KWS in line with earnings targets despite challenging markets

• Net sales slightly lower due to currency influences
• Rise in costs, especially due to realignment of the company’s organization
• EBIT stable
• Earnings expectations for the year as a whole unchanged

The KWS Group recorded a 4.7% fall in net sales to €862.5 million due to exchange rate influences in the first nine months of fiscal 2017/2018. The decline was attributable to the regions Brazil, Argentina, North America and Turkey and related primarily to the corn seed business. KWS grew its net sales in Europe on the back of good sugarbeet and cereal seed business. The KWS Group was able to maintain its EBIT at the good level of the previous year despite the decline in net sales, higher expenditure on realignment of the company’s organization, and the fact that there were no positive special effects as in the previous year. EBIT totaled €169.0 (previous year: 170.1) million. KWS still assumes that its earnings will remain unchanged for the year as a whole and that it will post an EBIT margin of between 11% and 12%.

“KWS is performing in line with our earnings targets. That’s an excellent achievement in view of the difficult market environment for corn and our reorganization projects,” stated Eva Kienle, Chief Financial Officer of KWS SAAT SE. Excluding the largely negative exchange rate influences, net sales would have been €893.6 million, a slight fall of 1.2% and thus virtually at the level of the previous year. At the same time, net selling expenses did not increase and remained stable. However, research and development expenditure was increased by just over 3%. IT project costs and optimization of administration were the main factors for the rise in administrative expenses. Earnings in the previous year were also impacted by a positive special effect from sugarbeet seed processing. The EBIT generated in the third quarter is vital to the company’s success for the year as a whole. It was €169.0 (170.1) million after nine months. Net income after taxes for the period declined by 3.4% to €124.1 (128.5) million.

Segment reports: Sugarbeet and cereal seed business expanded

Net sales at the Corn Segment in the first nine months of fiscal 2017/2018 totaled €575.9 (691.4) million. The 16.7% decline is mainly due to the performance of our corn and soybean seed business in Brazil, significant negative exchange rate influences, and transfer of rapeseed activities to the Cereals Segment. If exchange rates had been at the level of the previous year, the segment’s net sales would have been €616.2 million, or a fall of 10.9%. Very wet weather in the spring in extensive parts of Europe resulted in a later sowing season for corn and so meant there was a shift in net sales to the fourth quarter. Net sales of corn seed in China rose again after the disappointing previous year. The segment’s EBIT was €61.8 (87.2) million, this drop being mainly attributable to lower contribution margins from net sales as well as negative exchange rate influences.

Net sales at the Sugarbeet Segment were €369.6 million, exceeding the good level for the same period of the previous year (€358.6 million). Sales were up sharply, even though cultivation area in the EU remained largely stable. This trend more than compensated for the declines in net sales in North America (due to exchange rate influences) and Turkey (due to exchange rate influences and market-related factors). Business was largely positive in the other regions as well. In Eastern and Southeastern Europe, the launch of initial varieties with CONVISO SMART technology went successfully and according to plan. The segment’s income was €154.7 (137.1) million, this increase being attributable to higher sales and the fact that the company no longer has to pay royalties in North America. At the same time, research and development expenditure was increased significantly.

Net sales at the Cereals Segment in the first nine months of fiscal 2017/2018 were well up over the previous year, rising by 42.0% to €137.6 (96.9) million. In addition to the fact that all rapeseed activities were transferred to this segment at the beginning of fiscal 2017/2018, winter cereal and winter rapeseed business performed very positively. There was also a slight increase in demand for summer cereal and summer rapeseed due to the wet weather in the winter and spring. All in all, net sales for all the segment’s key crops rose. In particular, good hybrid rye seed business had a positive impact on the segment’s earnings, which increased to €30.6 (17.0) million.

Net sales in the Corporate Segment totaled €3.2 (4.3) million. Costs for strengthening our IT infrastructure and optimizing the company’s administration resulted in a (largely planned) increase in general administrative expenses. Research expenditure was increased slightly, while additional marketing measures also led to a rise in selling expenses. The segment recorded higher currency gains compared to the previous year. The segment’s income totaled € –59.1 (–48.1) million.

Reconciliation table

In € million	Segments	Reconciliation	KWS Group1
Net sales	1,086.3	-223.8	862.5
EBIT	188.0	-19.0	169.0

Forecast: Earnings target for the year as a whole will likely be achieved

KWS anticipates lower net sales for the fiscal year as a whole in Europe, North America and South America, in particular given that the market situation in corn seed business is still challenging. KWS currently assumes in its guidance that the Group’s net sales for the fiscal year as a whole (ending June 30, 2018) will remain stable. The company expects that the KWS Group`s earnings will be in the forecast range of 11% to 12 % – despite in net sales from corn and the increase in expenditure aimed at secruing the future development – and so KWS is sticking to its guidance here. The R&D intensity is expected to be around 18%. KWS anticipates that capital spending will be around €100 million in accordance with the corporate planning.

The 9M Quarterly Report can be downloaded on the Internet at www.kws.de/ir.

¹ All figures excluding the shares of the equity-accounted companies AGRELIANT GENETICS LLC., AGRELIANT GENETICS INC. and KENFENG – KWS SEEDS CO., LTD.