KWS increases net sales sharply in the first half of 2019/2020
Feb. 26, 2020
- Total net sales up by 14%
- Highly dynamic growth at the Vegetables and Cereals Segments
The KWS Group (ISIN: DE0007074007) increased its net sales in the first six months of 2019/2020 by 14.0% to €329.6 million, of which €44.3 million came from vegetable seed. Its operating income (EBIT) in the first half of the year is typically negative and was € –92.0 (previous year: –76.6) million. EBITDA improved slightly to € –50.8 (–51.8) million.
“Our Cereals and Vegetables Segments have performed strongly,” stated Eva Kienle, Chief Financial Officer of KWS. “The first half of the year and the indications for the upcoming spring sowing season give us grounds to be optimistic about the current fiscal year.”
Due to the strongly seasonal nature of the company’s business, the first half of the year (July 1 to December 31) only contributes around 25% of total net sales for the fiscal year. The KWS Group’s operating income (EBIT) in the first six months is typically negative and was € –92.0 (–76.6) million. Although it posted a higher gross profit, there were also higher function costs for research and development, sales and administration.
EBIT for the period under review also includes non-cash effects related to the acquisition of Pop Vriend Seeds. They result from the sale of inventories that were taken over and remeasured at fair value (€ –5.7 million) and from amortization of intangible assets (€ –11.1 million) as part of the purchase price allocation. Excluding those effects, EBIT was € –75.2 million, an improvement of around 2% over the previous year. EBITDA improved slightly to € –50.8 (–51.8) million.
Net financial income/expenses declined to € –27.4 (–21.1) million, mainly due to the fall in net income from our equity-accounted companies to € –19.7 (–16.0) million. Since the main revenue from our joint ventures does not materialize until the third quarter (January to March), net income from equity investments in the first half of the year is usually negative. The interest result decreased to € –7.8 (–5.1) million, largely due to higher interest expense connected to financing the acquisition of Pop Vriend Seeds.
Income taxes totaled € –32.8 (–36.5) million. The result was net income for the period of € –86.5 (–61.2) million or € –2.62 (–1.85) per share.
Overview of the key figures
* Earnings per share for the previous period have been adjusted to reflect the share split (1:5)
Business performance of the segments
Net sales in the Corn Segment fell year on year to €133.4 (145.3) million, mainly due to seasonal fluctuations in the time of sowing. The sowing season for winter corn in Brazil, a major corn-growing region, began later than in the previous year, with the result that some of our deliveries were not made until after the end of the period under review. In North America, there was a sharp increase in revenue in the previous year as a result of early sales, especially of soybean seed. Business in Argentina performed very well, with volumes there rising by 13%. Only low revenue is usually generated in Europe in the first half of the year.
The segment’s EBIT was € –68.2 (–64.0) million. The segment generates the lion’s share of its revenue and income in the spring sowing season in the third quarter (January to March).
Net sales at the Sugarbeet Segment fell in the first half of the year to €27.9 (45.3) million. A higher proportion of early sales in some regions resulted in a sharp increase in net sales in the same period of the previous year. In the current fiscal year, however, we did not record such sales and deliveries until after the New Year.
The segment’s income in the first six months was € –46.3 million, well down from the previous year (€ –22.7 million). That is mainly attributable to the lower net sales in the period under review and to income generated by receivables management activities in the previous year. As is customary, revenue from sugarbeet seed is still low in the first half of the year; significant net sales are not expected until the spring sowing season in the third quarter (January to March).
Net sales in the Cereals Segment in the first half of the year rose by 13% to €157.1 (139.0) million. This increase was mainly attributable to successful hybrid rye seed business (+29%), which benefited from good general conditions and, related to that, higher cultivation area. While dry conditions for the sowing season hampered European winter rapeseed business, rye varieties deliver a relatively reliable yield under dry conditions compared to other cereal crops. The segment’s income increased to €53.8 (47.0) million, in particular due to higher contribution margins from hybrid rye business. The segment generates the lion’s share of its revenue and income in the first half of the year.
The Vegetables Segment, which includes the business activities of the vegetable seed producer Pop Vriend Seeds acquired effective July 1, 2019, made a significant contribution of €44.3 million to the KWS Group’s increase in net sales in the first half of the year. On a pro-forma basis, the business has continued to grow dynamically and benefited from sustained high demand for spinach seed, in particular in North America. The segment’s income (before acquisition-related effects) was €19.1 million. Including non-cash effects as part of the purchase price allocation from the sale of inventories that were taken over and remeasured at fair value (€ –5.7 million) and from amortization of intangible assets (€ –11.1 million), the segment’s income was €2.3 million.
Net sales in the Corporate Segment totaled €2.5 (2.7) million. They are mainly generated from the company’s farms. Since all cross-segment costs for the KWS Group’s central functions and basic research expenditure are charged to the Corporate Segment, its income is usually negative. The costs consolidated in this segment rose in the first half of the year, in particular due to higher personnel costs as part of the reorganization project GLOBE. The segment’s income was € –54.4 (–51.6) 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:
1 Excluding the shares of the equity-accounted companies
Outlook for fiscal 2019/2020
The KWS Group still expects growth in net sales of 8% to 12% and an EBIT margin of 11% to 13% in fiscal 2019/2020.
The guidance does not include non-cash effects as part of the now completed purchase price allocation for the acquisition of Pop Vriend Seeds. They result from the sale of inventories that were taken over and remeasured at Fair Value (anticipated effect in the current fiscal year: around € –10 million) and from amortization of intangible assets (around € –22 million). The KWS Group’s EBITDA is expected to be slightly above that of the previous year.
The measures to contain the corona virus in China are expected to have only a minor impact on the KWS Group's earnings in the current financial year.
The guidance for the Vegetables Segment has changed from the last one in the Quarterly Report for Q1 2019/2020 as follows:
The segment’s net sales are now expected to be in the order of €80 to €90 million (previously: €80 million). Taking into account the above mentioned non-cash effects related to the acquisition of Pop Vriend Seeds, the segment is now expected to break even. Excluding those effects, the EBIT margin will probably be in the range of 30% to 35%.
The forecasts for the other segments are unchanged.
Please find further information in our half-year report.
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