KWS Group
Annual Report 2004

Plain-text annual report

Annual Report 2004 /2005 150 Years KWS SAAT AG – Changing Prospects over Time KWS SAAT AG Annual Report 2004/2005 150 Years of KWS SAAT AG – Changing Prospects over Time Table of contents 150 YEARS OF K WS Chairman’s Foreword 1856 to date – Company history at a glance Changing prospects over time FISCAL YEAR 2004/2005 Report of the Supervisory Board Agenda of the Annual Shareholders’ Meeting KWS shares Report on the performance of the KWS Group Segments Overview Sugar beet segment Corn segment Cereals segment Breeding & services segment Outlook for the 2005/2006 fiscal year Risks for future development Employees Key figures of the KWS Group ANNUAL FINANCIAL STATEMENTS OF THE KWS GROUP Compliance declaration 6 6 10 16 33 34 37 38 40 44 46 48 50 53 54 56 58 59 95 Chairman’s Foreword In 2006 KWS will look back over 150 years of history. Throughout this long journey, KWS has always seen itself as a reliable partner of the farming community. Seed is the crucial production tool of our customers and hence our maxim is: to develop innovative varieties to create economi- cally interesting prospects – yesterday, today and for the future. This 2004 /2005 Annual Report surveys a markedly good financial performance. This is particularly gratifying in an anniversary year. KWS Group sales and earnings in the fiscal year outperformed the previous year and exceeded expectations. The KWS Group posted sales of € 495 million. This represents an increase of 11.4 %. Above all, the corn segment showed a further positive trend and achieved the highest increase for the fifth consecutive year. Despite coming off a high level the sugar beet segment excelled once more, particularly in markets outside the jurisdiction of the EU Sugar Market Regime. In spite of a declining rye market, sales in the cereals segment remained stable due to our strong range of varieties. Overall, the KWS Group’s operating result (EBIT) was € 56.3 million, an increase of 7.7 %. Net income for the year rose by 17 % to € 34.8 million. Growth at KWS was driven mainly organically, but also through an acquisition. In December 2004 AgReliant – the joint venture founded in 2000 by KWS and our French partner company – acquired Producers Hybrids in Nebraska, a corn and soybean seed marketing company. This enables a continuous market penetration in the Western USA. KWS has assumed a new role on the capital market. Until recently 90 % of the shares were in firm hands; now they are available to a wider circle of investors, because of this significant increase in the free float, from 8.2 % to 33.1 %. Südzucker AG and Hypovereinsbank decided to place their shares on the capital market in December 2004. To safeguard the interests of the company and our shareholders, we have been closely involved in the placement process. The altered shareholder structure has meant that the share’s liquidity on the market has significantly increased, and more investors now participate in the success of the company. With our successful conversion to IFRS as well as the introduction of quarterly reports commencing the first quarter of fiscal 2005 / 2006, KWS has fulfilled the criteria for admission to the Prime Standard of the German Stock Exchange. KWS remains the family-run, independent company it has been ever since 1856. In that year the farmer, Matthias Christian Rabbethge, acquired the majority interest in the sugar factory in Kleinwanzleben. This was the birth of KWS and dynamic growth followed. Above all, the succee- ding generations made it their goal to increase sugar yield from raw beets and to create a new source of income for the farming community. Using a polarimeter, Matthias Rabbethge Junior selected beets according to their sugar content. The result of this progressive approach was a “sugar beet” that helped the emerging business enterprise KWS to achieve an early break- through. Ever since then, innovational energy in plant breeding has formed the basis of our com- pany policy and our success. The Executive Board of KWS SAAT AG (left to right): Philip von dem Bussche | Sugar Beet, New Markets/Products Dr. Hagen Duenbostel | Finance, Controlling, IT Dr. Dr.h.c. Andreas J. Büchting (Chairman) | Corporate Affairs, R &D Dr. Christoph Amberger | Corn, Cereals, Marketing 6 Chairman’s Foreword 7 With its sugar beet seed KWS was able to quickly expand into international markets. Eighteen hundred ninety-eight saw the company’s expansion into the Ukraine, then and now the largest sugar beet cultivation area in the world. Even before First World War we were in a position to meet a quarter of global demand for sugar beet seed. Agricultural intensification presented new challenges. Disease and pest infestation steadily spread. As early as 1920, resistance breeding became a focal issue at Kleinwanzleben, thus assuring yields in the field. In the 1980s and 1990s, for example, European sugar beet cultivation would have been broken down by the Rhizomania virus if resistant varieties had not been developed. KWS succeeded in developing rhizomania-tolerant varieties using classical breeding that again guaranteed sugar beet growers new cultivation reliability. With the commencement of corn breeding in 1955 we also set out on a new path. At that time the South American plant was regarded as an exotic species in Germany. Today one cannot imagine fodder troughs without it, and it has become the most important agricultural crop worldwi- de. Due to its enormous biomass, corn could also serve as a renewable energy source. KWS started early breeding special energy corn varieties, and today is leading in this field. In the 1970s and 1980s KWS was one of the first to introduce cell biology and molecular genetics. We are convinced of the advantages of biological progress. This also applies to “green genetic engineering.” Genetic methods should be used where valuable genetic traits cannot be achieved through conventional methods. As in the past, KWS will continue to bank on the initiative and creativity of its employees. They are undoubtedly the key to the excellent market position that KWS enjoys in the sector. Our employees deserve our wholehearted recognition for their extraordinary commitment, their outstanding perfor- mance, and their deep sense of responsibility. Our thanks also go to our shareholders, customers and partners. Their reliable and mutually bene- ficial relationships have contributed to the 150-year success story of KWS. Rest assured that we will do everything to maintain these valuable relationships. Dr. Dr.h.c. Andreas J. Büchting Chairman of the Executive Board » In 1838 about a dozen farmers and craftsmen join forces in Kleinwanzleben near Magdeburg to found a sugar factory. In 1847 Matthias Christian Rabbethge moves to Kleinwanzleben where he initially purchases a farm. He also acquires a stake in the sugar factory. In the first few years this proves to be an unwise investment: beet quality is poor, sugar yield is low. But Matthias Christian Rabbethge believes in the success of beet sugar production and gradually acquires further shares in the factory. By 1856 his stake amounts to more than 70 %. At this time his son Matthias Rabbethge Junior is at college in Jena – his scientifically run beet breeding operation will be the basis for the future success of the company. In the same year Matthias Christian Rabbethge establishes a general partnership where he is joined by his future son-in- law, Julius Giesecke. This is the birth of KWS. « 1838 Foundation of the Kleinwanzleben sugar factory as a joint stock company 1856 Matthias Christian Rabbethge acquires the majority interest in the sugar factory and forms a general partnership 1858 Marie Rabbethge, the daughter of Matthias Christian Rabbethge, marries Julius Giesecke; at the same time Julius Giesecke’s father, Adolf Giesecke, purchases half of Matthias Christian Rabbethge’s stake in the sugar factory 1859 Matthias Rabbethge Junior starts beet breeding 1864 Rabbethge & Giesecke OHG fully acquires the Kleinwanzleben sugar factory 1885 The OHG becomes “Zuckerfabrik Kleinwanzleben vormals Rabbethge & Giesecke Aktiengesellschaft” Source: Company archives in Kleinwanzleben – since 1991 again open to the public 8 Chairman’s Foreword 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S • • • 1 5 0 Y E A R S K W S K l e i n w a n z l e b e n 1 9 3 0 E i n b e c k 2 0 0 5 K W S C O M P A N Y H I S T O R Y A T A G L A N C E Kleinwanzleben Einbeck s i n c e 1 9 6 1 Subsidiaries and associated companies in Europe and overseas 1 9 4 5 New start in Einbeck 1 8 5 6 Foundation in Kleinwanzleben near Magdeburg from left to right: Matthias Christian Rabbethge, Julius Giesecke, Matthias Rabbethge Junior 1 9 0 0 A global sugar beet seed market leader with branches in the Ukraine and several other countries 1 9 2 0 Start of cereal, fodder beet, and potato breeding s i n c e 1 9 5 5 Expansion of the breeding program to include corn and oil and protein plants 1 8 8 5 Rabbethge & Giesecke OHG becomes Zuckerfabrik Kleinwanzleben vormals Rabbethge & Giesecke Aktiengesellschaft 1 9 7 2 First laboratory for cell biology 1 9 7 5 Inclusion of the abbreviation KWS in the company name KWS Kleinwanzlebener Saatzucht AG vormals Rabbethge & Giesecke 1 9 6 7 / 6 8 Merger of Heine Peragis cereal breeding with LOCHOW-PETKUS 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1 8 6 5 1 9 0 8 Cross breeding: Gregor Mendel lays the basis. Hybrid breeding: Yield “Explosion.” In 1856 Gregor Mendel, an Augus- tinian monk, crosses red and white flowering pea plants, observes their offspring and concludes that there must be two genes for each trait but that only one is passed on: the dominant gene, in his case causing the red flowers, asserts itself in the offspring. However, the recessive gene is also retained, so that a num- ber of the grandchildren once again produce white blossom. Further- more, Mendel observes that in other plants the traits are combined and the plants produce pink blossom. Mendel recognizes that the traits are inherited in a certain numerical ratio and in 1865 publishes his re- sults: Mendel’s Laws of Heredity. Plant breeders still use these find- ings today, crossing plants and thus creating a number of new genotypes from which they select the most suitable. This is because only plants with the best traits are used for further breeding. Mendel’s Laws of Heredity – mean- while lost – are only rediscovered in 1900. Together with the findings of chromosome theory, they build the basis of genetics. The next major step forward is achieved only four decades after the Laws of Heredity have been published: In 1908 the American G. M. Shull publishes the methods which provide significant increases in yields. Shull succeeds in creating pure lines by repeated inbreeding of corn plants. The subsequent cross of inbred lines produces plants that exhibit a veritable explosion in yield compared to the original plants. This phenomenon is called hetero- sis: crossbred off-spring of these inbred lines, known as hybrids, show increased size, vigor and yield compared to their parents. Today, the majority of breeding programs for corn, sugar beet, rape and rye are based on hybrid breeding. The next breakthrough in work on in- bred lines occurs almost 60 years after Shull: the so-called “double haploid technology” allows to gen- erate pure inbred lines in less than one year by regeneration of intact plants from single reproductive cells and chemically induced doubling of the reduced (haploid) chromo- some set. Cross breeding Hybrid breeding Biotechnology M I L E S T O N E S I N P L A N T B R E E D I N G 1 9 8 4 Foundation of PLANTA Angewandte Pflanzengenetik und Biotechnologie GmbH 1 9 9 6 Sales at KWS exceed the € 250 million mark 2 0 0 3 Overseas share of sales of the KWS Group increases to 70 % 1 9 9 9 Change of corporate name to KWS SAAT AG 1 9 9 0 Repurchase of the breeding station in Kleinwanzleben 1 9 8 8 KWS acquires 100 % stake in BETASEED, INC., USA 2 0 0 0 t o d a y The number of employees in the KWS Group exceeds the 2,000 mark. Cooperation with French partner LIMAGRAIN in North America: foundation of the corn company AgReliant KWS – market leader in plant breeding, with activities in more than 65 countries worldwide 1985 1990 1995 2000 2005 2010 s i n c e 1 9 7 0 s i n c e 1 9 9 0 Biotechnology: A step towards the future. For 30 years biotechnological tools have been supplementing conven- tional breeding and have prompted major changes during this period: biotechnology encompasses cell bio- logy, genetic engineering and ge- nomics. With the aid of cell biology complete plants can be developed from single plant cells – a prerequi- site for genetic engineering. Genetic engineering allows the in- troduction of individual genes into the genome of plants to improve specific plant traits. Not only genes from related plants but also from different organisms can be com- bined and completely new traits introduced into the gene pool. In practice, the major traits today are disease and pest resistance as well as herbicide tolerance. In future, the specific engineering of compounds or the development of salt and drought resistant plants is conceivable. Genome research Genome research: A new chapter in breeding. The goal of plant genome research is to decode the structure and function of all genes (i. e. of the ge- nome) of a plant species. Today, for example, the sequencing of the rice genome has been completed. Further sequencing projects are ongoing and the description of the precise function of up to 50,000 genes of a species remains a future challenge. For example, genome research is able to identify genome segments that are responsible for the expression of agriculturally rel- evant plant traits such as yield or pest resistance. In close cooperation with research partners, KWS has been able to identify, for example, corn genes and genome segments that are involved in determining cold tolerance, nitro- gen efficiency and plant digest- ibility. These examples illustrate the major significance of genome research in accelerating breeding progress and the production of more modern, improved varieties. » You need a lot of grip to get on in agriculture. You must always have the courage to try some- thing new. « Henning Gruß, farmer Mr. Gruß, which development in plant breeding do you think was a landmark for agriculture? » Off the top of my head, the development of monogerm sugar beet seed in the 60s: prior to this my father had to thin out the seedlings by hand. Today a single beet When farmers need quality varieties and superior advice, they know they have a com- petent partner in KWS. What today may be self-evident was not feasible for earlier generations because each farmer was responsible for producing his own seed. A por- tion of the harvest was retained and used as seed for the following year. It was not until the middle of the 19th century that a few farmers started to specialize in breeding seed and this led to the foundation of the first seed corporations, including KWS in 1856. grows from one seed – and saves us farmers a lot of work. Another example is the In the early 19th century, the Berlin chemist Andreas Sigismund Marggraf and his student Hand in hand: Agriculture and plant breeding. rhizomania infestation at the beginning of the 90s: at that time KWS was the first seed company to supply rhizomania-tolerant plants. Without these varieties we would have had to give up sugar beet cultivation altogether. « What is so special about KWS as a company? » KWS offers quality products and an experienced consulting service. Whether I want to plant a new variety, or I’m worried about pest or disease infestation or whether I’m looking for crop alternatives, I will always find a competent contact at KWS. When I first started in energy corn cultivation for the biogas plant of the public ser- vices, KWS was able to supply, for example, a special energy corn variety. « What are the future challenges for you as a farmer? » You need a lot of grip to get on in agriculture. You must always have the cour- age to try something new. Today, structural change is the challenge in agriculture. To survive you have to either maximize productivity, grow and cooperate, or exploit new sources of income. « Franz Carl Achard discovered that sugar can be extracted from fodder beet. Almost at In cooperation with its the same time Napoleon declared the Continental Blockade of British colonial goods, customers KWS develops thus preventing the import of cane sugar. As a consequence, a flourishing European high-quality products. sugar industry quickly evolved. People like Matthias Rabbethge Junior recognized the opportunity to achieve improved seed by selecting beets for their sugar content. This led to a long-term improvement in the sugar yield of beet sugar production and ultimately to a stable income for farmers. Plant breeding transforms agriculture. Controlled and scientifically based plant breeding is a young discipline with four important milestones so far: the crossing of plants thanks to Mendel’s Laws of Heredity in 1865, the discovery of hybrid breeding in 1908, the development of bio- technology in the 1970s and, finally, DNA diagnostics in the 1990s. As a result, the work of farmers has changed radically during the past 150 years. KWS has played a significant role in many stages along the way. At the beginning of the 1980s, for example, a virus – known as rhizomania – infested sugar beet in Germany and caused losses of up to 50 % of the harvest. KWS launched the first healthy variety, thereby ensuring continued sugar beet cultivation in the affected areas. Competent consulting services as a success factor. KWS is working today, and will continue to do so in future, to provide solutions for these challenges. Customer satisfaction enjoys top priority at KWS. In Germany alone, there are 120 consultants who visit farmers to assist them in selecting the right seed for their soil, to present new varieties, and to answer any questions on current plant culti- vation. The relationship between KWS and farmers is based on give and take, because KWS is also reliant on constructive feedback from farmers. This exchange generates products tailor-made to their requirements on a long-term basis. The discovery of sugar in fodder beet generated the momentum for sugar beet breeding. 18 Perspektiven Prospects 19 » Corn is much more than just a foodstuf f or fodder. As a renewable raw material and energy source it is the crop of the future. « Dr. Walter Schmidt, Corn Breeding Germany Mr. Schmidt, as a corn breeder, what do you regard as the most important development in plant breeding? » The most important milestone for corn breeding is the development of hybrid breeding at the beginning of the 20th century. Naturally, in the course of time a Corn, the immigrant success story. Nowadays corn is planted in fields all over Germany and Europe. Fifty years ago, it was still regarded as exotic in this country. Although the first corn plants arrived in Germany as early as the 17th century, corn was not able to assert itself against domestic cereal varieties. Up until 1945 only a mere 50,000 hectares of corn were planted in Germany, and only in warmer regions such as the Rhine rift valley. Thanks to newer varieties adapted to a cooler climate, around 1.7 million hectares of corn are now planted and the KWS Group alone supplies seed for approximately number of decisive discoveries have been made – but more important is what this 400,000 hectares. development reveals: with the assistance of plant breeding we can utilize the in- credible adaptability of nature. We are not working against nature but with her. A success story penned by plant breeding. And only in the cooperation between man and nature can we succeed. « What is so special about KWS as a company? » KWS thinks plant breeding, KWS lives plant breeding. Plant breeding has been our core business for 150 years and not just one segment amongst many. All our In 1955 KWS started to breed corn. During the past 50 years it has been success- ful in significantly accelerating hybrid breeding using double haploid techniques. KWS was the first seed company to completely convert its breeding program to these techniques. Compared with conventional hybrid breeding the advantage lies mainly in the speed of development: whereas in the past new inbred lines required a development period of four to five years, the new lines can now be produced within one year. customers and employees benefit from this. If I’ve been observing corn for months Corn is the crop of the future. in the field and have a question for my colleagues in the biotechnology department, then I just call them up – we know each other. At the same time, thanks to the size of the company, we are able to carry out research ourselves. This combination is what makes KWS so successful. « What are the future challenges for corn breeding? » Corn is much more than just a foodstuff or fodder. As a renewable raw material and energy source it is the crop of the future and its potential is a huge challenge for us breeders. For me personally, energy corn is currently the most important issue. Fossil energy is nearing depletion and it is up to all of us to drive forward the development of plants for future energy production and to open up new paths. « To continue to meet future customer requirements and to contribute significantly to safeguarding global nutrition, the company will pursue its efforts in plant breed- ing. Hence KWS is committed to the concept of extracting the best from plants through careful research and development. Corn especially offers a wide range of opportunities for the future, not only as food and fodder but meanwhile as a renewable raw material or energy source. Corn starch, for example, is used increasingly in the production of paper and synthetics, as an adhesive or in the chemical industry. The development of spe- cial energy corn for biogas is still in its infancy. However, successes in breeding to increase biomass yield are already impressive. For KWS this project presents one of the greatest challenges because the issue of renewable energy will become increasingly interesting due to finite resources. KWS is working at full speed to create the basis for economic biogas production. The future belongs to innovative varieties which are resistant to pests and offer high yields. Energy plants – an alternative for the environment, agriculture and the consumer. 22 Kennzahlen Prospects 23 » Genetic engineering is certainly not always the solution to every problem. But it offers oppor- tunities that would not be available using purely conventional methods. « Dr. Anja Matzk, Regulatory Affairs Biotechnology 24 Kennzahlen Kennzahlen 25 Ms. Matzk, as a scientist, which discovery do you regard as revolutionizing plant breeding? » Green genetic engineering and the possibilities it has opened up for plant breed- ing – this has fascinated me since my college days. However, despite all the buzz Biotechnology – tomorrow’s answers. Many of us can still remember the incredible summer of 2003, but sunshine also has its shady side: the negative effects of a very hot period on vegetation and plant growth are examples of the challenges that an eventual climate change poses for agriculture. Companies such as KWS are able to contribute to meeting these challenges. Biotechnology will play a key role here. let’s not lose track of the fact that genetic engineering is just a tool that is used Biotechnology opens up new opportunities. alongside many others in plant breeding. It is most certainly not the solution to every problem. But it does offer opportunities that would not be available using purely conventional methods. « What makes KWS so special? » The willingness to engage in dialogue and its openness, particularly in the debate on genetically improved seed, are unique at KWS. Society has always been, and will continue to be, afraid of anything new. But it is of greatest importance to take people’s concerns seriously and to communicate new developments openly. This is the best way to establish a trusting relationship. KWS has done this from the beginning, and will continue to do so in future. « Which issues confront plant breeding in the 21st century? » The main issues confronting us are the consequences of climate change, global population growth and the increasing scarcity of resources. Plant breeding can make a huge contribution here. Therefore, we must invest in research and develop- ment today. The demands for high-performance seed are continually increasing; using innovative tools we can meet this challenge. « Biotechnology makes use of results from the molecular analysis of plant features. Since the 1980s KWS has been developing methods based on cell and molec- ular biotechnology. Today, using molecular methods we are able to identify and track valuable traits such as resistance to diseases in our varieties and to intro- duce them into existing lines by controlled cross breeding. In addition, using “green genetic engineering” we can transfer important traits from other organisms into our crops. Using green genetic engineering we can create resistant varieties that reduce the need for pesticides. There are also benefits for human health: scientists, for example, are working on deactivating the gluten in wheat that would result in fewer allergic reactions. Genetic engineering also plays a role in the development of industrial raw material from plants: individual usage of potato starch is only possible upon modification of the compound by genetic engineering. As early as 1972, KWS established the first laboratory for cell biology. In 1984 the KWS subsidiary “PLANTA Applied Plant Genetic Engineering and Biotechnology Ltd” was founded, followed by the inauguration of a new biotech center, the “Bio- technikum,” in 1999. This biotechnology service and development center is one of the most efficient and modern installations in the whole industry. Solutions in dialogue. Despite the potential of genetic engineering, Germany is home to a heated and often emotional debate on this new technological tool. Yet, a wide reservoir of ex- perience exists with genetically modified plants: in the past year alone more than 80 million hectares worldwide were planted with genetically modified plants, more than seven times the total agricultural acreage in Germany. To establish trust, KWS is committed to open dialogue and careful consideration of the opportunities and risks, on a case-by-case basis – the best way to meet the challenges of the future. The architecture of the KWS biotech center reflects the transparency and openness of the company. 100 experts from biotech- nology provide innovation at KWS. 26 26 Perspektiven Kennzahlen Prospects 27 » Today, many companies are only just beginning to appreciate the importance of an international presence. This has been a significant success factor for KWS from the beginning. « Dr. Alexej Ugarov, Sales Sugar Beet Eastern Europe Dr. Ugarov, what do you regard as being the most significant development in the seed sector? » The opening to the Eastern European market is a great development opportunity, but also a challenge. The potential is enormous: Russia and Ukraine alone with a cul- tivation area of 150 million hectares correspond to half the acreage of the EU. I was born in Russia, and so it’s particularly interesting for me to be able to offer the people in this region high-quality seed and to communicate the related know-how. These Seed knows no boundaries. Beet seed from Kleinwanzleben was already an international sales hit at the end of the 19th century. As a result, KWS established a series of branches abroad fairly early on. In 1898 a subsidiary was founded in the Ukraine, then as now the world’s largest beet cultivation area. In 1910 “Kleinwanzleben” meets one quarter of global demand for sugar beet seed. Following both world wars, KWS concentrates on resuming its ties abroad and resuscitating its export activities. Despite losing its headquarters in Kleinwanzleben, together with its research and production facilities, KWS varieties were already being sown in 1948 in Denmark, England, France and Switzerland, as well as in Turkey and Yugoslavia. Reliable and long-lasting customer ties are founded on Today, KWS SAAT AG generates 75 % of its sales abroad through its 46 subsidiaries high-performance products. and associated companies. Worldwide, KWS is represented in 68 countries in the tem- markets are not new territories for KWS. The company is returning to its roots, since perate climate zone through its breeding and sales activities. KWS already owned a subsidiary in Ukraine in 1898. « What is so special about KWS as a seed company? » Today, many companies are only just beginning to appreciate the importance of an international presence. This has been a significant success factor for KWS from the beginning. This implies not only exporting to the sales markets of this world: more importantly, KWS works together with the local people and adapts its varieties to the conditions of the individual regions. Genetic resources can thus be benefi- cial worldwide. « What are the challenges facing a seed company from the marketing viewpoint? » In our industry you need to be very patient. This applies not only to variety devel- opment but also to sales strategies. Eastern Europe had to stabilize politically first. Today, we have a sustainable agricultural policy in place in Russia so that farmers are able to invest. They are placing more emphasis on quality, and KWS is their ideal partner. « New markets, new challenges. Following German reunification, the Central, Eastern and Southeastern European mar- kets offer the most substantial growth potential for sales of agricultural-quality seed. As a result, the seed must be specifically adapted to meet the needs and requirements of the respective target markets. Genetic traits are not the only important issue: tech- nical properties, in particular, must also be considered. A further consideration is the strong demand for consulting and other services as a result of increasing privatization of Eastern European operations. In the meantime, the KWS Group has established 12 companies in the Eastern and Southeastern European markets. Also, breeding stations are being set up or expanded in Russia, Poland, Hungary and Romania, to enable KWS varieties to be adapted to perfectly meet local requirements. Diversity as competitive advantage. Only by being successful in its core markets, a company can acquire the potential to open up new markets. For almost 50 years the USA and Canada have belonged to KWS’s core markets – markets that are shaped by strong competitive and innovative pressures. The evidence for this lies, above all, in the development of genetically im- proved varieties. In North America the demand for these special varieties has increased enormously over the past ten years as a result of their economic and ecological advan- tages. The share of sales accounted for by the genetically improved corn varieties of AgReliant, our North American joint venture, is currently 60 %; for soya varieties it is 90 %. As a seed specialist KWS is well placed in the various markets and the most varied product segments to always be able to supply farmers with the most innovative and reliable varieties. Over the course of 150 years KWS has evolved to become an international seed specialist for our most important crops. 30 Kennzahlen Prospects 31 Fiscal Year 2004/2005 » 150 years of K WS – as an independent seed specialist we measure our products against the criteria of sustainabilit y – with the goal of underpinning competitive agricultural activity in a healthy environment. « Report of the Supervisory Board The consultations of the Supervisory Board in fiscal 2004/2005 focused on the European Com- value of the share, the Supervisory Board decided to propose Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, mission’s proposals for the reform of the EU Sugar Market Regime and the challenges this presents for KWS. Dr. Guenther H. W. Stratmann, Chairman of the Supervisory Board The strategic approach being followed by KWS consists in achieving further increases in the product yields of sugar beet varieties with the aim of improving the productivity and com- petitiveness of European sugar beet cultivation. This is based on the premise that we not only maintain but actually intensify our efforts in the area of sugar beet breeding. Further expan- sion of the corn segment was also discussed. The members investigated a number of potential acquisitions, as a result of which we acquired a North American distribution company, Producers Hybrids, and set up new companies in Bulgaria and the Czech Republic. Another topic that was discussed in detail was the rape and energy corn businesses, for which expectations are high. Also central to the Supervisory Board’s discussions were the issues surrounding KWS’ future presence on the capital market in the wake of its successful placement of 25 % of its shares in December 2004. In order to change the nominal to the Shareholders’ Meeting on January 18, 2006 a 1:10 share Hanover, the independent auditor chosen by the Shareholders split and an increase in the capital stock of € 2.8 million from Meeting and commissioned by the Supervisory Board, has corporate funds. It was also decided to apply for admission to audited the financial statements of KWS SAAT AG that were the Prime Standard. prepared by the Executive Board for fiscal 2004/2005 and the financial statements of the KWS Group (consolidated financial The Supervisory Board held five meetings with the Executive statements), as well as the management report of KWS SAAT Board in the period under review. It received continuous up- AG and the KWS Group (Group management report), includ- dates on the situation of KWS SAAT AG and the KWS Group ing the bookkeeping, and awarded them its unqualified audit as well as on the profitability and general development of the certificate. various business and dealt in detail with matters of corporate policy and other fundamental issues of corporate planning. The Supervisory Board received and examined the financial On the basis of these deliberations, the Supervisory Board statements and management reports of KWS SAAT AG and approved the submitted measures and business transactions the KWS Group, along with the report by the independent audi- requiring its consent. The Supervisory Board was furnished with regular written reports from the Executive Board on the status of business development, profitability, significant business deals and special questions. In addition to being kept up-to- date and discussing issues of importance, the Chairman of the Supervisory Board also took part in several meetings of the Executive Board on focal topics. The Supervisory Board has set up a committee for Executive Board affairs that held one meeting and reported on its work to the Supervisory Board. tor of KWS SAAT AG and the KWS Group and the proposal on utilization of the net profit for the year made by KWS SAAT AG and also received detailed explanations of questions on the agenda at its meeting to discuss the financial statements on November 23, 2005. Based on the findings of its examination, the Supervisory Board does not raise any objections. It gives its consent to the financial statements of KWS SAAT AG, which are thereby approved. The Supervisory Board also gives its consent to the statements of the KWS Group. It also Supervisory Board Dr. Carl-Ernst Büchting Einbeck Honorary Chairman Dr. Guenther H. W. Stratmann Düsseldorf Attorney-at-law Chairman Dr. Arend Oetker Berlin Businessman Deputy Chairman Philip von dem Bussche Bad Essen Farmer Until September 30, 2005 Goetz von Engelbrechten Uelzen Farmer Since November 7, 2005 Eckard Halbfaß Einbeck Deputy Chairman of the Works Committee of KWS SAAT AG Jürgen Kunze Einbeck Chairman of the Works Committee of KWS SAAT AG Prof. Dr. Ernst-Ludwig Winnacker Munich President of “Deutsche Forschungsgemeinschaft (DFG)” 34 Report of the Supervisory Board Report of the Supervisory Board 35 Invitation to the Annual Shareholders’ Meeting on January 18, 2006 endorses the proposal by the Executive Board on how to Following Christopher Ahrens’ departure from the Executive utilize the profits of KWS SAAT AG. Board of KWS SAAT AG he was replaced on October 1, 2005 by Philip von dem Bussche, currently President of “Deutsche The Management Board cordially invites you to the Annual Shareholders’ Meeting on Wednes- The Supervisory Board is sad to report the death, on June 28, Landwirtschaftsgesellschaft (DLG),” who took over responsibil- 2005, of former Executive Board member Armin Leidloff aged ity for the sugar beet segment and new markets/products, as 85 years. In 1955 he became the Executive Board member well as for the regions Germany and Central and Eastern responsible for sales, and he succeeded in reopening and Europe. Philip von dem Bussche, who has a distinguished developing markets which had for the most part been closed record as an agricultural expert, has been serving on the Super- day, January 18, 2006 at 11 a.m. at the Company’s business premises in 37574 Einbeck, Grimsehl straße 31. to KWS during the period immediately after World War II. Dur- visory Board of KWS since May 2000, from which he resigned Agenda ing the 27 years that he worked for KWS, Armin Leidloff laid to take up his activities on the Executive Board. the foundations for our company’s revival and growth. In recog- nition of this achievement, the company will always hold him in The vacancy thus created on the Supervisory Board was soon grateful memory. After 19 years with the company, Dr. Christopher Ahrens retired from the Executive Board of KWS SAAT AG on June 30, 2005. Christopher Ahrens was the Executive Board member responsible for the successful development of our sugar beet segment, and from 1989 was also responsible for rebuilding the sales structures in our Eastern European mar- kets. In addition to this, he represented KWS on numerous national and international committees and boards, and his presidency of the International Seed Federation (ISF), as well as his commitment to the Deutsch-Russischer Kooperations- rat (council for cooperation between Germany and Russia) deserve special mention here. Indeed, for all his extremely successful endeavors for the benefit of the company, the Super- visory Board owes Christopher Ahrens its special thanks. With effect from July 1, 2005 the Supervisory Board appointed acting Executive Board member Dr. Hagen Duenbostel a regu- lar member of the Executive Board. closed. On November 7, 2005, at the request of the Executive Board, the District Court of Göttingen registered Goetz von Engelbrechten as a member of the Supervisory Board of KWS SAAT AG. Goetz von Engelbrechten is a graduate in business administration and a farmer, and lives in Uelzen. He had previ- ously worked for KWS for 20 years. Most recently, he was re- sponsible for KWS’ cereals segment, before moving to Nord- zucker AG in 1992, first as a member of its Executive Board until, in 2003, he was appointed to its Supervisory Board. At Nordzucker he was recently engaged in helping the company to meet the commercial challenges of sugar market reform. This appointment by the court is to be superseded by a share- holders’ vote. At the official Shareholders’ Meeting on January 18, 2006 Goetz von Engelbrechten will therefore be proposed for reelection to the Supervisory Board for the remainder of his current mandate. The Supervisory Board expresses its recognition and thanks to the Executive Board and all employees for the work they have done. Einbeck, November 23, 2005 Dr. Guenther H. W. Stratmann Chairman of the Supervisory Board 1. Presentation of the adopted annual financial statements of KWS SAAT AG, the annual financial statements of the KWS Group as approved by the Supervisory Board (con- solidated financial statements), the management reports for KWS SAAT AG and the KWS Group for the fiscal year from July 1, 2004 to June 30, 2005, and the report of the Supervisory Board 2. Resolution on the appropriation of the net retained profit 3. Resolution on the granting of discharge to the members of the Management Board 4. Resolution on the granting of discharge to the members of the Supervisory Board 5. Resolution on a capital increase from corporate funds and the re-division of capital stock after appropriate amendment of the Articles of Association 6. Resolution on changes to the Articles of Association pursuant to the law on Corporate Integrity and Modernization of the Right to Contest Shareholders’ Resolutions (Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts (UMAG)) 7. Election of a new member of the Supervisory Board 8. Election of the auditor for fiscal year 2005/2006 36 Report of the Supervisory Board Agenda 37 KWS shares KWS SAAT AG’s capital market actions are preparing the basis for the future. In compliance with In the year under review, operating income rose by 8 % and oversubscribed 1.9 times). After a brief period of consolidation, EU Regulation 1606/2002 relating to publicly traded companies, KWS replaced its accounting system that was based on the Handelsgesetzbuch (HGB – German Commercial Code) with one that is based on the generally accepted International Financial Reporting Standards (IFRS). net income for the year by 17 %. To continue the earnings- the price is currently moving mostly sideways around the 700 € based dividend policy of recent years, the Executive Board mark, which translates into an increase of around 20 % over and the Supervisory Board are therefore proposing an in- the past fiscal year. creased dividend of 12 (11) € per share to the Annual Share- holders’ Meeting. With the introduction of quarterly reports starting in the first quarter of fiscal 2005/2006 and adoption of the IFRS, KWS The generally positive mood in Germany’s stock markets con- has now fulfilled the criteria for admission to the Prime Stand- tinued during 2005. Despite record oil prices, the DAX man- ard segment of the German Stock Exchange, which also quali- aged to rise by 20 % while the SDAX even rose by 30 %. fies it to be included in the select SDAX index. A 1-for-10 share split will be proposed at the forthcoming Annual Shareholders’ KWS SAAT AG share performance was vir tually unrelated to Meeting. The higher number of shares at a lower price will the performance of the SDAX. Most of the share’s growth im- make investing in KWS shares a more attractive option for petus resulted from the placement of 25 % of the Company’s private investors and is also expected to increase the liquidity shares on the capital market in December 2004 (which was of the shares. Shareholder structure (on June 30, 2005) 56.3 % Families Büchting / Arend Oetker / Giesecke 10.6 % Tessner Beteiligungs GmbH It also succeeded in placing the large blocks of shares held by Südzucker AG and Bayerische Hypo- und Vereinsbank with institutional investors, thereby increasing the free float, which is important for the share’s liquidity, from 8 % to 33 %. The company has been admitted to the Regulated Market of Frankfurt Stock Exchange since June 30, 2005, which has brought the shares to the attention of investors. The newly add- ed investor relations section on KWS’ website (www.kws.com) features exten sive information about and around the company’s shares. KWS share price, July 1, 2004 to June 30, 2005 140,00 130,00 120,00 110,00 100,00 90,00 33.1% Free float Data on KWS shares WKN (German Securities Code) / ISIN Securities ID 707400 / DE0007074007 Stock market symbol Stock markets Number of shares KWS shares, indexed SDAX performance index, indexed Opening price on July 1, 2004 (Frankfurt) Closing price on June 30, 2005 (Frankfurt) Highest (closing) price in the fiscal year (March 7, 2005) KWS Xetra, Frankfurt, Hanover 660,000 ¤ 600.00 ¤ 725.00 ¤ 769.00 ¤ 570.00 Jul 04 Aug 04 Sep 04 Oct 04 Nov 04 Dec 04 Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Lowest (closing) price in the fiscal year (September 7, 2004) 38 KWS shares KWS shares 39 Report on the performance of the KWS Group The KWS Group continued its successful growth during fiscal 2004/2005. Its strong financial base comprises a total of 46 (42) subsidiaries and associated com- PETKUS Group thus remains one of the strongest cereal allowed it to expand its market position and open up new markets abroad. The new KWS FORUM – a center for visitors and employees – marks the completion of the investment program at the Einbeck site. As far as net sales and income were concerned, the KWS Group exceeded even its own expectations. Net income for the year reached a new high, whith our main product seg- ments sugar beet and corn each made an equal contribution to positive business growth. The cereals segment remained stable at last years’ level. The past fiscal year was primarily characterized by expansion abroad. Our competitive positions in the Southern and South- Eastern European and North American markets were strength- ened further. KWS also increased its investment in the corn segment by expanding its sales channels and opening a new production plant in France. Our extensive investment program at our Einbeck headquarters is now complete. The new KWS FORUM – an Information Cen- ter for visitors and employees – means that we now have the facilities to properly welcome the large numbers of customers and business associates from all over the world. KWS continues to grow outside Germany Apart from KWS SAAT AG, the consolidated KWS Group panies. New subsidiaries were formed in Bulgaria and the Czech breeders in Europe. Republic, whereas our IT services company “MOD Manage- ment Organisation und Datenverarbeitung Consulting GmbH” Higher expenditures for structural changes was divested via a management buyout. With the inclusion of The KWS Group is still geared for expansion. The past fiscal the Russian subsidiary and two German subsidiaries, the total year saw further up-front expenditures aimed at building up number of fully consolidated companies now amounts to 41 markets in South-Eastern Europe and distribution structures (37). As in the previous year, four foreign companies were pro- in North America. As a result, selling costs rose by 13.7 % to portional consolidated. Another two (two) companies are in- € 88.7 (78.0) million and now equal 17.9 (17.6) % of net sales. cluded in the KWS Group’s financial statements at equity. Cost of production rose by 11.5 % to € 312.4 (280.0) million, Sharp growth in net sales which was proportionate to net sales. As a result, gross profit increased by 11.3 %, to € 183.0 (164.5) million. And despite In the year under review, the KWS Group’s net sales rose to extraordinary costs incurred as a result of our adoption of In- the highest level ever in the company’s history. The Group ternational Accounting Standards, admini strative costs fell to posted total sales of € 495.3 (444.5) million, an increase of 11.4 %, far exceeding even its own expectations. As predict- ed, sales abroad rose even more sharply than at home, and now account for 75 (73) % of total sales. Overview of product segments Sugar beet maintains its position in the world market The KWS Group maintained its market position in the sugar beet product segment and achieved net sales of € 217.9 (193.6) million for the year under review. In the markets out- side the EU’s 25 member nations, the Group even posted a 17 % sales volume increase. In view of the potential further decline in cultivation areas within the EU in the wake of Sugar Market Regime regulations, this growth in business is very gratifying. Corn continues to be a main growth driver With a 13.7 % growth in net sales to € 217.6 (191.3) million in the year under review, the corn segment again exceeded last years’ sales levels. KWS posted sharp growth in North Ameri- ca. Genetically improved products are in strong demand, par- ticularly in the US. These new varieties now account for almost 60 % of net sales in this market. Cereals remain constant 7.9 % and amounted to € 39.1 (37.1) million of net sales. At € 1.1 (2.9) million, the balance of other operating income and other operating expenses was once again positive. Other operating income rose sharply, largely as a result of favorable exchange rates and increases in research subsidies grants. Other operating expenses, however, rose even more sharply. They included valuation adjustments to allowances on receiv- ables and short-term provisions to take account of increasing risk levels in our growth markets. High operating result The operating result for the KWS Group improved by almost 8 % year-on-year, despite the Group’s continued structural expansion in Southern and South-Eastern Europe and the in- vestments such a high-growth region requires. In the year under review, all segments made a substantial contribution to operating result, which amounted to € 56.3 (52.3) million. Particularly gratifying was the corn segment, where operating result increased by 13.2 %, bringing the segment’s share to 18.8 (17.9) %. By contrast, the contributions to earnings made by the sugar beet and cereals segments fell to 55.1 (61.0) % and 6.5 (6.8) % respectively. The breeding & service segment increased its contribution to earnings this fiscal year from 14.3 to 19.6 %. At € 52.4 (52.7) million, net sales have remained stable in our cereals product segment, with lower sales of rye being com- pensated for by higher wheat sales. All other types of cereals maintained their levels from the previous year. The LOCHOW- Financial results slightly lower A smaller contribution from the potato business coupled with necessary amortization of goodwill resulted in a negative net income from participations of € – 0.5 (1.3) million. The year 40 Management Report Management Report 41 under review saw an improvement in interest expenses, which Growth also visible in balance sheet indicators dropped to € – 4.4 million despite an increase in the amount of With an increase of € 78.1 million in the Group’s total assets to funds committed to € – 5.4 million. Income was also generated € 572.4 million, its equity ratio fell slightly to 57.1 (59.5) %. As Value added in the KWS Group through financial instruments used to hedge against fluc- a result, the company’s capital resources remain excellent. tuations in interests and foreign exchange rates. The net The approximately 15 % increase in total assets is mainly at- finan cial income reported by the KWS Group was € – 4.9 (– 4.2) tributable to changes in working capital. Last year’s excellent million. As a result, income from ordinary operations was harvests, coupled with prime yields, resulted in significantly € 51.4 (48.1) million. Tax rate reduced increased inventories in spite of higher net sales volumes. Totaling € 296.5 (236.0) million, inventories and receivables accounted for around 50 % of total assets. The increase in The KWS Group’s total tax expenditures fell by 9.6 % to € 16.6 receivables is primarily due to longer payment terms on growth (18.4) million, reducing the tax rate from 38.2 % to 32.3 %. The markets. On the balance sheet date, cash and cash equiva- causes included tax income from previous years and lower lents, including securities, amounted to € 52.9 (58.3) million. effective tax charges in our growth markets. Without the tax At € 24.0 (44.9) million, net cash was reduced due to the in- income from prior years, the tax rate in Germany would not have decreased. crease in inventories and receivables. Net income reaches highest ever level Despite continuing high levels of structural costs in its new markets, the KWS Group posted net income for the year of € 34.8 million – well in excess of the previous year’s figure of € 29.8 million. Return on net sales rose from 6.7 to 7.0 %. Equity rose by about 11 % to € 326.6 (294.0) million, and fully covers noncurrent assets and inventories. Debt capital rose to € 245.8 (200.4) million. While long-term borrowings remained constant at around € 95 million, short-term borrowings rose by € 45,9 million. These items were covered at a rate of 161 % by cash and cash equivalents and receivables. Expansion of production and sales capacities Cash flow characterized by major investments KWS expanded its production and sales capacities by in- vesting € 36.5 (23.9) million in property, plant and equipment and intangible assets. Its largest investments were the acqui- sition of US company Producers Hybrids and the expansion of its corn production plant in the south of France; the Infor- mation Center for visitors and employees at the Einbeck site was also completed. The cash flow (DVFA/SG) amounted to € 47.0 million, which represents a year-on-year increase of € 4.0 million. The ratio of cash flow to net sales was 9.5 (9.7) %, which underlines the KWS Group’s great financial strength. At the same time, the net funds used in investing activities rose to € 30.1 (21.8) mil- lion, while increased inventories and receivables accounted for € 60,5 million. From the total of € 36.9 (24,7) million invested by KWS, 41.3 % went to North and South America, 34.8 % to Ger many, 22.6 % to other European countries and 1.3 % to other for- eign countries. More than half of its investments were made in the corn segment, and more than a third in the breeding & services segment. During the fiscal year, the KWS Group posted depreciation and amortization of € 16.8 million. Once again, investments exceeded depreciation/amortization by a significant margin. Proposed appropriation of profits For the year under review, KWS SAAT AG reported net income of € 15.4 million, compared to € 14.8 million for the previous year. In January 2005, a dividend of € 11.00 per share was paid for fiscal 2003 /2004, resulting in a total distribution of € 7.3 million. The Executive and Supervisory Boards will pro- pose payment of a dividend of € 12.00 per share at the Annual Shareholders’ Meeting 2006, making the total distri- bution this year € 7.9 million. € 7.7 (7.4) million were allocated to revenue reserves. Creation Distribution 15 % Other third-party goods and services 3 % Depreciation, amortization, impairment losses 11% Public sector 4 % (cid:1)(cid:2)(cid:3)(cid:4)(cid:2)(cid:5)(cid:6) 1% Minority interest 31% Value added 51% Raw materials and supplies, purchased goods and services 5 % Shareholders 16 % Company 63 % Employees Total output ¤ 518.7 million Value added ¤ 160.5 million Value added In fiscal year 2004/2005, the KWS Group generated total out- put of € 518.7 (461.4) million, consisting of net sales of € 495.3 (444.5) million and other income of € 23.4 (16.9) million. Deducting the costs of raw materials and supplies and of third-party goods and services attributable to cost of sales totaling € 261.7 (214.6) million, depreciation, amortization, and impairment losses of € 16.8 (16.7) million and other third-party goods and services of € 79.7 (74.4) million gives value added of € 160.5 (155.7) million. The distribution was as follows: Employees received € 101.4 million, including social insurance and retirement benefit costs, compared with € 98.3 million in the previous year. Interest paid to lenders remained constant at € 6.5 million, and public sector received € 17.8 (21.0) million. Value added of € 1.2 (1.6) million was distributed to minority shareholders. The shareholders will receive a dividend of € 7.9 million, with the result that € 25.7 (21.0) million will be retained by the company. 42 Management Report Management Report 43 Sugar beet segment In KWS’ legacy segment excellent product performance generated new levels of growth. The Business growth was also positive in Eastern Europe, despite more than planned in 2004 because of unusually favorable sugar beet segment further improved its leading position on the market, posting its highest net sales ever in fiscal 2004/2005. far-reaching import restrictions imposed by the Ukraine. Sales weather conditions. In addition, the amount of saleable seed in the Russian Federation already account for 7 % of total net was higher than planned. While this increase in inventories sales for the sugar beet segment. Increased sales were also ensures an excellent supply of product that meets KWS’ recorded in Asia, primarily in Turkey, Iran and China. renowned high quality standards, it also leads to a devaluation of inventories. To avoid oversupply in the current fiscal year, Smaller markets such as Scandinavia and the Netherlands seed multiplication has been reduced in 2005. also developed positively for KWS. In these markets, which tend to be difficult for KWS because of the competitive situa- After receiving US regulatory approval for commercialization of tion, we nevertheless managed to increase our net sales and market shares. The operating result for the segment fell slightly to € 31.0 (31.9) genetically modified sugar beets resistant to Roundup Ready® in March 2005, BETASEED began preparations for seed multi plication of Roundup Ready® (RR) resistant varieties. Therefore, it is possible for RR varieties to start enhancing million, while the return on net sales rate dropped to 14.2 KWS’ US product portfolio in 2007. For political reasons, (16.5) %. These figures already include substantial valuation adjustments to inventories. Seed production rose about 25 % however, these varieties cannot be marketed in Europe at this time. Sugar beet segment sales in millions of ¤ 56.6 140.1 43.1 150.5 45.1 172.8 Foreign sales Domestic sales Total sales KWS obtained the world’s first approval for distributing a herbicide-tolerant sugar beet in March 2005. In the year under review, segment sales rose by 12.6 % to € 217.9 (193.6) million. Although the area under cultivation in the European Union remained almost unchanged from the previous year at 2.2 million hectares, KWS nevertheless achieved 10 % higher net sales of € 141 million in this region. The expected reduction in areas under cultivation following the EU’s Sugar Market Regime makes the 17 % increase in net sales outside the EU’s 25 states to € 77 million particu- larly significant. Our single most important market outside the EU is North America, which contributed a good 14 % to the segment’s net sales. Our local subsidiary BETASEED maintains a stable share of 67 % on this market. All our European regions, without exception, experienced good sales seasons. We were particularly successful in the four largest markets of France, Germany, Poland and Italy. Our market share was higher in Germany and significantly higher in France. Sales increased significantly in Italy and Poland. 196.7 193.6 217.9 2002 /2003 HGB 2003 /2004 IFRS 2004 /2005 IFRS 44 Management Report Management Report 45 Corn segment The corn segment proved to be the most rapidly growing product segment within the KWS Group In Germany we maintained our market-leading position through further strengthened the com pany’s position as No. four on once again. The North American business in particular, but also the oil and field seed business within the segment, grew at above-average rates. two sales channels, KWS and AgroMais, both of which gen- the corn market in North America. erated increases in net sales. This development was further supported by a new market segment that offers special corn Corn sales rose by 31 %, with the total net sales of AgReliant varieties for the generation of biogas. This market segment Genetics LLC (USA) and AgReliant Genetics INC. (Canada) already represents 5 % of the cultivated area in Germany, and rising by 28 % to € 166.6 (130.0) million. KWS has already started to breed varieties specially designed for this purpose. We are therefore in an excellent position to Genetically improved varieties are increasingly becoming the meet the demand on this rapidly growing market. standard in the US. Approximately half of the corn seed AgReliant sells is genetically improved. US farmers have a Positive growth continued at our North American joint venture distinct preference for varieties that already combine multiple AgReliant for the fifth consecutive year since setting this com- genetic improvements. AgReliant is one of the few seed com- pany in partnership with French breeder LIMAGRAIN, the busi- panies able to offer corn varieties with a combination of three ness is continuing to develop well. Fifty percent of AgReliant’s genetically created resistances against a herbicid, the corn net sales are consolidated in the KWS Group. Fiscal 2004/2005 saw further consolidation among our competitors in the North American market for corn and soybean seed – a market envi- ronment which favored AgReliant’s continued growth, which was both organic and acquisition-driven. At the end of De- cember 2004, AgReliant purchased Nebraska-based seed company Producers Hybrids. This acquisition complements AgReliant’s already excellent market position in the Eastern and Northern Corn Belt. And with AgReliant’s share of the overall market now standing at around 6 %, the acquisition borer and the corn root worm borer – so-called ”triple stacks”. Rapeseed as a source of energy The rapeseed business almost doubled compared to last year to € 6.1 million. The greatest increase was posted by the two high-yielding hybrid varieties MIKA and ALKIDO. Rapeseed is becoming increasingly important as a source of energy in the form of biodiesel. In Germany, biodiesel is used both as a pure fuel and for blending with mineral diesel oil. A significant mar- ket for biodiesel is also developing in France. Special varieties of cord for generating biogas support positive growth in the corn segment. Corn segment sales in millions of ¤ Net sales for the corn segment increased by 13.8 % to € 217.6 (191.3) million. The segment also posted an improvement in oper ating results, which rose to € 10.6 (9.4) million, up 13.2 %. pronounced on French maize markets. Although KWS was able to maintain its market position, it was unable to match the previous year’s net sales. All in all, our corn business in Europe was adversely affected during the past fiscal year by the decline in cultivation areas. The market volume of grain maize, in particular, fell sharply as a result of lower prices. KWS nevertheless managed to achieve a year-on-year increase in net sales and improve its market share for the region. Southern Europe, and Italy in particular, recorded especially sharp growth rates. This shows that we are beginning to reap the benefits of invest ments made in previous years in breeding late-maturity group varie- ties and setting up an associated sales organization. In the year under review, the decline in cultivation areas was most In the South-East Europe region, which is very important for the segment’s medium-term growth prospects, not every country met its net sales target as planned levels of market penetration have still not been attained in some of them. We will therefore further increase our commitment in the region. In Hungary and Romania, KWS has reinforced its long-term pos- ition by establishing new breeding programs. The Central Europe Region is already making a significant contribution to the segment’s income. The same applies to the countries of Northern Europe, where KWS has traditionally held market shares in excess of 20 %. 42.0 130.0 43.0 148.3 172.0 191.3 217.6 48.7 168.9 Foreign sales Domestic sales Total sales 2002 /2003 HGB 2003 /2004 IFRS 2004 /2005 IFRS 46 Management Report Management Report 47 Cereals segment The KWS Group’s cereals business is constant year-on-year, although the market continues to The success of our cereal breeding activities, which consist market. The continued growth of wheat and barley in combi- be tough. The share of foreign sales has increased to 47.5 % on European core markets for cereals and rapeseed. Europe enjoyed record cereal harvests in 2004, which made marketing difficult and led to significant price reductions. In the key European markets of Germany, France and the United Kingdom, cultivated areas remained constant in the 2005 sowing season at 16.7 million hectares. A reduced level of seed rotation, however, had a negative effect on the certified seed market. The predominance of wheat continued, and while rye cultivation in Germany declined by about 10 %, how- ever, sales of certified seed were stable. During the past fiscal year, net sales for the segment, which is served by the LOCHOW-PETKUS Group, remained con- stant year-on-year at € 52.4 (52.7) million. The proportion of international net sales within the segment continued to rise from 42.5 % to 47.5 % – further validating LOCHOW-PETKUS’s growth strategy on the key European markets. Segment earnings remained unchanged at € 3.6 (3.6) million, with improvements in the wheat business compensating for lower rye sales. of an integrated network of breeding and testing stations nation with our outstanding range of rye products has further stretching across the whole of North-West Europe, is reflect- strengthened LOCHOW-PETKUS’s position as a leading Euro- ed in the fact that we have been granted marketing approval pean cereal breeding company. And with its 25 % share of the for a further 21 (39) varieties this year. Our most exciting new variety is POLLINO, a hybrid rye based on the PollenPlus® concept which LOCHOW-PETKUS developed. Its outstand- wheat multiplication area in Germany, LOCHOW-PETKUS is now the largest wheat breeder in the country. In order to ensure that these positive developments in the cereals seg- ing pollen donating ability considerably reduces the risk of ment continue, the company has increased its involvement in ergot fungus infestation. This represents major progress in basic research by participating in wheat and barley genome breeding, especially in light of POLLINO’s potentially high research projects. agro nomic performance. The fact that LOCHOW-PETKUS’s varieties now account for 26 % share in its English subsidiary CPB TWYFORD, making it On July 1, 2005, LOCHOW-PETKUS acquired the remaining around 90,000 hectares of multiplication area is a forceful the sole shareholder. reminder of the extent to which the company has captured the Cereals segment revenue in millions of ¤ 29.3 20.3 30.3 22.4 27.5 Foreign sales Domestic sales Total sales 24.9 49.6 52.7 52.4 2002 /2003 HGB 2003 /2004 IFRS 2004 /2005 IFRS 48 Management Report Management Report 49 Breeding & services segment New products for global markets: corn as a source of energy for Germany, rapeseed hybrids for In addition, specialty varieties were promoted in official field brake this correlation and to simultaneously increase both root the United Kingdom, malting barley for Russia and herbicide-tolerant sugar beet for the US. They all come from the breeding & services segment of KWS. The number of international marketing approvals for new varieties increased from 231 to 241 last year. The Institute for Plant Breeding represents the core of the breeding & services segment. With its wide range of breeding and research activities it lays the basis for the product seg- ments of KWS. In addition, the breeding & services segment includes: KWS corporate functions, its potato activities – in the form of its share in the SAKA-RAGIS Group – and its farm operations. The segment’s success in fiscal year 2004/2005 is reflected in its net sales, which rose by 7.2 %, to € 110.4 (103.0) million, but even more so in its operating income, which rose by 48.6 % to € 11.1 (7.4) million. 93 % of the segment’s net sales came from KWS-internal royalties paid by the product segments for the development of varieties. Sales of farm products and breeding services to third parties reached € 7.4 (6.9) million. The number of international marketing approvals for KWS varieties rose to 241 (231) – proof that our product pipeline will be well filled for several years to come. Many of our candi- dates were successful in official variety tests, resulting in 125 (99) approvals for sugar beet, 88 (85) for corn, 21 (39) for cereals and 7 (8) for oil and catch crops. trials, for example corn varieties particularly suited for the pro- yield and sugar content of new varieties. duction of biogas, as a source of renewable energy. Against a background of finite fossil fuels, increasing environmental and As another consequence of the Sugar Market Reform, resist- climatic concerns and rising energy prices, the use of biomass ance breeding will become even more important in future. for the production of energy is on the rise. Experts predict that Rationalization in sugar beet cultivation will lead to a concen- in Germany up to two million hectares might be allocated for tration of the beet acreage in the vicinity of sugar factories. the cultivation of energy crops in the near future. However, These areas may succumb to serious infestation with patho- achieving this goal is and will continue to be a tremendous gens, in particular beet nematodes. KWS is developing challenge for agronomy and plant breeding. Breeding for bio- highly productive nematode-resistant sugar beet varieties mass represents a paradigm change. To date, corn is the major and thus offers a ground-breaking solution to better position “energy crop”. KWS currently offers conventional silage corn the company to face the pending reform of the EU Sugar varieties (GAVOTT, CAMPESINO, SAMPAIO), which provide Market Regime. high dry mass yields required for cost-efficient energy produc- tion in biogas plants. Employing new breeding approaches, KWS will increase the dry mass production of corn to approxi- mately 300 dt/ha, from the current level of 150 – 180 dt/ha. The first pure “energy corn” varieties are expected to obtain approval in the spring of 2007. KWS successfully breeds first genetically engineered sugar beet The genetically engineered Roundup-Ready (RR) sugar beet is the result of a cooperative effort between KWS and Monsanto. The cultivation of herbicide-tolerant sugar beet allows the reduction of chemical plant protection, resulting in lower pro- duction costs for the farmer. The commercial cultivation of RR sugar beet has already been approved in the US. The export of processed products to important markets such as Canada, Japan, Australia, New Zealand, and the Philippines is already permitted. In the US, the first large-scale cultivation of RR sugar beet is expected for 2007. Though not approved for commercial cultivation in the EU, yet, RR sugar beet also offers major potential for Europe, particularly in view of the envisaged EU Sugar Market Reform. EU Sugar Market Reform – KWS breeders accept the challenge The pending reform of the EU Sugar Market Regime will place sugar beet in greater competition with sugar cane. This re- quires even greater efforts to improve sugar beet productivity. Sugar beet breeders at KWS are facing up to the challenge. A major issue for sugar beet breeding is the negative correlation between root yield and sugar content. The breeding goal is to Integrating the results of genome research into corn breeding The genome represents the sum of all genes of an organism. Genome research is concerned with the decoding of genes in order to analyze the structure and interaction of genetic information. For several years, KWS has been engaged in inter na tional plant genome research projects (GABI and EUREKA). Taking corn as an example, genes have been identified that are involved in the determination of agron- omically important properties such as cold tolerance, nitrogen efficiency and plant digestibility. The first results are already being applied in practical corn breeding at KWS. Potato activities at SAKA-RAGIS 2004 /2005 was a difficult year for potatoes. High harvest volumes and consequently low prices across the EU led to major marketing problems for both table and processing potatoes. This in turn led to a decline in cultivation area and a higher percentage of farm-saved tubers being used in the 2005 planting season. As a result of this negative market cycle, KWS’ associated company, SAKA-RAGIS, posted significantly lower (44.5 %) net sales than the previous year. Income was also unsatisfactory. 50 Management Report Management Report 51 Outlook for the 2005/2006 fiscal year The reform of the European Sugar Market Regime will have a significant impact on the current fiscal year 2005/2006. While the corn segment is expected to continue the rapid growth enjoyed in recent years and last fall’s cereal grain plant- ings resulted in solid net sales growth, the effects of the Sugar Market Regime on our sugar beet segment are difficult to predict. Overall, however, the KWS Group expects to be able We are again expecting pronounced growth in both sales and earnings in the corn segment during the current fiscal year. Furthermore, with our new high-yielding varieties and efficient production and sales organizations within the various markets, we are expecting further increases in net sales in all regions, to compensate for the sugar beet segment’s expected drop in particularly in North America, South-Eastern Europe and net sales with increases in the corn segment. Southern Europe, but also in Germany as a result of the add- Originally, the EU’s resolutions on the reform of the sugar market were supposed to be passed in 2005. Now it is doubt- ful that this will happen before the coming sowing season in April 2006. In any case, the resolutions will come too late to adjust to the new conditions. This is particularly true with re- spect to seed production, because we had to produce the seed for the coming sowing season in the 2005 cultivation year without being able to estimate how the cultivation area in Europe would develop. Given that it amounted to 2.2 million hectares in 2005, we are now working on a basis of 1.7 million hectares in 2006. The proposals for the sugar market reform include one-time opt-out allowances for both the sugar industry and farmers. Whether farmers will take advantage of these already in 2006 will depend on the ability to shut down sugar refineries over the short term or on the availability of alternative crops for the individual farmer. We therefore do not intend to undertake any major restructuring in either seed production or marketing in the current fiscal year. We also do not intend to reduce our breeding activities to any extent, as in the long term the main objective must be to further increase the genetic superiority of sugar beet over sugar cane. Nevertheless, we are preparing for a decline in cultivation areas of up to 20 % in the high-margin markets of the EU’s 25 states over the course of this fiscal year, while we expect to see continued growth outside of the EU’s 25 states. ed impetus to growth provided by biomass. We are also expecting sharp increases in sales of rapeseed, especially in Germany, France and Poland. The market for bio- diesel made from rapeseed will also continue to grow during the current fiscal year, helping European governments to meet their Kyoto Protocol commitments to reduce CO2 emissions. The renewed excellent grain harvest of 2005 is having a nega- tive effect on our current business in the cereals segment. As considerable quantities of last year’s consumption grain have yet to be marketed, no recovery in prices is in sight. As this difficult market situation continues, less certified seed is being used for sowing in the fall of 2005. However, thanks to the continuing stabilization of the rye business, net sales for the segment as a whole are expected to be only slightly lower than last year’s. Most of the effects of the sugar market reform described above are expected to be felt in fiscal 2005/2006, while the effects of compensatory measures implemented in the sugar beet segment, together with the continued expansion of mar- kets outside the EU’s 25 states, will only be felt over the me- dium-term. On the other hand, since we expect the significant growth in the corn segment to continue, we are expecting the KWS Group’s financial statements for 2005/2006 to show a slight overall increase in net sales with reduced earnings. Otherwise, there have been no events of particular significance since the end of last fiscal year. Innovation drives KWS’ work – 36 % of employees work in research and development. 52 Management Report Management Report 53 Risks for future development The KWS Group is subject to the usual economic and political risks in the countries in which it currently has no identifiable liquidity risks. Receivables risk is payments to farmers of 60 % of their lost income. At the same operates. The following section provides an overview of industry- and company-related risks and describes its risk management goals and methods. minimized through efficient credit management with set credit time, a voluntary restructuring program involving further com- limits and the associated monitoring of customers’ credit rat- pensation payments will be aimed at encouraging the sugar ings and payment behavior. industry and farmers in general to bail-out of sugar production. Product and production risks International trade policies are the main reason for the reform Reductions in the cultivation areas for sugar beet, corn and of the sugar market. On the one hand, the EU is committed rye were amply compensated for by gains in market share and through the “Everything But Arms” initiative to open its mar- increased net sales in other product areas, particularly for kets to agricultural products from the poorest developing rapeseed and wheat. This is how our broad product range and countries starting in 2009. On the other hand, it already re- the geographical distribution of our production sites contribute exports surplus sugar originally imported from countries in to the diversification of risks. Africa, the Caribbean and the Pacific (the ACP states). In addition, the WTO panel ruling of April 28, 2005 prohibits both Sugar beet cultivation in Europe will have to become even the export of European cane sugar and the re-export of ACP more efficient if its economic and ecological advantages are to provide leverage in the competition with sugar cane over the long term. As in the past, sugar beet breeding will be of crucial importance in this process. The advantages of sugar beet include the fact that, despite its comparable yield potential, it requires less use of pesticides and fertilizers and much less water than sugar cane and can be included in resource-saving annual crop rotation programs. Despite all this, sugar cane cultivation is expanding rapidly, especially in tropical areas, where it often involves excessive rainforest clearing. Weather conditions have considerable influence on the breeding and multiplication processes of plant breeders. Weather conditions in 2004 /05 led to record harvests, result- ing in increased inventories. Provisions for possible losses on inventories resulted in additional charges. We counteract storm damage and climate change by dispersing breeding and production sites throughout the temperate climate zones around the globe. Risks arising from the reform of EU Sugar Market Recognizing perspectives – at KWS that means: grasping entrepreneurial opportunities and considering risks. Risk management Key risks from operating activities Regime Risk management, which is an integral part of the KWS Group’s planning, controlling and reporting processes, is aimed at systematically identifying, evaluating, controlling and docu- menting risks. It comprises strategic controlling, operational controlling, the quality and process monitoring system and an early warning system to identify serious risks. Our business operations are subject to the usual market risks resulting from sales and currency uncertainties. Financial and currency risks The usual derivative instruments are used to hedge interest rate and currency risks, which tend mainly to stem from for- eign currency seed sales and breeding expenses. As a result of its reliable credit sources and liquidity management, KWS The agricultural policy framework in particular has a major impact on our sugar beet seed business. On June 22, 2005 the EU Commission published its latest proposals for the forthcoming reform of the EU’s Sugar Market Regime. They include merging A and B quotas, reducing sugar prices by 39 % to € 386 per ton and reducing sugar beet prices by 43 % to € 25.05 per ton. This process is to be completed gradually until the end of farming year 2007/2008 and cushioned by sugar, as they represent subsidized agricultural exports. As a result, the EU will have to greatly reduce the amount of sugar it produces if it is to meet its obligations to the ACP states and other less-developed countries. Research and development A further risk lies in European – and in particular German – reser vations about genetically engineered crops in agriculture. The cultivation area of such plants is growing steadily in many countries. In Europe, however, their market launch on any sig- nificant scale is not in sight, and in Germany it has been ef- fectively ruled out by the amendment to the Genetic Engineer- ing Act in the summer of 2004. As a consequence, both research and commercial cultivation are facing severe com- petitive disadvantages, although increasing quantities of prod- ucts from genetically engineered plants are being imported – and have been consumed here for more than 15 years now, apparently without posing any identifiable risk. Other risks From a risk perspective, decisions regarding investments in construction and research projects present a particular chal- lenge. Decisions of this kind are prepared and implemented in accordance with specific rules governing responsibilities and approval processes. 54 Management Report Management Report 55 Employees Creative people are innovative and always come up with new ideas. They think “outside the box” 24 months. The agreed adjustments to wages and salaries will We aim to recruit from within our own ranks. As recruiting is and constantly question standards and rules. To do so, they must have courage, determination and confidence. An excellent working climate creates commitment: and that includes freedom. KWS encourages these attributes in a number of ways. Suc- cessful managers allow creative team members the freedom to be innovative. Making good use of this freedom requires not only courage, but suitable structures and processes that test the practicability and economic potential of new ideas. This kind of freedom was one of the topics discussed at KWS’ first International Management Circle. In the fall of 2004, KWS managers from all over the world met for the first time at our breeding station in Seligenstadt, near Würzburg, to exchange information and ideas. Taking advantage of this new network they discussed the various aspects of corporate development and expressed great satisfaction at the expertise gained during the event. This gathering is to become an annual event, with staff development a permanent item on the agenda. Facts and figures Fiscal 2004/05 saw KWS’ workforce grow to 2,550 (2,516) people, 797 (793) of whom are employed by KWS SAAT AG. That’s around one third of all employees. At KWS SAAT AG, personnel expenses rose by 2.5 % to € 37.2 (36.3) million. Within the KWS Group as a whole, personnel expenses rose by 3.2 % to € 101.4 (98.3) million. The current wage agreement, which includes a distinctive social com- ponent, took effect on July 1, 2005 and will remain in force for come into force in two stages. On July 1 of each respective becoming increasingly international, we are now finding that year, pay for all groups will be raised by a fixed amount. An- we can employ some of our trainees in our foreign subsidiaries other achievement of the pay talks was the merging of various once they have successfully completed their training – an variable one-time payments and their first-time inclusion in the option which turned out to be very popular. pay agreement as a performance-based entitlement. At the same time, we are also expanding our trainee program. For KWS, we also signed a works agreement with the works Our training program includes placements in different areas of council committing the company to contribute to the child the business, which helps trainees to really get to know the care costs of KWS employees starting on July 1, 2005. company. We have also made it compulsory to attend special seminars designed for the various trainee programs, and we Focus on continuing training and development organize individually tailored trips abroad. Trainees rate these In an average year, KWS provides agricultural, technical and/ components of their trainee program very highly. or commercial training for 76 (75) trainees. The proportion of the workforce undergoing training at KWS SAAT AG has re- mained at around 9.5 % for several years now. We thus make a major contribution to the training offered in the region and train more people than we actually need ourselves. For this reason, it is not possible to offer permanent employment to all trainees after they complete their programs. In this way, we systematically acquire qualified junior employees with intercultural experience for all areas of the KWS Group. Now, as ever, openness and trust are fundamental to the rela- tionship between people and the company they are working for. We make this possible. KWS Group employees by role KWS Group employees by age 36 % Research and Development 16 % Administration 4 % 60 and above 13 % 20 to 29 18 % 50 to 59 27 % Sales and Marketing 31% 30 to 39 21% Production 34 % 40 to 49 56 Management Report Management Report 57 Annual Financial Statements of the KWS Group 2004 /2005 Key Figures of the KWS Group Fiscal year 04/05* 03/04* figures in millions of € 02/03 01/02 00/01 Net sales 495.3 444.5 424.3 433.7 392.8 Operating income as a % of net sales Net income as a % of net sales Cash flow (after tax) Equity Equity ratio in % Balance sheet total Return on equity in % Return on assets in % 56.3 11.4 34.8 7.0 47.0 326.6 57.1 572.4 10.8 7.5 52.3 11.8 29.8 6.7 43.0 294.0 59.5 494.4 10.1 6.5 50.0 11.8 28.9 6.8 52.1 226.1 52.5 431.0 14.2 7.2 51.8 12.0 29.7 6.9 53.4 211.7 49.2 430.1 15.4 7.8 52.9 13.5 28.1 7.2 48.8 201.2 48.6 414.1 17.0 8.2 Fixed assets 185.6 169.2 120.7 124.0 115.3 Capital expenditure Depreciation Average number of employees Personnel costs Performance of KWS shares in € Lowest price Highest price Dividend per share 36.9 16.8 2.550 101.4 570 769 12.0 24.7 16.7 2.516 98.3 470 684 11.0 20.7 21.1 2.336 97.0 451 535 11.0 34.2 18.2 2.233 97.8 450 540 11.0 24.9 17.7 2.106 84.1 520 690 11.0 * under IFRS 58 Key Figures Income Statement for the period July 1, 2004 through June 30, 2005 Note No. June 30, 2005 Previous year € thousands Note No. 2004 / 05 Previous year € thousands Net sales Cost of sales Gross profit on sales Selling expenses General and administrative expenses Other operating income Other operating expenses Operating income Interest and other income Interest and other expenses Share of profit from affiliated companies Other income from equity investments Net financial income / expenses Result of ordinary activities Income taxes Net income for the year Share of minority interest Net income after minority interest Earnings per share (in €) (16) (17) (18) (19) (20) (22) 495,326 312,357 182,969 88,655 39,108 21,275 20,155 56,326 2,042 6,484 –488 4 –4,926 51,400 16,616 34,784 1,196 33,588 50.89 444,492 280,026 164,466 77,987 37,113 13,742 10,816 52,292 1,662 7,091 1,128 146 – 4,155 48,137 18,373 29,764 1,575 28,189 42.71 Balance Sheet at June 30, 2005 ASSETS Intangible assets Biological assets Property, plant, and equipment Investments in affiliated companies Other financial assets Deferred tax assets Noncurrent assets Inventories Trade receivables Available-for-sale securities Cash and cash equivalents Other current assets Current assets Total assets (2) (3) (4) (5) (6) (7) (8) (9) (10) (8) 28,923 64 141,987 6,045 8,586 12,768 19,640 63 132,765 7,777 8,913 9,969 198,373 179,127 106,083 190,452 20,844 32,011 24,674 374,064 572,437 74,839 161,165 7,469 50,819 20,952 315,244 494,371 EQUITY AND LIABILITIES Note No. June 30, 2005 Previous year € thousands Subscribed capital Capital reserve Retained earnings Minority interest Equity Long-term provisions Long-term borrowings Deferred tax liabilities Other long-term liabilities Noncurrent liabilities Short-term provisions Short-term borrowings Trade payables Current tax payables Other liabilities Current liabilities Liabilities Total equity and liabilities (11) (12) (13) 17,000 5,530 283,343 20,739 326,612 69,278 7,858 16,836 1,140 95,112 56,646 20,987 37,417 8,294 27,369 150,713 245,825 572,437 17,000 5,530 252,243 19,218 293,991 69,937 6,243 17,961 1,389 95,530 34,105 7,179 27,717 11,317 24,532 104,850 200,380 494,371 60 Annual Financial Statements: Balance Sheet Annual Financial Statements: Income Statement 61 Statement of Changes in Fixed Assets 2004 / 05 Values in € thousands, unless otherwise specified. Gross values Changes in Balance Currency the consol. Balance 1.7. 2004 translation group Additions Disposals Transfers 30.6. 2005 Balance 1.7. 2004 Amortization/depreciation Net book values Changes in Currency the consol. Reversal of impairment Balance Balance Previous translation group Additions losses Disposals Transfers 30.6. 2005 30.6. 2005 year Intangible assets Patents, industrial property rights, and software Goodwill Biological assets Animal livestock Plants Property, plant, and equipment Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Financial assets Affiliated companies Other financial assets 12,923 39,580 19 111 –165 0 1,781 9,083 173 153 79 0 14,464 48,621 52,503 130 –165 10,864 326 79 63,085 50 13 63 5 0 5 128,639 102,938 52,879 4,681 763 1,251 599 275 0 0 0 62 – 680 134 0 0 0 0 4 0 4 0 0 0 51 13 64 5,515 6,252 4,284 9,591 3,471 3,520 135,028 1,681 2,447 110,527 3,709 886 55,073 1,577 –6,932 6,038 8,790 24,073 32,863 0 0 0 39,933 78,467 37,972 0 16 50 66 0 0 0 242 979 503 0 –148 0 988 568 –148 1,556 0 0 0 –1 –477 74 0 0 0 0 4,094 6,118 5,006 0 289,137 2,888 – 484 25,642 10,438 – 79 306,666 156,372 1,724 – 404 15,218 7,777 8,918 16,695 0 0 0 0 –323 76 381 1,808 390 – 323 457 2,198 0 0 0 6,045 8,586 14,631 0 5 5 0 0 0 0 –4 – 4 0 0 0 Assets 358,398 3,023 – 972 36,963 12,966 0 384,446 189,240 1,790 – 556 16,774 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 112 63 175 0 0 0 0 0 0 0 0 0 9,534 24,628 4,930 23,993 4,133 15,507 34,162 28,923 19,640 0 0 0 51 13 64 50 13 63 3,663 1,850 2,718 0 6 –77 71 0 40,611 83,160 40,908 0 94,417 27,367 14,165 6,038 88,706 24,471 14,907 4,681 8,231 0 164,679 141,987 132,765 0 0 0 8,406 0 0 0 0 0 0 0 6,045 8,586 7,777 8,913 14,631 16,690 198,841 185,605 169,158 62 Annual Financial Statements: Assets Annual Financial Statements: Assets 63 Statement of Changes in Fixed Assets 2003 / 04 Values in € thousands, unless otherwise specified. Gross values Changes in Balance Currency the consol. Balance 1.7. 2003 translation group Additions Disposals Transfers 30.6. 2004 Balance 1.7. 2003 Amortization/depreciation Net book values Changes in Currency the consol. Reversal of impairment Balance Balance Previous translation group Additions losses Disposals Transfers 30.6. 2004 30.6. 2004 year Intangible assets Patents, industrial property rights, and software Goodwill Biological assets Animal livestock Plants Property, plant, and equipment Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Financial assets Investments in affiliated companies Other financial assets 13,488 38,893 –116 – 224 52,381 – 340 71 13 84 120,422 103,794 53,198 5,992 – 2 0 – 2 – 681 – 645 – 672 – 68 283,406 – 2,066 9,956 6,618 16,574 0 –1 – 1 Assets 352,445 – 2,409 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 380 911 829 0 0 0 12,923 39,580 8,777 23,426 64 –34 1,291 829 0 52,503 32,203 30 0 0 0 19 0 19 0 0 0 50 13 63 9,578 4,441 4,014 4,564 3,844 3,164 128,639 6,560 1,908 102,938 4,281 620 52,879 115 – 5,692 4,681 0 0 0 39,741 78,822 37,197 0 0 0 0 –342 –436 –309 0 22,597 14,800 0 289,137 155,760 –1,087 1,932 1,748 –2,363 53 115 2,363 7,777 8,918 1,985 1,863 0 16,695 0 1 1 0 0 0 25,873 17,511 0 358,398 187,964 –1,057 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 777 681 1,458 0 0 0 4,013 6,293 4,928 0 15,234 0 4 4 16,696 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 828 0 828 0 0 0 3,488 6,292 3,755 0 13,535 0 0 0 14,363 0 0 0 0 0 0 9 80 –89 0 0 0 0 0 0 8,790 24,073 4,133 15,507 4,711 15,468 32,863 19,640 20,179 0 0 0 39,933 78,467 37,972 0 50 13 63 70 13 83 88,706 24,471 14,907 4,681 80,681 24,972 16,002 5,991 156,372 132,765 127,646 0 5 5 7,777 8,913 9,957 6,616 16,690 16,573 189,240 169,158 164,481 64 Annual Financial Statements: Assets Annual Financial Statements: Assets 65 Statements of Changes in Equity Values in € thousands, unless otherwise specified. Parent Company Minority Interests Group Equity Comprehensive Other Group Income Comprehensive Other Group Income Subscribed Capital Group equity from currency Other Accumulated Adjustments capital reserve from earnings translation transactions Equity Minority interest Adjustments from currency Other translation transactions Equity Balance as at June 30, 2003 17,000 5,530 234,198 0 0 256,728 17,511 0 0 17,511 274,239 Dividends paid Changes in the consolidated group Other changes Consolidated net income Other recognized gains (losses) – 7,260 28,189 –3,082 Total consolidated gains (losses) 28,189 – 3,082 Balance as at June 30, 2004 17,000 5,530 255,127 – 3,082 Dividends paid Changes in the consolidated group Other changes Consolidated net income Other recognized gains (losses) Total consolidated gains (losses) –7,260 33,588 33,588 3,603 3,603 198 198 198 683 260 226 226 –7,260 0 0 28,189 –2,884 25,305 –513 622 1,575 1,575 274,773 19,195 –7,260 683 260 33,588 3,829 –545 –90 570 1,196 37,417 1,196 Balance as at June 30, 2005 17,000 5,530 281,455 521 1,367 305,873 20,326 –513 0 622 1,575 23 1,598 –7,773 0 622 29,764 –2,861 26,903 0 19,218 293,991 –545 –90 570 1,196 390 1,586 20,739 0 0 –7,805 593 830 34,784 4,219 39,003 326,612 23 23 23 390 390 413 66 Annual Financial Statements: Equity Annual Financial Statements: Equity 67 Cash Flow Statement Notes to the Cash Flow Statement Figures in € thousands, unless otherwise specified; previous-year values in parentheses. Note € Thousands The cash flow statement, which has been prepared according to IAS 7 (D) Supplementary information on the 2004 / 05 Previous year (indirect method), shows the changes in cash and cash equivalents of cash flow statement Net income (including minority interest) before extraordinary items Depreciation / reversal of impairment losses (–) on property, plant, and equipment Increase /decrease (–) in long-term provisions Other noncash expenses / income (–) Cash earnings according to DVFA/SG Increase /decrease (–) in short-term provisions Net gain (–) / loss from the disposal of assets Increase (–)/decrease in inventories, trade receivables, and other assets not attributable to investing or financing activities Increase /decrease (–) in trade payables and other liabilities not attributable to investing or financing activities 34,784 16,774 – 659 –3,664 47,235 23,242 –266 – 63,017 3,887 Net cash from operating activities (A) 11,081 Proceeds from disposals of property, plant, and equipment Payments (–) for capital expenditure on property, plant, and equipment Proceeds from the disposal of intangible assets Payments (–) for capital expenditure on intangible assets Proceeds from disposal of financial assets Payments (–) for financial assets Proceeds from the disposal of consolidated companies and other business units Payments (–) for the acquisition of consolidated companies and other business units 2,477 –23,169 152 –3,996 2,198 – 381 218 – 7,635 29,764 16,696 –872 –3,102 42,486 –210 158 – 11,711 5,886 36,609 1,125 – 22,598 2 –1,291 1,863 –856 0 0 Net cash from investing activities (B) – 30,136 – 21,755 Proceeds from additional capital Dividend payments (–) to shareholders parent and minority Proceeds from issuing bonds and borrowings Payments (–) to redeem bonds and borrowings 1,200 –7,805 41,182 –25,759 Net cash from financing activities (C) 8,818 Net cash changes in cash and cash equivalents Effect of exchange rate changes on assets Effect of exchange rate changes on equity Others Changes in cash and cash equivalents due to exchange rate, consolidated group, and measurement changes Cash and cash equivalents at beginning of year –10,237 –1,234 3,993 2,045 4,804 58,288 Cash and cash equivalents at end of year (D) 52,855 620 –7,773 5,912 – 27,806 -29,047 –14,193 1,353 –3,059 200 –1,506 73,987 58,288 the KWS Group in the three categories of operating activities, investing activities, and financing activities. The effects of exchange rate changes As in previous years, cash and cash equivalents are composed of cash (on and changes in the consolidated group have been eliminated from hand and balances with banks) and current available-for-sale securities. the respective balance sheet items, except those affecting cash and cash equivalents. Cash and cash equivalents includes € 6,214 thousand (€ 8,414 thou- sand) from partially consolidated companies. (A) Cash flows from operating activities Information on acquisitions and disposals of subsidiaries Previous and other business units 2004 / 05 year Total amount of all purchase prices Total amount of sales prices Total amount of cash components of purchase prices Total amount of cash components of sales prices Total amount of all cash and cash equivalents acquired with the companies Total amount of all cash and cash equivalents sold with the companies 9,468 218 7,635 218 2,265 127 0 0 0 0 0 0 Amounts of other assets and liabilities acquired or sold with the companies 2004 / 05 Previous year acquired sold acquired sold Assets 1,799 378 Current assets, incl. pre- paid expenses (excluding cash and cash equivalents) 12,673 1,051 Provisions Liabilities, 850 104 incl. deferred income 14,239 1,226 0 0 0 0 0 0 0 0 The cash proceeds from operating activities are primarily determined by the cash earnings according to DVFA / SG, which increased by € 4,749 thousand to € 47,235 thousand. The proportion of DVFA/SG cash earn- ings included in sales was 9.5 % (8.6 %). The increase in inventories and receivables used € 63,017 thousand (€ 11,711 thousand). The cash pro- ceeds from operating activities include interest income of € 1,681 thou- sand (€ 1,567 thousand) and interest expense of € 3,224 thousand (€ 3,929 thousand). Income tax payments amounted to € 24,567 thou- sand (€ 12,436 thousand). (B) Cash flows from investing activities A net total of € 30,136 thousand (€ 21,755 thousand) was required to finance investing activities. An amount of € 27,165 thousand (€ 23,889 thousand) was paid for intangible and tangible assets and an amount of € 381 thousand (€ 856 thousand) for financial assets. There were total cash receipts of € 4,827 thousand (€ 2,990 thousand) for disposals of assets. In the fiscal year under review, interests in companies were acquired for a total purchase consideration of € 9,468 thousand and sold for a total disposal consideration of € 218 thousand; € 7,635 thou- sand of the purchase consideration and 100 % of the disposal consider- ation was cash. (C) Cash flows from financing activities Financing activities resulted in cash proceeds of € 8,818 thousand (– € 29,047 thousand). The profit distributions related to the dividends of € 7,260 thousand (€ 7,260 thousand) paid to the shareholders of KWS SAAT AG and profit distributions of € 545 thousand (€ 513 thousand) paid to other shareholders of fully consolidated subsidiaries. In addition, there were new borrowings of € 41,182 thousand (€ 5,912 thousand) and liabilities of € 25,759 thousand (€ 27,806 thousand) were repaid. 68 Annual Financial Statements: Cash Flow Statement Annual Financial Statements: Notes to the Cash Flow Statement 69 Segment reporting Figures in € thousands, unless otherwise specified; previous-year values in parentheses. In accordance with its internal reporting system, the KWS Group is activities represented by its investment in the SAKA-RAGIS Group and Segment information primarily organized by the following business segments: its agricultural operations and consulting services for the KWS Group Sugar beet Corn Cereals Breeding & services and other customers are assigned to this segment. Segment sales contains both sales from third parties (external sales) and sales between the segments (intersegment sales). The prices for Considered a core competence for the KWS Group’s entire product intersegment sales are determined on an arm’s-length basis. range, plant breeding, including the related biotechnology research, is essentially concentrated at the parent company in Einbeck. All the breeding material, including the relevant information and expertise about The research and development function is contained in the breeding how to use it, is owned by KWS SAAT AG, with respect to sugar beet & services segment. Because of their minor importance within the and corn, and by LOCHOW-PETKUS GMBH, with respect to cereals. KWS Group, the distribution and production of oil and field seed are Research and breeding are also performed by the wholly-owned reported in the cereals and corn segments, depending on the legal en- German subsidiary PLANTA ANGEWANDTE PFLANZENGENETIK UND Sugar beet Corn Cereals tities involved. BIOTECHNOLOGIE GMBH and breeding activities are conducted by Breeding & services Segment sales Internal sales External sales 2004/05 Previous year 2004/ 05 Previous year 2004/ 05 Previous year 217,908 217,842 54,645 110,382 193,688 191,422 53,684 102,973 0 238 2,267 102,946 43 160 969 96,103 217,908 217,604 52,378 7,436 193,645 191,262 52,715 6,870 Description of segments Sugar beet ten other German and foreign subsidiaries and affiliated companies, as in the previous year. KWS Group 600,777 541,767 105,451 97,275 495,326 444,492 The results of the multiplication, processing and distribution activities SAKA-RAGIS PFLANZENZUCHT GBR breeds and distributes po- The breeding & services segment generates 93.3 % (93.3 %) of its sales 71,7% (74,0%) of total sales are recorded in Europe (including Germany). for sugar beet seed are reported under the sugar beet segment. Under tatoes in the KWS Group. This company is 45 % owned by the fully from the other segments. The sales of this segment represents 1.5 % the leadership of KWS SAAT AG, thirteen (twelve) foreign subsidiaries consolidated RAGIS KARTOFFELZUCHT- & HANDELSGESELLSCHAFT (1.5 %) of the Group’s external sales. The operating income of each segment is reported as the segment and affiliated companies and one (zero) subsidiary in Germany are active MBH. The operating income of RAGIS KARTOFFELZUCHT- & HAN- result. The segment results are presented on a consolidated basis. in this segment. Corn DELSGESELLSCHAFT MBH is included in the operating income of the The sugar beet segment is the largest contributor of external sales, breeding & services segment, but the operating income of SAKA-RAGIS accounting for 44.0 % (43.6 %) of external sales, followed by corn with Depreciation and amortization charges of € 16,774 thousand PFLANZENZUCHT GBR and SAKA RAGIS AGRAR-PRODUKTE GMBH 43.9 % (43.0 %) and cereals with 10.6 % (11.9 %). (€ 16,696 thousand) allocated to the segments relate exclusively to KWS MAIS GMBH is the lead company for the corn segment. In ad- & CO. KG, in which RAGIS KARTOFFELZUCHT- & HANDELSGESELL- dition to KWS MAIS GMBH, business activities are conducted by one SCHAFT MBH holds a 36 % interest, are reported as part of finance German company (as in the previous year) and fourteen (twelve) foreign costs under “Share of profit of affiliated companies.” companies of the KWS Group. The production and distribution activities of this segment relate to corn for grain and silage corn, and to oil and Consulting services include the systems business of KWS SAAT AG field seed. Cereals and its agricultural operations, KWS KLOSTERGUT WIEBRECHTS- HAUSEN GMBH, KWS SAATFINANZ GMBH, which mainly handles insur- ance for KWS, and EURO-HYBRID GESELLSCHAFT FÜR GETREIDE- The lead company of this segment, which essentially concerns the ZÜCHTUNG M B H. production and distribution of hybrid rye, wheat, and barley, as well as oil and field seed, is LOCHOW-PETKUS GMBH, an 81 %-owned sub- The other services performed for the KWS product segments es- sidiary of KWS SAAT AG, with its three (three) foreign subsidiaries and sentially include all the management services of KWS SAAT AG, such affiliated companies in France, Great Britain, and Poland. as holding company and administrative functions, including strategic Breeding & services development projects, which are not directly charged to the product segments or indirectly allocated to them by means of an appropriate This segment includes the centrally controlled corporate functions of cost formula. research and breeding, as well as services for the KWS product seg- ments of sugar beets, corn and cereals. In addition, the Group’s potato External sales by region Germany Europe (excluding Germany) Americas Rest of world 2004 / 05 124,628 230,590 117,550 22,558 Previous year 119,423 209,386 99,656 16,027 495,326 444,492 intangible assets and property, plant, and equipment. An impairment loss on goodwill of € 564 thousand was recognized for SAKA-RAGIS PFLANZENZUCHT GBR; it is reported as part of finance costs. The other noncash items recognized in the income statement re- late to noncash changes in the allowances on inventories and receiv- ables, and in provisions. In all of the segments this item consisted of net expenses. 70 Annual Financial Statements: Segment Reporting Annual Financial Statements: Segment Reporting 71 Notes to the Annual Financial Statements Figures in € thousands, unless otherwise specified; previous-year values in parentheses. Segment earnings Depreciation Other The KWS Group (KWS-Konzern) is a consolidated group as defined Prohibition on recognition of future internal expenses (e.g. deferred and amortization noncash items Assets Liabilities in the International Financial Reporting Standards (IFRSs) published by maintenance) under IAS 37 Previous Previous Previous Previous Previous 2004 /05 year 2004 /05 year 2004 / 05 year 2004 / 05 year 2004 / 05 year Sugar beet Corn Cereals 31,015 31,899 4,658 4,564 8,719 7,788 146,254 136,117 20,972 18,930 10,600 9,368 1,937 1,178 6,701 25,452 189,060 130,573 86,862 63,893 3,638 3,575 1,547 1,382 215 627 27,734 24,927 7,208 6,567 Breeding & services 11,073 7,450 8,632 9,572 13,086 3,246 133,961 128,646 78,318 73,033 the International Accounting Standards Board (IASB), London, taking into Translation of monetary receivables and liabilities at the closing rate account the interpretations of the International Financial Reporting Com- under IAS 21 mittee (IFRIC). The consolidated financial statements of the KWS Group Market value accounting mandatory for some financial instruments were prepared for the first time under these international standards under IAS 39 as of June 30, 2005, applying IFRS 1. For the purpose of previous-year Interest portion from additions to pension provisions reported under comparison, the figures for the 2003/04 fiscal year, which is based on net interest the opening balance sheet as of July 1, 2003, have been determined Total segments Others 497,009 420,263 193,360 162,423 accordingly. The requirements of section 292a of the Handelsgesetzbuch The differences between carrying amounts in the HGB and IFRS balance 75,428 74,108 52,465 37,957 (HGB – German Commercial Code) for the exemption from the prepar- sheets had the following effects on equity as of the balance sheet date: KWS Group 56,326 52,292 16,774 16,696 28,721 37,113 572,437 494,371 245,825 200,380 The operating assets of the segments are composed of intangible assets, property, plant, and equipment, inventories and all receivables, other assets, and prepaid expenses that can be charged directly to the segments or indirectly allocated to them by means of an appropriate cost formula. Investments in long-term assets by segment Sugar beet Corn Cereals 2004 / 05 4,037 18,708 1,558 Previous year 3,769 3,116 1,053 Cash and cash equivalents and/or current available-for-sale securities are allocated to the segments only to the extent that the allocation of operating liabilities makes it necessary to increase operating assets by a corresponding amount. The operating liabilities attributable to the segments include the borrow- ings reported on the balance sheet, less provisions for taxes and the portion of other liabilities that cannot be charged directly to the seg- ments or indirectly allocated to them by means of an appropriate cost formula. Borrowings are added to operating liabilities only when they exceed the available cash. Assets or liabilities that have not been alloca- ted to the segments are reported as “Others”. Capital expenditure on assets was mainly attributable to the corn segment and amounted to € 18,708 thousand (€ 3,116 thousand). 41 % Breeding & services 12,584 16,808 36,887 24,746 Investments in long-term assets by region 2004 / 05 Previous year Germany 12,826 16,181 Europe (excluding Germany) North and South America Rest of world 8,341 15,252 468 3,228 4,170 1,167 36,887 24,746 ation of consolidated financial statements under German commercial law (HGB) have been met. The consolidated financial statements discharge 06 / 30 / 2003 06 / 30 / 2004 the obligations of LOCHOW-PETKUS GMBH, Bergen, and KWS MAIS GMBH, Einbeck, to produce their own financial statements. The following Equity according to HGB 226,103 270,439 standards (rev. 2003) were used before they became effective: IFRS 1, Fixed assets IFRS 3, IFRS 5, IAS 1, IAS 2, IAS 8, IAS 10, IAS 16, IAS 17, IAS 21, Current assets IAS 24, IAS 27, IAS 28, IAS 31, IAS 32, IAS 33, IAS 40, and IAS 39 Deferred tax assets (rev. 2004). General disclosures Basis of accounting Deferred tax liabilities Pension provisions Other provisions Minority interests Other adjustments 43,742 10,764 7,684 – 20,020 – 9,389 30,821 16,657 12,695 – 3,905 – 6,169 – 8,546 38,817 –16,135 – 25,997 669 0 The first-time adoption of the IFRSs as of July 1, 2003 led to the follow- ing significant changes compared with the previous accounting method under the HGB: Equity according to IFRSs 274,239 293,991 Although net income according to IFRSs is € 1,064 thousand, the differ- Classification of the balance sheet into noncurrrent and current assets ence recognized in equity narrowed by € 24,584 thousand in 2003 / 04. and noncurrent and current liabilities under IAS 1 New rules for consolidated financial statements under HGB (section 308 Amortization of goodwill discontinued and replaced by a requirement (3) of the HGB no longer applies) required assets to be remeasured, to perform an annual impairment test under IFRS 3 which led to an increase in equity of € 18,026 thousand, taking deferred Straight-line depreciation under IAS 16 (previously reducing-balance tax liabilities into account. In addition, the first-time adoption of German depreciation with change of method) Accounting Standard (GAS) 10, which requires deferred tax assets and Measurement of biological assets at fair value under IAS 41 liabilities to be determined and reported on a gross basis, resulted in an Previous Deferred taxes computed using the liability method under IAS 12 increase in equity of € 8,879 thousand. (17 %) of capital expenditure was made in North and South America and Operating assets by region 2004 / 05 year Pension provisions measured using the accrued benefit method under 35 % (65 %) in Germany, mainly in Einbeck. Germany 212,808 207,729 Europe (excluding Germany) 165,922 122,741 North and South America Rest of world 111,630 6,649 84,629 5,164 497,009 420,263 IAS 19 (previously entry-age normal method) 72 Annual Financial Statements: Segment Reporting Notes: General Information 73 The income statement shows the following differences affecting net profit The differences in the cash flow statement are as follows: or loss for 2003 / 04: Income statement 2003 / 04 HGB Reconciliation IFRS Cash flow statement 2003 / 04 779 –7,326 8,105 2,230 293 – 3,355 – 2,489 4,716 – 3,888 828 –602 1,430 366 1,064 1.61 444,492 280,026 164,466 77,987 37,113 13,742 10,816 52,292 – 4,155 48,137 18,373 29,764 1,575 28,189 42.71 Net sales Cost of sales Gross profit on sales Selling expenses General and administrative expenses Other operating income Other operating expenses Operating income Net financial income / expenses Result of ordinary activities Income taxes Net income for the year Minority interest 443,713 287,352 156,361 75,757 36,820 17,097 13,305 47,576 – 267 47,309 18,975 28,334 1,209 Net income for the year after minority interest 27,125 Earnings per share (€) 41.10 There were significant differences as a result of higher depreciation of property, plant, and equipment under IFRSs; the fact that goodwill is no longer amortized accounts for a difference of € 2,752 thou- sand. Under IFRSs, the interest portion from additions to provisions for pensions, partial retirement, and long-service awards is reported under interest and similar expenses. This change increases the IFRS operating profit by € 3,162 thousand and increases finance costs by the same amount. Net income for the year Depreciation of property, plant, and equipment / reversal of impairment losses Change in long-term provisions Other noncash expenses / income Cash earnings according to DVFA / SG Change in short-term provisions Net gains / losses from the disposal of assets Change in inventories, trade receivables, and other assets Change in trade payables and other liabilities Net cash from operating activities Cash receipts from sales of assets Cash payments for capital items HGB 28,334 19,637 828 –3,152 45,647 1,620 –35 –14,256 3,741 36,717 3,460 –26,060 IFRS 29,764 16,696 – 872 –3,102 42,486 –210 158 –11,711 5,886 36,609 2,990 – 24,745 Net cash from investing activities – 22,600 – 21,755 Proceeds from increases in equity Dividends paid and redemption of equity Proceeds from noncurrent liabilities Repayment of noncurrent liabilities 622 –7,773 5,912 –26,539 620 –7,773 5,912 – 27,806 Net cash from financing activities – 27,778 – 29,047 Net cash change in cash and cash equivalents Cash effect of changes in the exchange rate and in the consolidated group Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash on hand and balances with banks Current available-for-sale securities Cash and cash equivalents –13,661 –1,852 73,832 58,319 50,819 7,500 58,319 –14,193 –1,506 73,987 58,288 50,819 7,469 58,288 74 Notes: General Information Notes: General Information 75 Companies consolidated in the KWS Group Joint ventures are carried according to the percentage of equity held in Classification of the balance sheet and the income statement Property, plant, and equipment The consolidated financial statements of the KWS Group include the the companies concerned using IFRS 3. The costs for the functions include all directly attributable costs, inclu- Property, plant, and equipment is measured at cost less depreciation. single-entity financial statements of KWS SAAT AG and its subsidiaries ding other taxes and research and development expenses. Research A loss is recognized for an impairment expected to be permanent. In in Germany and other countries in which it directly or indirectly controls Subsidiaries and joint ventures are consolidated and associated com- grants are not deducted from the costs to which they relate, but re- addition to directly attributable costs, the cost of self-produced plant or more than 50 % of the voting rights. In addition, joint ventures are pro- panies measured at equity only if such recognition is considered ma- ported gross under other operating income. equipment also includes a proportion of the overheads and deprecia- portionately consolidated, according to the percentage of equity held in terial for the fair presentation of the financial position and results of those companies. Subsidiaries and joint ventures that are considered operations of the KWS Group. As part of the elimination of intra-Group Accounting policies tion / amortization, but no finance charges. Straight-line depreciation of buildings is based on a useful life of 50 years. The useful lives of tech- immaterial for the presentation and evaluation of the financial position balances, borrowings, receivables, liabilities, and provisions are netted Consistency of accounting policies nical equipment and machinery range from 5 to 15 years, and for opera- and performance of the Group are not included. between the consolidated companies. Intercompany profits not realized The accounting policies are largely unchanged from the previous year. ting and office equipment from 3 to 10 years. Low-value assets are fully at Group level are eliminated from intra-Group transactions. Sales, in- All estimates and assessments as part of accounting and measure- expensed in the year of purchase; they are reported as additions and Consolidation methods come, and expenses are netted between consolidated companies, and ment are continually reviewed; they are based on historical patterns and disposals in the year of purchase in the statement of changes in non- The single-entity financial statements of the individual subsidiaries and intra-Group distributions of profit are eliminated. expectations about the future regarded as reasonable in the particular current assets. Impairment losses on property, plant, and equipment are joint ventures included in the consolidated financial statements were circumstances. uniformly prepared on the basis of the accounting and measurement Deferred taxes on consolidation transactions recognized in income methods applied at KWS SAAT AG; they were audited and given un- are calculated at the tax rate applicable to the company concerned. Intangible assets recognized according to IAS 36 whenever the recoverable amount of the assets is less than its carrying amount. The recoverable amount is the higher of the asset’s net realizable value and its value in use (value qualified audit opinions by independent auditors. For fully or propor- These deferred taxes are aggregated with the deferred taxes recognized Purchased intangible assets are carried at cost less amortization over of future cash flows expected to be derived from the asset). tionately consolidated units acquired before July 1, 2003, the Group in the separate financial statements. a useful life of three to ten years. Impairment losses on intangible assets exercised the option allowed by IFRS 1 to maintain the consolidation with finite useful lives are recognized according to IAS 36. Goodwill and Investments in affiliated companies and other financial assets procedures chosen to date. The goodwill reported in the HGB financial Minority interests are recognized in the amount of the imputed percent- intangible assets with indefinite useful lives are not amortized, but tested Investments are measured at cost. The cost of equity-accounted invest- statements as of June 30, 2003 was therefore transferred unchanged to age of equity in the consolidated companies. for impairment at least once a year. The procedure for the impairment ments is increased or decreased by proportionate changes in equity. the opening IFRS balance sheet. For acquisitions made after June 30, test is explained in the notes to the balance sheet. Intangible assets Assets available for sale are carried at market value if this can be reliably 2003, capital consolidation follows the purchase method by allocating Currency translation acquired as part of business combinations are carried separately from measured. Unrealized gains and losses, including deferred taxes, are the cost of acquisition to the Group’s interest in the subsidiary’s equity Under IAS 21, the financial statements of the consolidated foreign sub- goodwill if they are separable according to the definition in IAS 38 or recognized directly in the revaluation reserve under equity. Permanent at the time of acquisition. Any excess of interest in equity over cost is sidiaries and joint ventures that conduct their business as financially, result from a contractual or legal right, and fair value can be reliably impairment losses are recognized immediately through the income recognized as an asset, up to the amount by which fair value exceeds economically, and organizationally independent entities are translated measured. statement. Borrowings are carried at amortized cost. the carrying amount. Any goodwill remaining after first-time consoli- into euros using the functional currency method as follows: dation is recognized under intangible assets. Biological assets Inventories According to IFRS 3, goodwill is not amortized, but tested for impair- Balance sheet items at the exchange rate on the balance sheet date. sales proceeds, less costs to sell. slow-moving items. In addition to directly attributable costs, the cost of Income statement items at the average exchange rate for the year Pursuant to IAS 41, biological assets are measured at the expected Inventories are carried at cost less an allowance for obsolescent or ment at least once a year (impairment-only approach). Investments in The difference resulting from the application of annual average rates non-consolidated companies are carried at cost. to the net profit for the period in the income statement is taken directly Investments in affiliated companies are measured at equity and were recognized in the consolidated financial statements at the time of acqui- sition or first-time consolidation. Goodwill is reported in a separate ac- count under intangible assets. to equity. sales also includes indirect labor and materials including depreciation under IAS 2. Under IAS 41, biological assets are measured at the ex- pected sales proceeds, less costs to sell. The measurement procedure used is based on standard industry value tables. 76 Notes: General Information Notes: General Information 77 Receivables and other assets Consolidated group and changes in the consolidated group As of December 31, 2004, AGRELIANT GENETICS LLC., Westfield, Companies carried at-equity Receivables and other current assets are recognized at nominal values. IN, USA paid a purchase price of € 18,848 thousand to acquire non- Individual risks and the general credit risk are accounted for with appro- Number of companies current assets of € 3,387 thousand and current assets of € 9,621 thou- 2004 / 05 Previous year priate allowances. Current securities Available-for-sale securities are carried at market value. Unrealized gains and losses, including deferred taxes, are recognized directly in the revalu- ation reserve under equity. Deferred taxes Including 2004 / 05 previous year KWS SAAT AG Domestic Foreign Total Domestic Foreign Total Consolidated 11 30 41 10 27 37 Consolidated at quota At-equity 0 11 2 4 4 – 4 4 34 45 0 2 10 2 31 0 41 2 Deferred taxes are calculated on differences between the IFRS carrying amounts of assets and liabilities and their tax base, and on loss carryfor- Total 13 34 47 12 31 43 sand and assumed liabilities of € 7,941 thousand from PRODUCERS HYBRIDS in North America. The purchased goodwill of € 13,781 thou- sand is included in an amount of € 7,800 thousand in additions to intangible assets, according to the proportionate consolidation of AGRELIANT GENETICS LLC. In fiscal year 2004/ 05, PRODUCERS HYBRIDS contributed € 1,577 thousand to the operating income of the KWS Group. If the acquisition date had been July 1, 2004, the sales of the KWS Group would have been unchanged, and operating income would have been € 1,000 thousand lower. wards; they are reported on a gross basis. Under IAS 12, deferred taxes The financial position and results of operations of proportionately con- are calculated on the basis of the applicable local income tax. The companies are listed under item number 30. solidated and equity-accounted companies are as follows: Provisions for pensions and other employee benefits Changes in the fully consolidated companies relate to Proportionately consolidated companies Under IAS 19, obligations from direct pension commitments are meas- ured using actuarial principles under the accrued benefit valuation the following newly established subsidiaries of KWS MAIS GMBH 2004 / 05 Previous year Noncurrent assets Current assets 20,202 11,254 21,917 10,861 Total assets 31,456 32,778 Equity Noncurrent liabilities Current liabilities Total equity and liabilities 20,226 6,844 4,386 19,731 8,185 4,862 31,456 32,778 Net sales 9,590 14,993 Net profit for the year 1,626 4,814 method. Gains or losses from unplanned changes in accrued benefits KWS SEMENA BULGARIA E.O.O.D., Sofia, Bulgaria and from changes in actuarial assumptions are disregarded if the change KWS OSIVA S.R.O., Velké Mezirici, Czech Republic moves within a 10 % corridor of the accrued benefits. Only if the gains or losses exceed this threshold will they be distributed over the remaining the acquisition of the following subsidiary of KWS INTERSAAT GMBH working lives and included in the provision. DELITZSCH PFLANZENZUCHT GMBH, Winsen (Aller), Germany Other provisions the first-time consolidation of the following subsidiary of KWS SAAT AG Tax and other provisions account for all discernible risks and contingent EUROHYBRID GMBH, Einbeck, Germany, and its subsidiary liabilities. Depending on circumstances, they are measured at the most KWS RUS O.O.O., Moscow, Russian Federation probable amount or at the expected value. Liabilities MOD MANAGEMENT, ORGANISATION UND DATENVERARBEITUNG CONSULTING GMBH, Einbeck, Germany, was disposed of as part of Noncurrent assets Current assets 26,690 61,569 15,583 47,722 Total assets 88,259 63,305 Equity Noncurrent liabilities Current liabilities Total equity and liabilities 44,301 1,983 41,975 35,026 1,264 27,014 88,259 63,304 Liabilities are recognized at their repayment amounts. a management buy-out. Net sales 92,804 67,931 Contingencies As of March 31, 2005, KWS INTERSAAT GMBH acquired the 100 % Net profit for the year 10,024 4,602 The contingent liabilities recognized in the balance sheet correspond to interest in DELITZSCH PFLANZENZUCHT GMBH, Winsen (Aller) at a the loan amounts drawn down as of the balance sheet date. purchase price of € 44 thousand. Pursuant to IFRS 3, the difference from first-time consolidation of € 898 thousand was recognized as other operating income of the KWS Group. Since the date of acquisition, DELITZSCH PFLANZENZUCHT GMBH has reduced the KWS Group’s operating profit by € 174 thousand. If the acquisition date had been July 1, 2004, the sales of the KWS Group would have been € 1,900 thousand higher, and operating income would have been € 300 thou- sand higher. 78 Notes: General Information Notes: General Information 79 Notes to the Balance Sheet Figures in € thousands, unless otherwise specified; previous-year figures in parentheses. (1) Assets perspectives into account. A standard discount rate of 7.1 % has been (6) Deferred tax assets Trade receivables increased by € 29,287 thousand, from € 161,165 The statement of changes in noncurrent assets contains a break- beyond the detailed planning horizon in order to allow for extrapolation Under IAS 12, deferred tax assets are calculated as the difference includes € 3,060 thousand (€ 11,035 thousand) receivables from re- down of assets summarized in the balance sheet and shows how they in line with the expected inflation rate. Tests provided evidence that, between the IFRS balance sheet amount and the tax base. They are lated parties. The increase is mainly due to sales growth in some mar- changed in 2004/05. Capital expenditure on assets was € 36,887 thou- with one exception, the goodwill recognized in the consolidated bal- reported on a gross basis and total € 12,768 thousand (€ 9,969 thou- kets with significantly longer payment terms, particularly in Eastern and assumed to calculate present values. No growth rate has been applied thousand to € 190,452 thousand, an increase of + 18.2 %; this amount sand (€ 24,745 thousand), plus € 76 thousand (€ 1,129 thousand) from ance sheet and determined for the cash-generating units is not impaired. sand), of which € 84 thousand (€ 8 thousand) will be carried forward Southern Europe. the share in net profit of equity-accounted affiliated companies attri- An impairment loss of € 564 thousand was recognized on goodwill allo- for the future use of tax losses butable to the KWS Group, so that total additions to assets amounted cated to an associated company. In the previous year, one item of good- to € 36,963 thousand (€ 25,874 thousand). The management report de- will was written off in full and an impairment loss of € 667 thousand had scribes the significant additions to assets. Depreciation and amortization to be recognized. (7) Inventories amounted to € 16,774 thousand (€ 16,696 thousand). Other current assets also include current financing receivables, tax assets und prepaid expenses. Current financing receivables include an amount of € 866 thousand Previous (€ 862 thousand) receivable from related parties. (3) Property, plant, and equipment 06 / 30 / 2005 year (2) Intangible assets This item includes purchased varieties, rights to varieties and distribu- sand) and depreciation amounted to € 15,218 thousand (€ 15,234 tion rights, software licenses for electronic data processing, and good- thousand). The increase in capital expenditure was mainly due to the will. Additions to intangible assets amounting to € 10,864 thousand expansion of production capacity in the corn segment in France. Capital expenditure amounted to € 25,642 thousand (€ 22,598 thou- (€ 1,291 thousand) relate primarily to goodwill from the acquisition of PRODUCERS HYBRIDS in North America and subsequent expenditure for the interest in AGRELIANT GENETICS LLC. Amortization of intan- (4) Investments in affiliated companies Raw materials and consumables Work in process Immature biological assets Finished goods 9,020 34,391 5,015 57,657 7,855 22,705 5,022 39,257 Current receivables include an amount of € 658 thousand (€ 1,115 thou- sand) due after more than one year. (9) Securities 106,083 74,839 Securities amounting to € 20,843 thousand (€ 7,469 thousand) relate primarily to short-term liabilities securities and fund shares. gible assets amounted to € 1,556 thousand (€ 1,459 thousand); this Inventories increased by € 31,244 thousand, or + 41.8 %, net of write- charge is included in the relevant functional costs, depending on the This item relates to equity-accounted investments in affiliated compa- downs totaling € 27,162 thousand (€ 20,082 thousand). Immature bio- operational use of the intangible assets. nies. Total additions of € 76 thousand represent the share in net profit of logical assets relate to living plants in the process of growing (before (10) Cash the affiliated companies attributable to the KWS Group. Total disposals harvest). Public subsidies of € 1,132 thousand were granted for the total In order to meet the requirements of IFRS 3 in combination with IAS 36 of € 1,808 thousand relate to profit distributions within the consolidated area under cultivation of around 4,500 ha. Cash of € 32,011 thousand (€ 50,819 thousand) consists of balances and to determine any impairment of goodwill, cash-generating units group. The balance sheet date of SAKA-RAGIS AGRARPRODUKTE have been defined in line with internal reporting guidelines. In the KWS GMBH & CO. KG (December 31) differs from that of the KWS Group. Group, these units are the legal entities. To test for impairment, the Inclusion of this company on the basis of the annual financial statements (8) Current receivables carrying amount of each entity is determined by allocating the assets as of December 31, 2004 has not had any significant impact on the and liabilities, including attributable goodwill and intangible assets. An consolidated financial statements. impairment loss is recognized if the recoverable amount of an entity is less than its carrying amount. The recoverable amount is the higher of the entity’s net realizable value and its value in use (value of future cash (5) Other financial assets flows expected to be derived from the entity). The impairment test uses the expected future cash flows on which the medium-term plans of the Investments in non-consolidated subsidiaries and shares in coopera- companies are based; these plans, which cover a period of four years, tives and GmbHs that are of minor significance, totaling € 4,136 thou- have been approved by the Executive Board. They are based on histor- sand, are reported in this account. The mutual investment in our French ical patterns and expectations about future market development. partner RAGT SEMENCES S.A. is carried at cost of € 4,000 thousand. Listed shares are carried at market value of € 90 thousand; the HGB For the European and American markets, the key assumptions on which balance sheet as of June 30, 2003 included an amount of € 38 thousand corporate planning is based include assumptions about price trends under other financial assets. This account also includes interest-bearing for seed, in addition to the development of market shares and the regu- home-building loans to employees and other interest-bearing loans latory framework. Company-internal projections take the assumptions totaling € 360 thousand. of industry-specific market analyses and company-related growth Trade receivables Other current assets 06 / 30 / 2005 190,452 24,674 Previous year 161,165 20,952 Current receivables 215,126 182,117 with banks and cash on hand. The cash flow statement explains the change in this item compared with the previous year. The financial assets consist primarily of bank balances and cash on hand, trade receivables, other receivables, and securities. The credit risk is mainly related to trade receivables. The amount recognized in the balance sheet is net of allowances for receivables expected to be un- collectible, estimated on the basis of historical patterns and the current economic environment. The credit risk on cash and derivative financial instruments is limited because they are kept with banks that have been given a good credit rating by international rating agencies. There is no significant concentration of credit risks, because the risks are spread over a large number of contract partners and customers. 80 Notes: Notes to the Balance Sheet Notes: Notes to the Balance Sheet 81 (11) Equity As of the balance sheet date, the Subscribed capital of KWS SAAT AG was € 17,000,000.00, unchanged form the previous year. The 660,000 bearer shares are subdivided as follows: 21,000 certificates for 1 share each 21,000 shares 15,400 certificates for 10 shares each 154,000 shares 9,700 certificates for 50 shares each 485,000 shares Equity (including minority interest) increased by € 32,621 thousand, from € 293,991 thousand to € 326,612 thousand. For details, see the state- ment of changes in equity. (12) Noncurrent liabilities Long-term provisions Long-term financial liabilities Deferred tax liabilities Other long-term liabilities 06 / 30 / 2005 Previous year 69,278 7,858 16,836 1,140 69,937 6,243 17,961 1,389 95,112 95,530 Long-term provisions 07 / 01 / 2004 Changes in the consol. group Additions Consumptions Reversals 06 / 30 / 2005 Pensions provisions Other provisions 65,467 4,470 31 –865 4,298 699 4,083 583 69,937 – 834 4,997 4,666 111 45 156 65,602 3,676 69,278 The accrued benefit is reconciled to the provisions reported in the con- (13) Current liabilities solidated financial statements as follows: 06 / 30 / 2005 06 / 30 / 2004 Accrued benefit entitlements Actuarial losses 73,874 – 8,272 Trade payables to affiliates 0 22 65,792 Trade payables 37,417 27,695 –325 Trade payables 37,417 27,717 65,602 65,467 06 / 30 / 2005 Previous ye ar The benefit obligations changed as follows during the fiscal year: 2004 / 05 2003 / 04 Current liabilities to banks Current liabilities to affiliates Current liabilities to investees and investors Other current financial liabilities 2,925 14,078 610 3,374 4,180 1,079 0 1,920 Pension provisions at beginning of fiscal year Changes in consolidated group Cost of additional benefit entitlements Interest cost on benefit entitlements added in previous years Pension payments Pension provisions at end of fiscal year 65,467 64,708 Current financial liabilities 20,987 7,179 31 927 3,260 4,083 0 Current provisions 56,646 34,105 1,104 Tax liabilities 8,294 11,317 3,162 3,507 Current finance lease liabilities Deferred income 57 10 39 21 Other current liabilities 27,302 24,472 65,602 65,467 Other liabilities 27,369 24,532 In addition, the benefit obligation was backed by a guarantee that exactly matches the present value of the obligation of € 2,525 thousand (defined contribution plan). Short-term liabilities increased by a total of € 45,863 thousand to The long-term financial liabilities include loans from banks amounting to liabilities to related parties increased by € 12,999 thousand. € 6,041 thousand (€ 6,072 thousand). Of the long-term loans, an amount of € 1,807 thousand is scheduled to be repaid in each of 2006 / 07 and The tax liabilities of € 8,294 thousand (€ 11,317 thousand) include 2007/ 08. The remaining loans payable of € 2,427 thousand have remai- amounts for the year under review and the period not yet concluded by ning maturities through 2015. the external tax audit. € 150,713 thousand. Due to increasing intra-Group financing, financial 150,713 104,850 Retirement benefits are based on defined benefit obligations, deter- The discount rate was 4.25 %, compared with 5.25 % the year before. Under IAS 12, deferred tax liabilities are calculated as the difference be- mined by years of service and pensionable compensation. tween the IFRS balance sheet amount and the tax base. They are repor- No income or expense was recognized as a result of changes in retire- ted on a gross basis and total € 16,836 thousand (€ 17,961 thousand). Pension provisions are measured using the accrued benefit method ment obligations or benefits payable. under IAS 19, on the basis of assumptions about future development. The assumptions in detail are that wages and salaries will increase by Interest cost on pension provisions is recognized in finance income or 2.00 % (2.25 %) annually and pensions by 1.25 % (1.25 %) annually. cost. The cost of new pension entitlements that arose during the fiscal year is recognized in functional costs. 82 Notes: Notes to the Balance Sheet Notes: Notes to the Balance Sheet 83 Short-term provisions Obligations from sales transaction Obligations from purchase transaction Other obligations Changes in the 07 / 01 / 2004 consol. group Addition Consumptions Reversals 06 / 30 / 2005 10,675 14,017 9,413 34,105 251 330 221 802 16,828 9,608 22,097 14,839 12,616 8,473 416 546 366 17,730 23,282 15,634 53,764 30,697 1,328 56,646 (14) Contingent liabilities The remaining maturities of currency hedges are less than one year. Of the interest-rate derivatives, hedges with a nominal volume of € 37,113 As in the previous year, there are no contingent liabilities to report. thousand will mature within one year. Transactions with a volume of € 32,000 thousand have remaining maturities of more than 5 years. (15) Other financial obligations 06 / 30 / 2005 There was a € 1,331 thousand (€ 3,571 thousand) obligation from un- completed capital expenditure projects . Obligations under rental agreements and leases Due in fiscal year 2005 / 06 The management report describes the objectives and methods of the Due 2006/ 07 through 2009 /10 risk management system. Due after 2009/10 Common derivative financial instruments, which are recognized at mar- ket values on the balance sheet date under IAS 39, are used to hedge 4,799 12,038 1,947 18,784 interest rate and foreign currency risks. The derivative financial instru- The leases relate primarily to IT equipment and fleet vehicles; € 1,003 ments are measured according to the mark-to-market method, which thousand was paid under these leases in the year under review. The uses recognized mathematical models, such as present value or Black- main leasehold obligations relate to land under cultivation. Scholes, to calculate option values, taking their volatility, remaining ma- turity, and capital market interest rates into account. Nominal volume Carrying values Market values 06 / 30 / 2005 06 / 30 / 2005 06 / 30 / 2005 Currency hedges 21,594 Interest-rate hedges 101,339 189 –400 189 – 400 122,933 –211 –211 Notes to the Income Statement Figures in € thousands, unless otherwise specified; previous-year values in parentheses. 2004 / 05 Previous (16) Net sales Income statement for the period July 1, 2004 through June 30, 2005 year € % of € % of millions sales millions sales Net sales Cost of sales 495.3 100.0 444.5 100.0 312.3 63.1 280.0 63.0 Gross profit on sales 183.0 36.9 164.5 37.0 Selling expenses 88.7 17.9 78.0 17.6 General and administrative expenses Other operating income Other operating expenses 39.1 21.3 20.2 7.9 4.3 4.0 37.1 13.7 10.8 8.4 3.1 2.4 Operating income 56.3 11.4 52.3 11.7 Net financial income / expenses –4.9 –1.0 –4.2 –0.9 Result of ordinary activities 51.4 10.4 48.1 10.8 Income taxes 16.6 3.4 18.3 4.1 Net income for the year 34.8 7.0 29.8 6.7 Shares of minority interest 1.2 0.2 1.6 0.4 By product category 2004 / 05 Previous year Certified seed sales 440,485 393,581 Royalties income Basic seed sales Services fee income Other sales By region Germany Europe Americas Rest of world 31,475 28,067 7,446 2,949 6,893 2,784 12,971 13,167 495,326 444,492 2004 / 05 Previous year 124,628 230,590 117,550 22,558 119,423 209,386 99,656 16,027 495,326 444,492 For further details of sales, see segment reporting. Sales are re- cognized when the agreed goods or services have been supplied and risk and title pass to the buyer. Any rebates or discounts are taken into account. Net income after minority interest 33.6 6.8 28.2 6.3 The cost of sales increased by € 32,331 thousand to € 312,357 thou- sand, or 63.1 % (63.0 %) of sales. The total cost of goods sold was € 106,882 thousand. This amount includes additional allowances on inventories totaling € 7,080 thousand, charged to segment results as follows: sugar beet € 6,522 thousand, corn € 308 thousand, cereals € 41 thousand, and breeding & services € 209 thousand. Research and development is recognized as an expense in the year it is incurred; in the year under review, this amounted to € 71,342 thousand (€ 67,999 thou- sand the year before). Development costs for new varieties are not re- cognized as an asset because evidence of future economic benefit can only be provided after the variety has been officially certified. The € 10,668 thousand increase in selling expenses to € 88,655 thousand is mainly due to expanded activities in the North America and South / South-East Europe regions. This is 17.9 % of sales, up from 17.6 % the year before. General and administrative expenses went up by € 1,995 thousand to € 39,108 thousand, representing 7.9 % of sales, after 8.4 % the year before. 84 Notes: Notes to the Balance Sheet Notes: Notes to the Income Statement 85 (17) Other operating income Other operating expenses increased significantly, particularly due to (20) Income taxes Deferred taxes are calculated on the basis of the following temporary 2004 / 05 Previous year receivables, of which € 1,781 thousand was charged to the sugar beet Income tax expense is computed as follows: balance sheet and its tax base: higher risks in the Group’s growth markets and resulting allowances on differences between the carrying amount of an asset or liability in the Income from sales of fixed assets Income from the reversal of provisions Exchange rate gains and gains from currency and interest rate hedges Income from recoveries on receivables written off Research grants Income relating to previous periods Income from cost allocations Income from loss compensation received Miscellaneous other operating income 1,072 235 1,448 1,605 5,647 3,115 827 2,416 424 699 301 1,556 1,279 0 167 0 segment and € 1,387 thousand to the corn segment. (19) Net financial income /expenses 2004 / 05 Previous year Interest income Interest expense Income from other financial assets Reversal of impairment losses on other long-term investments Interest expenses on donation of pension provisions 1,681 3,224 360 1 1,567 3,929 87 8 3,260 3,162 8,441 5,785 Net interest expense – 4,442 – 5,429 2004 / 05 Previous year Income taxes, Germany Income taxes, other countries 11,768 8,680 10,911 8,447 Current expenses from income taxes 20,448 19,358 Thereof from previous years –2,828 711 Deferred taxes, Germany Deferred taxes, other countries –4,057 225 Deferred tax income / expense –3,832 –1,506 521 –985 Reported income tax expense 16,616 18,373 Deferred tax assets Deferred tax liabilities Previous Previous 06 / 30 / 2005 year 06 / 30 / 2005 year Intangible assets Biological assets Property, plant, and equipment Financial assets 77 0 18 170 102 0 579 5 631 5 27 14,505 15,328 167 Inventories 4,483 2,884 Current assets 811 2,172 Noncurrent liabilities 718 547 Current liabilities 5,999 3,665 Tax loss carryforward 84 8 408 397 539 165 197 640 198 0 8 730 151 146 443 209 0 318 12,768 9,969 16,836 17,961 21,275 13,742 Other operating income was up by € 7,533 thousand, mainly due to favorable exchange rate movements and higher research grants. (18) Other operating expenses Profit from affiliated companies Impairment losses on goodwill from affiliated companies Income from equity investments Net income from equity investments Net financial income /expenses 76 564 4 1,128 0 146 – 484 1,274 – 4,926 – 4,155 2004 / 05 Previous year 873 3,168 941 904 1,136 275 Legal form expenses Allowances on receivables Counterparty default Exchange rate losses and losses on currency and interest rate hedges Losses from sales of fixed assets Expenses relating to previous periods Other expenses 4,311 3,033 expense was € 987 thousand lower. rates applicable in the country in which they are based. € 1,758 thousand and turning into a loss of € – 484 thousand. The share For the German Group companies, deferred tax was calculated at 38.1 %. of profit of affiliated companies relates to potato activities. Net interest For foreign Group companies, deferred tax was calculated using the tax 805 391 2,134 7,923 415 4,662 20,155 10,816 Adjusted for tax relating to previous periods, KWS pays 38.1 % tax in Germany. Corporate income tax of 25.0 % (25.0 %) and solidarity tax of 5.5 % (5.5 %) are applied uniformly to distributed and retained profits. In addition, municipal trade income tax is payable on profits generated in Germany. Trade income tax is applied at a weighted average rate of Other consolidation transactions Deferred taxes recognized 16.0 % (unchanged from the previous year). Since this tax is deductible No deferred tax assets were recognized for loss carryforwards of € 3,839 as an operating expense, the total tax rate is 38.1 % (38.1 %). thousand (€ 5,182 thousand), because the companies concerned will only start generating profits from which they can be deducted in 2008, Under German tax law, both German and foreign dividends are 95% tax after the tax loss utilization period has expired. exempt. The profits generated by Group companies outside Germany are taxed ents of equity would currently result in an unrecognized entitlement to Full distribution to shareholders of all taxable and non-taxable compon- The previous year’s finance cost increased by € 771 thousand to at the rates applicable in the country in which they are based. a reduction in corporation tax of € 8,645 thousand (€ 9,173 thousand). € – 4.926 thousand, with net income from equity investments falling by 86 Notes: Notes to the Income Statement Notes: Notes to the Income Statement 87 The following schedule reconciles the expected income tax expense to (21) Personnel costs / employees As part of share purchase plans, shares in KWS SAAT AG were acquired (23) Total remuneration of the Supervisory the reported income tax expense. The calculation assumes an expected and sold to eligible employees under payroll tax incentives. Board and Executive Board and of former tax expense, applying the German tax rate to the profit before tax of the 2004 / 05 Previous year members of the Supervisory Board and Executive Board of KWS SAAT AG Wages and salaries 80,606 78,059 (22) Net income for the year entire Group: Earnings before income taxes Expected income tax expense * Difference in income tax liability outside Germany Tax portion for: Tax-free income Expenses not deductible for tax purposes Temporary differences and losses for which no deferred taxes have been recognized Tax credits Taxes relating to previous years Other tax effects Reported income tax expense 2004 / 05 Previous year Social security contributions, expenses for pension plans 51,400 48,137 19,583 18,340 and benefits 20,821 20,225 101,427 98,284 Personnel costs went up by € 3,143 thousand to € 101,427 thousand, an increase of 3.2 %. The number of employees (including trainees and –890 – 312 interns) increased by 34 (or + 1.4 %) to 2,550. –260 –669 Compensation increased by 3.3 % to € 80,606 thousand. Social secur- ity contributions, expenses for pension plans and benefits were € 596 2,643 147 thousand higher than in the previous year. An amount of € 2,057 thou- sand was recognized as an expense for defined contribution plans in the year under review. Employees* 2004 / 05 Previous year –226 –1,211 –2,828 –195 38 0 711 118 Germany Rest of Europe Americas 16,616 18,373 Rest of world 1,172 1,212 530 678 170 619 481 204 Effective tax rate 32.3 % 38.2 % Total 2,550 2,516 *Tax rate in Germany 38.1 % 38.1 % *Annual average Other taxes, primarily real estate tax, are allocated to the relevant Of the above number, 452 (425) employees are included according functions. to the percentage of equity held in the companies that employ them. 906 (852) employees are employed by an unchanged number of four proportionately consolidated investees. If these persons are included in full, the workforce total is 3,043 (2,943). In January of 2005 2004 2003 2002 2001 Shares issued to employees under share purchase plans Shares issued Cost of acquisition Preferred price No. T € 239 135 when purchasing one share when purchasing two shares € € 440.00 1,015.00 250 123 336.00 826.00 279 137 297.00 748.00 284 139 296.00 746.00 231 150 386.00 925.00 Net income for the year went up by € 5,020 thousand to € 34,784 thou- variable compensation based on the dividend paid. Providing that the sand, representing a return on sales of 7.0 %, up from 6.7 % the year annual meeting of shareholders resolves the proposed dividend, total before. The net profit for the period after minority interest is € 33,588 compensation of the members of the Supervisory Board will be € 238 thousand, or € 50.89 for each of the 660,000 shares on issue. thousand (€ 221 thousand), excluding value-added tax. € 170 thousand The members of the Supervisory Board receive fixed compensation and (€ 153 thousand) of the total compensation is performance-related. Supervisory Board compensation 2004 / 05 Dr. Guenther H. W. Stratmann* Dr. Arend Oetker ** Philip Freiherr von dem Bussche Eckhard Halbfaß Jürgen Kunze Prof. Dr. Ernst-Ludwig Winnacker *Chairman; **Deputy Chairman Fixed € 24,000.00 12,000.00 8,000.00 8,000.00 8,000.00 8,000.00 Performance-related € 60,000.00 30,000.00 20,000.00 20,000.00 20,000.00 20,000.00 Total € 84,000.00 42,000.00 28,000.00 28,000.00 28,000.00 28,000.00 68,000.00 170,000.00 238,000.00 In the year under review, Dr. Guenther H. W. Stratmann was a partner in the consulting firm Freshfields Bruckhaus Deringer, Düsseldorf. In this period, this firm invoiced KWS € 192 thousand (€ 21 thousand) for con- sulting services. In fiscal year 2004 / 05, total Executive Board compensation amounted to € 2,391 thousand (€2,018 thousand). Variable compensation of € 1,573 thousand (€ 1,211 thousand), calculated on the basis of the net profit for the period of the KWS Group, includes compensation of € 19 thousand (€ 19 thousand) for duties performed in subsidiaries. In addition, an amount of € 489 thousand was added to pension provisions under IAS 19. Executive Board compensation 2004 / 05 Dr. Dr.h.c. Andreas J. Büchting* Dr. Christopher Ahrens Dr. Christoph Amberger Dr. Hagen Duenbostel *Chairman Fixed € 277,229.48 220,108.98 176,137.38 144,210.75 Performance-related € 429,078.95 429,078.95 429,078.95 286,052.62 Total € 706,308.43 649,187.93 605,216.33 430,263.37 817,686.59 1,573,289.47 2,390,976.06 88 Notes: Notes to the Income Statement Notes: Notes to the Income Statement 89 Compensation of former members of the Executive Board and their (27) Declaration of compliance with the (29) Supervisory Board and Executive Board Jürgen Kunze surviving dependents amounted to € 721 thousand (€ 700 thousand). German Corporate Governance Code of KWS SAAT AG Einbeck Pension provisions recognized for this group of persons amounted to € 6,194 thousand (€ 5,782 thousand) as of June 30, 2005. KWS SAAT AG has issued the declaration of compliance with the German Corporate Governance Code required by section 161 of the Supervisory Board Dr. Carl-Ernst Büchting Aktiengesetz (AktG – German Stock Corporation Act) and made this Einbeck Chairman of the Works Council of KWS SAAT AG Prof. Dr. Ernst-Ludwig Winnacker Munich (24) Loans to members of the Supervisory Board accessible to its shareholders. Honorary Chairman President of Deutsche Forschungsgemeinschaft (DFG – German and Executive Board of KWS SAAT AG One employee representative in the Supervisory Board repaid his loan (28) Related party disclosures (€ 1 thousand) as scheduled in the year under review. No new loans have been issued. As part of its operations, KWS procures goods and services world- wide from a large number of business partners, including companies in which KWS has an interest. Business dealings with these companies (25) Shareholdings of members of the are always conducted on an arm’s length basis; from the KWS Group’s Supervisory Board and Executive Board perspective, these dealings have not been material. As part of Group (as of September 30, 2005) financing, short-term loans are taken out from and granted to sub- sidiaries at market interest rates. A total of 14 shareholders declared to Dr. Arend Oetker indirectly holds a total of 165,001 shares in KWS KWS SAAT AG in 2002 that as a result of mutual allocations, they SAAT AG. All together, the members of the Supervisory Board hold respectively hold more than 50% of the voting rights. No other related 165,078 shares in KWS SAAT AG. parties have been identified for whom there is a special reporting require- Dr. Dr.h.c. Andreas J. Büchting holds 10,002 shares in KWS SAAT AG. ment under IAS 24. (26) Audit of the annual financial statements On January 18, 2005, the annual meeting of shareholders of KWS SAAT AG elected the accounting firm Deloitte & Touche GmbH to be the Group’s auditors for fiscal year 2004 / 05. Fee paid to the external auditors under section 285 sentence 1 no. 17 of the HGB a) Audit of the consolidated financial statements b) Certification and valuation services c) Tax consulting d) Other services Total fee paid in 2004 / 05 T € 302 157 23 28 510 For fiscal year 2005 / 06, fees for consulting services (excluding auditing) of € 100 thousand are expected. Dr. Guenther H. W. Stratmann Düsseldorf Attorney-at-law Chairman Membership of other legally mandated Supervisory Boards: apetito AG, Rheine (Deputy Chairman) Membership of comparable German and foreign oversight boards: Fendt GmbH, Marktoberdorf apetito catering GmbH, Rheine (Deputy Chairman) Dr. Arend Oetker Berlin Businessman Deputy Chairman Membership of other legally mandated Supervisory Boards: Schwartau GmbH & Co. KGaA, Bad Schwartau (Chairman) Cognos AG, Hamburg Degussa AG, Düsseldorf Merck KGaA, Darmstadt Membership of comparable German and foreign oversight boards: Hero AG, Lenzburg (President) Baloise Holding AG, Basel TT-Line GmbH, Hamburg (Chairman) E. Gundlach GmbH & Co. KG, Bielefeld Leipziger Messe GmbH, Leipzig Gerling Versicherung-Beteiligungs AG, Cologne Philip von dem Bussche Bad Essen Farmer Until September 30, 2005 Membership of comparable German and foreign oversight boards: VTV Vereinigte Tierversicherungsgesellschaft a.G., Wiesbaden Goetz von Engelbrechten Uelzen Farmer Research Foundation) Membership of other legally mandated Supervisory Boards: Bayer AG, Leverkusen MediGene AG, München Executive Board Dr. Dr.h.c. Andreas J. Büchting Einbeck Chairman Corporate Affairs, R&D Membership of legally mandated Supervisory Boards: NORD/ LB Norddeutsche Landesbank, Hanover Conergy AG, Hamburg Dr. Christopher Ahrens Einbeck Sugar Beet, Eastern Europe Until June 30, 2005 Dr. Christoph Amberger Northeim Corn, Cereals, Marketing Philip von dem Bussche Einbeck Sugar Beet, New Markets / Products Since October 1, 2005 Membership of comparable German and foreign oversight boards: VTV Vereinigte Tierversicherungsgesellschaft a.G., Wiesbaden Dr. Hagen Duenbostel (deputy*) Einbeck Finance, Managerial Accounting, IT * Deputy until June 30, 2005, regular member of the Executive Board Since November 7, 2005 since July 1, 2005 Membership of other legally mandated Supervisory Boards: Nordzucker AG, Braunschweig Eckhard Halbfaß Einbeck Deputy Chairman of the Works Council of KWS SAAT AG 90 Notes: Notes to the Income Statement Notes: Other disclosures 91 (30) Significant subsidiaries and affiliated companies A list of shareholdings of KWS SAAT AG is filed with the Commercial Register of the Göttingen District Court (HR B 130986). The following subsidiaries and associated companies were included in the consoli- dated group:1) Sugar beet Corn Cereals Breeding & services (31) Proposal for the appropriation of net retained profits A proposal will be made to the annual meeting of shareholders that The balance of € 80,000.00 is to be carried forward to the new account. an amount of € 7,920,000.00 of KWS SAAT AG’s net retained profit of € 8,000,000.00 should be distributed as a dividend of € 12.00 (€ 11.00) The dividend will be paid on dividend coupon no. 58. for each of the 660,000 shares. 100 % BETASEED INC.2) Shakopee, MN/ USA 90 % KWS MAIS GMBH 81% LOCHOW-PETKUS GMBH 100 % PLANTA ANGEWANDTE Einbeck Bergen 100 % KWS FRANCE S.A.R.L.3) Roye/ France 100% KWS BENELUX B.V.5) Amsterdam /Netherlands 74 % CPB TWYFORD LTD.8) Thriplow/Great Britain 100 % DELITZSCH PFLANZEN- ZUCHT GMBH 11) Winsen (Aller) 100 % KWS RUS O.O.O.14) Moskow/Russian Federation 100 % KWS ITALIA S.P.A. Forli /Italy 100% KWS SEMENA S.R.O.5) Zahorska Ves/Slovakia 100 % KWS SEMENA D.O.O.5) Ljubljana/Slovenia 100% KWS MAIS FRANCE S.A.R.L.5) Sarreguemines/France 100% KWS AUSTRIA SAAT GMBH 5) 100 % LOCHOW-PETKUS POLSKA SP.Z O.O.8) Kondratowice/Poland 49 % SOCIETE DE MARTINVAL S.A.9)** Mons-en-Pévèle/France 100 % KWS POLSKA SP.Z O.O. Linz/Austria Poznan/Poland 100 % KWS SCANDINAVIA AB 11) Stockholm/ Sweden 100 % KWS SEMILLAS IBERICA S.L.11) Barcelona/Spain 100 % SEMILLAS KWS CHILE LTDA. Santiago de Chile /Chile 100 % KWS SEME YU D.O.O. Belgrad/Serbia and Montenegro 100% KWS SEMINTE S.R.L.5) Bucharest/Romania 100% KWS SJEME D.O.O.5) Zagreb/Croatia 100% KWS OSIVA S.R.O.5) Velke Mezirici/Czech Republic 100% KWS SEMENA BULGARIA E.O.O.D.5) Sofia/Bulgaria 100 % SEMENA AG Basel/ Switzerland 100% AGROMAIS SAATZUCHT GMBH 5) Everswinkel 100 % ACH SEEDS INC.4) Eden Prairie, MN/ USA 96,8% KWS ARGENTINA S.A.5) Balcarce/Argentinia 67 % KWS TÜRK TARIM TICARET LIMITED SIRKETI 11) Eskisehir/Turkey 94 % PAN TOHUM ISLAH VE ÜRETME A.S.13) Ankara/ Turkey 51% RAZES HYBRIDES S.A.R.L.3) Alzonne/France 50 % AGRELIANT GENETICS LLC.6)** Westfield, IN / USA 50 % AGRELIANT GENETICS INC.** Chatham, Ontario/ Canada 50 % KWS RAGT HYBRID KFT. 7)** Györ/ Hungary PFLANZENGENETIK UND BIOTECHNOLOGIE GMBH*** Einbeck 100 % KWS INTERSAAT GMBH Einbeck 100 % KWS SEEDS INC.10) Shakopee, MN/USA 100 % GLH SEEDS INC.2) Shakopee, MN/USA 100 % KWS SAATFINANZ GMBH Einbeck 100 % KWS SEMENCES S.A.R.L. Sarreguemines/France 100 % SOCIETE DES MAIS EUROPEENS S.A.R.L.3) Sarreguemines/France 100 % RAGIS KARTOFFELZUCHT & HANDELSGESELLSCHAFT MBH Einbeck 44,5 % SAKA-RAGIS PFLANZENZUCHT GBR 12)* Hamburg 35,8 % SAKA RAGIS AGRARPRODUKTE GMBH & CO. KG12)* Hamburg 100 % KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH Northeim-Wiebrechtshausen 100 % EURO HYBRID GESELLSCHAFT FÜR GETREIDEZÜCHTUNG mbH Einbeck Einbeck, October 20, 2005 KWS SAAT AG EXECUTIVE BOARD A. Büchting C. Amberger P. von dem Bussche H. Duenbostel * Carrying amount equals proportion of equity held under section 312 of the HGB (equity accounting) 7) Investee of KWS MAIS GMBH ** Proportionate consolidation *** Profit transfer agreement 8) Subsidiary of LOCHOW-PETKUS GMBH 9) Participation of LOCHOW-PETKUS GMBH 1) The percentages stated relate to the interest held by the parent 10) Subsidiary of KWS INTERSAAT GMBH and KWS SAAT AG 2) Subsidiary of KWS SEEDS INC. 3) Subsidiary of KWS SEMENCES S.A.R.L. 4) Subsidiary of BETASEED INC. 5) Subsidiary of KWS MAIS GMBH 6) Investee of GLH SEEDS, INC. 92 Notes: Other disclosures 11) Subsidiary of KWS INTERSAAT GMBH 12) Participation of RAGIS KARTOFFELZUCHT- & HANDELSGESELLSCHAFT MBH 13) Subsidiary of KWS SAAT AG and KWS TÜRK TARIM TICARET LIMITED SIRKETI 14) Subsidiary of EURO HYBRID GMBH and KWS SAATFINANZ GMBH June 30, 2005 Notes: Other disclosures 93 Auditors’ Report Compliance declaration We have audited the annual financial statements of the KWS Group evaluated on the basis of test samples within the framework of the consisting of the Balance Sheet, the Income Statement, the State- audit. The audit includes assessing the accounting principles used ment of Changes in Equity, the Cash Flow Statement and the Notes and any significant estimates made by the Executive Board, as well I. We have complied with the practices recommended by the ‘Government Commission on for the fiscal year from July 1, 2004 to June 30, 2005, all of which were as evaluating the overall presentation of the consolidated financial prepared by KWS SAAT AG, Einbeck. The preparation and the content statements. We believe that our audit provides a reasonable basis for of the financial statements according to the International Financial our opinion. Reporting Standards (IFRS) as applicable in the EU are the responsi- bility of the Executive Board of the company. Our task, on the basis of In our opinion, the consolidated financial statements give a true and the audit we have conducted, is to give an opinion as to whether the fair view of the assets, financial position, earnings and cash flows for consolidated financial statements are in accordance with the IFRS. the Group’s fiscal year in accordance with IFRS. We conducted our audit of the annual financial statements in accord- On the basis of our audit, which also extends to the management report ance with German auditing regulations and generally accepted stan- prepared by the Executive Board for the fiscal year from July 1, 2004 the German Corporate Governance Code’ during the year under review with the exception of the recommendations listed under II below. II. During the 2004 / 05 fiscal year, KWS SAAT AG did not implement the following provisions of the code: dards for the audit of financial statements promulgated by the Institut to June 30, 2005, we have no reservations to note. In our opinion, the > The excess recommended by clause 3.8 GCCG in the D & O insurance coverage for the der Wirtschaftsprüfer (German Institute of Certified Public Accountants). management report of the Group provides an accurate impression According to these standards, the audit must be planned and executed overall of the situation of the Group and adequately presents the risks in such a way that it is possible to judge, with reasonable certainty, for future development. In addition, we confirm that the consolidated Supervisory and Executive Boards is still not provided for in the policy in question. whether the consolidated financial statements are free from material financial statements and the management report of the Group for the > An Audit Committee in conformance with clause 5.3.2 GCCG has not been established. misstatements. Knowledge of the business activities and the economic fiscal year from July 1, 2004 to June 30, 2005 satisfy the requirements and legal operating environment of the Group and evaluations of pos- for the company’s exemption from its duty to prepare consolidated sible errors are taken into account. The evidence supporting the financial statements and a Group management report in accordance amounts and disclosures in the consolidated financial statements is with German law. Instead regular and intensive discussions are conducted between the Chairman of the Supervisory Board, the Executive Board and the statutory auditors. The five other mem- bers of the Supervisory Board are also included appropriately. Hanover, November 4, 2005 DELOITTE & TOUCHE GMBH WIRTSCHAFTSPRÜFERGESELLSCHAFT (AUDITORS) > The GCCG recommends (clause 7.1.2) that consolidated financial statements and interim reports be published within 90 days and 45 days respectively. We have not complied with the recommendation due to the considerable additional costs we incurred this year as a result of changing to the international accounting standard IFRS this year. It will be pos- sible to comply with the publication deadlines in reporting year 2005 / 2006. Dr. F. Beine AUDITOR Th. Römgens AUDITOR Einbeck, November 23, 2005 The Supervisory Board The Executive Board 94 Auditors’ Report Compliance declaration 95 KWS SAAT AG Grimsehlstraße 31 | D-37555 Einbeck | P. O. Box 14 63 Phone: ++49(0)5561/311-0 | Fax: ++49 (0) 5561/311-322 www.kws.com | e-mail: info@kws.de Photos / illustrations: Uwe Martin | agrar press | Frank Bierstedt | Thomas Deutschmann | FOTOGEN Habbe-Fotografie | Gaby Heinze | Peter Heller | KWS Group archive | media.com, Serbia Design: fischerAppelt Kommunikation GmbH 

Continue reading text version or see original annual report in PDF format above