mid-2012. The USDA has also announced that it will grant approvals – subject to conditions – in the meantime so as to enable commercial growing of Roundup Ready® sugarbeet for the coming season. However, it is likely that the plaintiffs in the original action will also initiate legal action against these interim approvals.
“Overall, the KWS Group-s objective in the current fiscal year is to grow net sales by about 5% and increase its income proportionately,” concluded von dem Bussche.