KWS Group Annual Report 2007

Plain-text annual report

8 0 0 2 l 7 0 0 2 t r o p e R l a u n n A Annual Report 2007I2008 KWS SAAT AG Key Figures of the KWS Group Figures in € millions, unless otherwise speciﬁ ed Segments of the KWS Group Fiscal year Net sales Operating income as a % of net sales Net income as a % of net sales Operative cash ﬂ ow 2007/08 2006/07 2005/06 2004/05 2003/04 599.1 537.9 505.0 495.3 444.5 70.1 11.7 54.6 9.1 74.6 63.9 11.9 38.2 7.1 51.1 46.7 9.2 28.4 5.6 53.4 56.3 11.4 34.8 7.0 11.1 52.3 11.8 29.8 6.7 36.6 Net cash from investing activities – 18.1 – 26.7 – 20.1 – 30.1 – 21.8 Equity Equity ratio in % Balance sheet total Return on equity in % Return on assets in % Fixed assets Capital expenditure Depreciation 398.0 366.1 338.0 326.2 294.0 59.3 60.0 58.6 57.0 59.5 671.1 609.8 577.0 572.4 494.4 15.3 9.2 11.6 6.8 8.9 5.3 10.8 7.4 10.1 6.5 197.1 189.4 188.6 185.6 169.2 30.4 17.0 27.2 16.1 23.8 17.0 36.9 16.8 24.7 16.7 Average number of employees 2,856 2,739 2,652 2,550 2,516 Personnel costs 119.0 111.3 109.1 101.4 98.3 Performance of KWS shares in € Dividend per share Earnings per share Operative cash ﬂ ow per share 1.70 7.74 11.30 1.40 5.61 7.74 1.20 * 1.20 ** 1.10 ** 4.16 8.09 5.09 ** 4.27 ** 1.68 ** 5.55 ** Equity per share 60.31 55.47 51.21 49.42 ** 44.55 ** * Dividend of € 1.00 plus anniversary bonus of € 0.20 ** Value after share split Sugarbeet KWS SAAT AG As well as 15 subsidiaries and afﬁ liated companies* Net sales € 194.8 million Operating income € 28.1 million Corn KWS MAIS GMBH As well as 15 subsidiaries and afﬁ liated companies Net sales € 328.9 million Operating income € 23.2 million Cereals KWS LOCHOW GMBH As well as 3 subsidiaries and afﬁ liated companies Net sales € 67.4 million Operating income € 9.0 million Breeding & Services KWS SAAT AG As well as 9 subsidiaries and afﬁ liated companies Net sales € 121.8 million (net sales of third parties € 8.0 million) Operating income € 9.8 million * Subsidiaries and afﬁ liated companies see page 78 This translation of the original German version of the Annual Report has been prepared for the convenience of our English-speaking shareholders. The German version is legally binding. KWS SAAT AG Grimsehlstrasse 31 • 37555 Einbeck • P.O. Box 1463 Phone +49 (0) 5561/311-0 • Fax +49 (0) 5561/311-322 www.kws.com • e-mail: info@kws.com Photos/illustrations: Dominik Obertreis • Eberhard Franke • KWS Group archive • Peter Heller Stefan Blume • Thomas Gasparini Table of contents Chairman’s Foreword Spotlight topic: The bright promise of bioenergy Report of the Supervisory Board Corporate Governance Report Compliance declaration in accordance with section 161 AktG (German Stock Corporation Act) The KWS share Report on the performance of the KWS Group Sugarbeet segment Corn segment Cereals segment Breeding & services segment Outlook for the 2008/2009 ﬁ scal year Risks for future development Employees Compensation Report Disclosures in accordance with section 289 (4) and section 315 (4) HGB (German Commercial Code) Annual Financial Statements of the KWS Group Auditor’s Report Agenda of the Annual Shareholders’ Meeting / Financial calendar 7 10 12 15 16 17 20 26 28 30 32 35 36 38 42 44 45 79 80 Table of contents I 5 Chairman’s Foreword We are pleased to report that KWS performed well again this year. Riding the wave of the global rise in prices for agricultural raw materials and the related intensiﬁ cation of agricultural production, KWS surpassed its outstanding performance of 2006/2007 in terms of both net sales and proﬁ t. We grew net sales by 11 %, and our operating result (EBIT) rose by 10 % in the year under review. We – that is the 2,856 employees of KWS SAAT AG and its 44 subsidiaries and afﬁ liated companies who devote their talents and hard work to developing forward-looking crops at around 70 locations throughout the world. The Executive Board would like to express its thanks – on behalf of the Supervisory Board as well – to all employees in Germany and abroad for their commitment in enabling this extraordi- nary success. The gratifying performance in 2007/2008 shows in parti- cular that the measures we have taken to expand corn business are now gaining traction. Sales of corn in the strategically important growth regions of Southeastern Europe, as well as in Germany and France, increased substantially. Despite the sharp depreciation of the US dollar, our joint venture AgReliant in the U.S. contributed to the corn segment’s growth. Moreover, the segment beneﬁ ted from higher demand for our highyielding rape- seed hybrids. KWS’ cereals business is bundled at the KWS LOCHOW Group. It developed well, with growing sales volumes for our winter cereal varieties. High consumer prices and the suspension of the policy of laying areas fallow encouraged farmers to signiﬁ cantly expand cultivation of wheat, rye and barley. While prices for cereals, corn and soybean rose worldwide, sugar prices stagnated in the last business year. That had a negative impact on the sales volumes of sugarbeet seed since many farmers, especially in Eastern Europe, chose to cultivate cereals. As anticipated, cultivation area in the EU 27 declined as part of the reform of the Sugar Market Regime. In contrast, American farmers exploited the op- portunity of increasing their productivity with genetically modiﬁ ed (Roundup Ready) sugarbeet varieties from KWS. Climate change and the growing demand for food, as well as the constantly increasing hunger for energy, are the main global challenges facing agriculture and plant breeding in the 21st century. Productivity in agriculture can certainly be increased by further progress in plant breeding to meet the steadily growing need for food and fodder, regenerative raw materials and more environmentally friendly sources of bioenergy. Sharp economic ﬂ uctuations occur more and more fre- quently along this growth path. However, what is important for a plant breeder like KWS is to analyze longterm trends and respond promptly to them. For more than 150 years, KWS has developed successful and innovative varieties for the production of food, fodder and energy. In our research and development work, we address not only the wide diversity of sales markets, but also the different forms of agriculture, developing and marketing seed for conven- tional and ecological cultivation as well as genetically modi- ﬁ ed varieties. Our goal is to provide customers with expert consulting for their speciﬁ c needs and supply them with the varieties that are right for each individual. In this way, KWS helps increase agricultural yields continuously and reduce the use of pesticides. At the same time, our prod- ucts permit the sparing use of scarce resources such as fertilizer and water. We owe KWS’ success to the relationship of trust we have with our customers, our business partners and our em- ployees. We express our most sincere thanks to everyone involved for this gratifying and successful collaboration. These thanks go especially to our shareholders for their trust in our business model and its orientation toward longterm success. With best regards from Einbeck on behalf of the entire Executive Board, Philip von dem Bussche Chairman of the Executive Board Chairman’s Foreword I 7 left to right: Philip von dem Bussche – Corporate Affairs, Sugarbeet, Human Resources Dr. Hagen Duenbostel – Finance, Controlling, Information Technology, Legal Dr. Christoph Amberger – Corn, Cereals, Marketing Dr. Léon Broers (Deputy) – Research and Breeding, Energy plants Only a fool never experiments.« Charles Darwin, natural scientist DNA analysis reveals whether the crossing experiment was a success and the new generation has the desired property. Spotlight topic: The bright promise of bioenergy Today’s global developments pose great challenges for modern civilization, as the world’s population and energy consumption continue to grow. Bioenergy, which is a means of producing energy from plants, offers sustainable, environmentally friendly and efﬁ cient solutions for the future. What is biomass? The term ‘biomass’ can denote any organic substance. Biomass can be used as a source of all forms of energy – heat, electricity and fuel. Different kinds of biomass are used in keeping with their energy properties and suitability. For example, in Germany heat is provided mainly by solid fuels such as wood. In contrast, electricity and fuels are typically produced by transforming energy plants into liquid or gaseous sources of bioenergy – i. e. biofuels and biogas. Such energy forms obtained from biomass are commonly described by the collective term bioenergy. Background of bioenergy production According to a study by the IEA, global energy consump- tion will increase by up to 55 % by 2030, largely as a result of growing demand in Asia. The increasing concentration of greenhouse gases (such as CO2) in the atmosphere is attributable largely to the use of fossil energy sources such as coal or oil. Studies by the University of Bern found that the concentration of CO2 is now around 28 % higher than the highest value in the past 800,000 years. Consequently, sharp ﬂ uctuations in temperature can no longer be blamed solely on natural inﬂ uences such as solar activity. The cli- mate-friendly generation of energy is thus a key challenge to curbing climate change in our age. Bioenergy – environmentally friendly and efﬁ cient Plants absorb and store carbon dioxide in the environment by means of photosynthesis. If they are decomposed or burned, they release the carbon dioxide back into the at- mosphere – in exactly the same amount as they had ab- sorbed. Plants are therefore a CO2-neutral energy source. When biomass is cultivated and prepared for use, carbon dioxide is released as a result of the use of auxiliary fossil energy; however, the CO2 balance of bioenergy overall is far better than that of fossil sources. CO2 savings potential through bioenergy CO2 -equivalent in gram/km Potential for reducing CO2 vs. gasoline Gasoline Diesel Natural gas Bioethanol from sugarbeet Biodiesel from rapeseed Biogas from energy corn 210 170 150 120 100 100 40 60 90 110 110 l s e u f l i s s o F l s e u o B f i Source: Institut für Energetik und Umwelt, 2008 If renewable energy had not been used in Germany in 2007, total CO2 emissions there (approx. 774 million tons) would have been 115 million tons higher. This reduction is largely attributable to the use of biomass, which is more climate- friendly than fossil fuels. The reduction is equivalent to the CO2 that would be emitted if around 8 million cars were to travel around the world. Sources of renewable energy in Germany (2007) Photovoltaics 1.6 % Wind 17.6% Geothermics 1.0% Water 9.2 % Solar thermics 1.7 % Biofuels 20.8 % Biomass for electricity 10.6 % Biomass for heat 37.6 % Biomass 68.9 % 8.6% of the energy provided in Germany (2007) is based on renewable energies Emission trading within the EU was introduced in 2005 to provide initial economic incentives for investments in new technologies. The goal of emission trading is to promote ecologically effective measures through economic means. However, more innovations will be needed to continue cut- ting production costs and to further the independence of the national energy industry. Biomass now delivers around 6 % of all energy consumed in Germany and is, above all in the form of wood, by far the largest source of renewable energy. However, the techni- cal possibilities for exploiting energy plants are still in their infancy. First-generation biofuels (biodiesel and bioethanol), for example, use only part of the whole plant and are thus inherently inefﬁ cient. With second-generation biofuels, on the other hand, the entire plant is used to produce energy. The production of biogas is such a second-generation technology. Biogas is formed by the microbiological de- composition of organic substances under anaerobic con- ditions. The biogas yield and energy content of the gas depend on the substrates used. In addition, biogas production plants are “fed” with damp raw materials. There is no need to dry them. The dregs that result from the fermentation process are returned to the ﬁ elds as a natural fertilizer, completing the nutrient cycle. As a result, energy-intensive mineral fertilizers can be dispensed with to a large extent. New perspectives thanks to plant breeding KWS already has a wide-ranging breeding program that will produce even higher energy yields from plants in the future. The energy efﬁ ciency and cost-effectiveness of producing bioenergy from regenerative plants depends in large part on the speciﬁ c properties of the energy plants used. In leveraging an energy plant’s yield potential, the plant is assessed on the basis of four criteria throughout the many years of the breeding process: (1) biomass formation, (2) energy yield, (3) speed of transformation into energy, (4) process costs. In its breeding program, the KWS Group invests selectively in future-oriented products such as corn, sugarbeet, sor- gh um, rye and sunﬂ owers. At the heart of this process is the concept of using the entire plant. Our economic goal is to maximize efﬁ ciency per unit area and to enable an in- dependent energy supply. We also aim at enabling energy production with an environmentally friendly CO2 balance, a closed nutrient cycle and a diversity of varieties through crop rotation. The 20 % increase in yields achieved in six years of breeding are the basis for our continuing research and, with the aid of the ecological and economic potential of bioenergy, represent solution approaches for future de- velopments. Energy plants: Yields and potential Energy yield in kWh per ha 120,000 100,000 80,000 60,000 40,000 20,000 0 Biodiesel Bioethanol Biogas r e w o ﬂ n u s / d e e s e p a R l s a e r e C n r o c i n a r G t e e b r a g u S e n a c r a g u S e y r e g a r o F m u h g r o S t e e b r a g u S n r o c y g r e n E Future energy yield Energy yield now s e v a e l h t i w t e e b r a g u S n r o c y g r e n E 1 ha of energy corn generates enough electrical power to supply a family of ﬁve with electricity for one year* 10 Spotlight topic I 11 Source: BMU, 2008 * KWS, Verband der Elektrizitätswirtschaft, 2001 Report of the Supervisory Board left to right: Dr. Dietmar Stahl, Employee Representative, Jürgen Bolduan, Employee Representative, Dr. Arend Oetker, Deputy Chairman, Cathrina Claas, Hubertus von Baumbach, Dr. Dr. h. c. Andreas J. Büchting, Chairman The Supervisory Board carefully accompanied, advised and monitored the management of KWS SAAT AG in ac- cordance with the law and the company’s articles of as- sociation throughout ﬁ scal 2007/2008. It was involved at an early stage of all key decisions of strategic and funda- mental importance for the company and was provided by the Executive Board with prompt and extensive infor- mation in written and oral form. Following thorough delib- erations, the Supervisory Board approved the submitted measures and business transactions requiring its consent. Its detailed discussions focused on corporate policy, corpo- rate and ﬁ nancial planning, individual projects, the com- petitive risk situation and risk management, the general development of the various businesses and proﬁ tability. The Chairman of the Supervisory Board was also in close contact with the Chairman of the Executive Board and the Executive Board as a whole outside of the meetings of the Supervisory Board, and he took part in key meetings of the Executive Board, where he discussed special occur- rences and the general development of the various busi- nesses and closely followed important decision-making processes. The Supervisory Board held ﬁ ve meetings in ﬁ scal 2007/2008. All its members participated in at least four of the ﬁ ve meetings. The regularly scheduled election of a newly constituted Supervisory Board was held at the Annual Shareholders’ Meeting on December 13, 2007. Focal areas of deliberations The strong growth of the corn segment was a focus of several meetings of the Supervisory Board. The issues discussed included expanding the international distribution organization and growing production capacities and the breeding infrastructure. The Supervisory Board discussed and approved the investments required for this. In addition, deliberations focused on opportunities for new business activities, such as a signiﬁ cantly broader range of energy plants and the launch of seed potato business as part of a new joint venture. Potential risks, such as the legal action against approval of genetically modiﬁ ed sugarbeet in the U.S., the European moratorium on conventional seed dressing agents and the global increase in multiplication costs, were discussed intensively. At the suggestion of the Committee for Executive Board Affairs, the Supervisory Board reviewed the compensation system for the Executive Board, including key contractual elements, and dealt with compliance matters. Annual and consolidated ﬁ nancial statements and auditing Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hanover, the independent auditor chosen at the Shareholders’ Meeting and commissioned by the Supervisory Board, has audited the ﬁ nancial statements of KWS SAAT AG that were prepared by the Executive Board for ﬁ scal 2007/2008 and the ﬁ nancial statements of the KWS Group (consolidated ﬁ nancial statements), as well as the management report of KWS SAAT AG and the KWS Group (group management report), including the accounting reports, and awarded them its unqualiﬁ ed audit certiﬁ cate. The Supervisory Board received and discussed the ﬁ nancial statements and management reports of KWS SAAT AG and the KWS Group, along with the report by the inde- pendent auditor of KWS SAAT AG and the KWS Group and the proposal on utilization of the net proﬁ t for the year made by KWS SAAT AG. It also held detailed discussions of questions on the agenda at its meeting to discuss the ﬁ nancial statements on October 29, 2008. The auditor took part in the meeting and reported on the main results of the audit. The Supervisory Board endorsed the results of the audit with no objections, among other things as a result of the vote by the Audit Committee. It gave its consent to the ﬁ nancial statements of KWS SAAT AG, which are thereby approved. The Supervisory Board also gave its consent to the statements of the KWS Group. It also endorses the proposal by the Executive Board on the appropriation of the proﬁ ts of KWS SAAT AG. Corporate Governance and committees Other focal issues of the Supervisory Board were Corpo- rate Governance and control. It followed and discussed the further development of the Corporate Governance Stand- ards and drove their implementation forward in cooperation with the Executive Board. The Executive Board and Super- visory Board issued a new compliance declaration on Oc- tober 29, 2008. The Committee for Executive Board Affairs held one meeting, which focused on compensation structures and the ﬁ nancing out of pension obligations for the Executive Board. At the meeting of the Supervisory Board on October 30, 2007, Philip von dem Bussche was appointed as a member and Chairman of the Executive Board for ﬁ ve more years effective January 1, 2008. Dr. Christoph Amberger was appointed a member of the Executive Board for ﬁ ve more years effective July 1, 2008. In addition, the Nominat- ing Committee convened ahead of the Annual Shareholders’ Meeting on December 13, 2007, to draw up nominations for the upcoming election of the Supervisory Board. At the end of the Annual Shareholders’ Meeting on December 13, 2007, Dr. Dr. h. c. Andreas J. Büchting resigned his post on the Executive Board after 30 years of work. As a result, the Executive Board again com- prises four members; however, it is the ﬁ rst time that it has not had a member from the founding families since the company was established. Philip von dem Bussche is now responsible for Corporate Affairs, Sugarbeet and Human Resources. The other mem- bers of the Executive Board are responsible for the follow- ing: Dr. Christoph Amberger (Corn, Cereals, Marketing), Dr. Hagen Duenbostel (Finance, Controlling, Information Technology, Legal), Dr. Léon Broers (Breeding and Research, Energy Plants). On December 13, 2007, the Annual Shareholders’ Meeting elected Dr. Andreas J. Büchting, Hubertus von Baumbach and Cathrina Claas as new members representing the shareholders on the Supervisory Board, while Dr. Arend Oetker was reelected. Jürgen Bolduan and Dr. Dietmar Stahl were appointed as new members representing German employees on the Supervisory Board. Due to his consid- erable services to the company, Dr. Carl-Ernst Büchting has been Honorary Chairman of the Supervisory Board since 1993. 12 Report of the Supervisory Board I 13 At its constitutive meeting after the Annual Shareholders’ Meeting on December 13, 2007, the new Supervisory Board elected Dr. Andreas J. Büchting as its Chairman and formed the following committees: a member of the Supervisory Board, our company beneﬁ ted above all from his extensive knowledge of the European sugar industry in times of radical change. Chairman Members Audit Committee Hubertus von Baumbach Andreas J. Büchting, Cathrina Claas Committee for Executive Board Affairs Andreas J. Büchting Arend Oetker, Cathrina Claas Nominating Committee Andreas J. Büchting Arend Oetker, Cathrina Claas Following the constitutive meeting of the Supervisory Board, the Audit Committee held an initial meeting, at which it decided to compile a set of bylaws, which have been posted on KWS’ homepage (www.kws.com). In two further meet- ings, the committee dealt with issues including risk man- agement and compliance. Moreover, the Audit Committee discussed the semiannual and quarterly reports with the Executive Board before they were published. At its meeting on October 6, 2008, which the Executive Board and audi- tor also attended, the annual ﬁ nancial statements and ac- counting were discussed. Thanks In December 2007 Dr. Guenther H. W. Strat mann ended his 15 years of work on the Supervisory Board of KWS SAAT AG. His successful period of ofﬁ ce is reﬂ ected in the company’s development, which he helped shape signiﬁ - cantly with his entrepreneurial spirit, international legal ex- perience and economic expertise. We would like to express our most sincere thanks for his professional leadership and the critical eye with which he followed the work of the Ex- ecutive Board. Apart from Dr. Guenther H. W. Stratmann, two other out- standing members retired from the Supervisory Board. One was Goetz von Engelbrechten, a personality who has followed KWS closely and always constructively for decades inside and outside the company. In his work as Prof. Dr. Dr. h. c. Ernst-Ludwig Winnacker gave the company new impetus with his scientiﬁ c expertise, superb oversight and immense wealth of experience. KWS has beneﬁ ted frequently from his many insightful remarks and suggestions. The Supervisory Board would like to offer its most sincere thanks to both former members for their unstinting commitment in helping the KWS Group move forward. Jürgen Kunze and Eckhard Halbfaß, employee representa- tives who had served for many years on the Supervisory Board, also made a great contribution to its work with their relevant suggestions. Both resigned effective December 13, 2007, since they will be retiring during the new period of ofﬁ ce. The company also expresses its thanks to them. The Supervisory Board expresses its thanks to the Execu- tive Board and all employees of KWS SAAT AG and its subsidiaries once more for their successful contributions and their commitment in ﬁ scal 2007/2008. Einbeck, October 29, 2008 Dr. Dr. h. c. Andreas J. Büchting Chairman of the Supervisory Board Corporate Governance Report Responsible, value-oriented governance geared toward people has been a tradition at KWS for more than 150 years. It is not only ﬁ rmly integrated in its company guidelines – it is lived by executives in a relationship of trust with employees. We therefore support the goals of the German Corporate Governance Code. The Executive Board and Supervisory Board have dealt in considerable detail with the code. KWS SAAT AG complies with its recommendations, with only a few exceptions speciﬁ c to the company and its industry. Management with a sense of responsibility As a medium-sized agricultural company with a rich tradition, we are not only committed to the recommendations of the German Corporate Governance Code and their business management perspective when making decisions, but also to ethical principles. External dialog is a very important part of this, since we work to ensure that our business activities are transparent to our shareholders as well as to our cus- tomers, consumers and the public. With our “management with a sense of responsibility”, we at KWS go beyond the recommendations of the German Corporate Governance Code. The business principles are binding on everyone and are essentially based on four pillars: • Compliance • Integrated management system and risk management • Responsibility for the environment and society • Communication and transparency An important guide for all employees is the Code of Business Ethics, an abridged version of which has been published on our homepage. One special focus of the Code is on regulating conﬂ icts of interest. A separate international anti- corruption guideline precisely deﬁ nes the freedom of action that KWS employees have. The effectiveness and sustain- ability of the compliance system are reviewed regularly by the independent auditor. Identifying negative developments in good time and countering them effectively For more than ten years, KWS has used an integrated management system that documents all the relevant proc- esses and regulations in the company. A key component is the risk management system. It governs how risks in the individual segments are identiﬁ ed by means of a key pa- rameter control system. A clear distribution of responsibili- ties ensures that negative effects resulting from market changes, technological developments and changes in general political and social conditions, for example, can be countered quickly and effectively. We report in detail on opportunity and risk management on pages 36/37. Creating and strengthening trust is the maxim of our regu- lar and open reporting. We continuously inform our share- holders on the progress of our business in press releases and quarterly reports. We report new developments that may impact the share price in ad hoc releases. All relevant information is published promptly on our homepage under “Investor Relations” so as to ensure equal treatment of all shareholders. Relationship of trust and cooperation between the Executive Board and the Supervisory Board The focus of good corporate governance is a cooperative relationship of trust between the managing, supervisory and decision-making bodies, with the aim of ensuring value- oriented corporate governance and effective monitoring. This is the task of the Executive Board and the Supervisory Board, supported by legal experts and auditors. The Executive Board develops the company’s strategic orientation in collaboration with the Supervisory Board and manages the KWS Group under its own responsibility. It conducts business transactions in a value-oriented manner, with the goal of ensuring the company’s long-term success. In making decisions, the Executive Board takes care to 14 Report of the Supervisory Board I Corporate Governance Report I 15 Compliance declaration in accordance with section 161 AktG (German Stock Corporation Act) The KWS share ensure fair competition and the well-being of all employees and to fulﬁ ll its responsibility to customers, shareholders and society. In its constitutive meeting on December 13, 2007, the newly elected Supervisory Board appointed Dr. Dr. h. c. Andreas J. Büchting, the former Chairman of the Executive Board, as its chairman. As a company with a family-owned charac- ter, KWS has consciously deviated from the recommenda- tion of the Corporate Governance Code with this decision. KWS does not want to lose the extensive knowledge, ex- perience and contacts of Andreas J. Büchting. They are important components of KWS’ success and corporate culture. Many studies have shown that companies in which members of the shareholding families are involved over a long time operate with above-average success. To meet the recommendations of the Corporate Govern- ance Code, the Supervisory Board has formed an Audit Committee. I. The Executive Board and Supervisory Board of KWS SAAT AG declare in compliance with section 161 AktG (German Stock Corporation Act) that – with the excep- tion of the points stated under II – the company has complied with the recommendations of the German Corporate Governance Code in the version dated June 14, 2007, since the last compliance declaration on October 30, 2007, and has complied, does now comply, and will comply in the future with the recommendations of the German Corporate Governance Code in the version dated June 6, 2008. II. Clause 5.4.4.: The former Chairman of the Executive Board of KWS SAAT AG, Dr. Dr. h. c. Andreas J. Büchting, has – due to his extensive knowledge and experience in the very specialized sector of plant breeding – been elected Chairman of the Supervisory Board. It accords with the character and the recipe for success of a com- pany with a tradition of family ownership for representa- tives of the families to be involved in inﬂ uential positions. There are no personal conﬂ icts of interest on the part of Supervisory Board members that might result from agree- ments to provide consulting or services for additional remuneration. The Report of the Supervisory Board on page 12 provides details on the work of the Supervisory Board and its cooperative relationship of trust with the Executive Board in the past ﬁ scal year. Clause 7.1.2.: KWS SAAT AG publishes its consolidat- ed ﬁ nancial statements and interim reports within the period of time deﬁ ned in the regulations for the Prime Standard of Deutsche Börse. Observance of the rec- ommended deadlines of 90 and 45 days respectively is not ensured because of the seasonal course of business. The Annual Shareholders’ Meeting The Annual Shareholders’ Meeting makes decisions on im- portant matters, such as the appropriation of proﬁ ts, capi- tal measures or changes to the Articles of Association. It also elects the members of the Supervisory Board and selects the auditor of the ﬁ nancial statements. Each share entitles its holder to one vote. To make it easier for share- holders to cast their votes, proxies can be appointed to vote on their behalf and in accordance with their instruc- tions at the Annual Shareholders’ Meeting. We also publish the Notice of Annual Shareholders’ Meeting and the Annual Report on our Internet site. This declaration has also been published on our home- page at www.kws.com. Einbeck, October 29, 2008 For the Supervisory Board Dr. Dr. h. c. Andreas J. Büchting For the Executive Board Philip von dem Bussche The number of publicly traded plant breeding companies worldwide is extremely small, especially if you only look at companies that, like KWS, focus on plant breeding and seed production. In this regard, our share is a rarity – and one that is enjoying steadily growing attention as part of the strong interest in agriculture. KWS is a company with a rich tradition, one characterized by family ownership, and – as a result of the intensity of its research – it is geared toward the future. With our breed- ing and distribution activities in 70 countries in the moderate climatic zone, we are one of the world’s top 5 in the indus- try. We have a broadly diversiﬁ ed product range: We are the world’s No. 1 for sugarbeet seed, as well as the German market leader, No. 2 in Europe and No. 4 in the U.S. for corn. We are the leader in Germany and second in Europe in cereals. Moreover, we have an extensive portfolio for the production of biogas, biodiesel and bioethanol from biomass. The company’s success in global competition is based on its many years of experience, intense research, successful international partnerships and independence. Plant breeding is a very complex business, and it is affected by many fac- tors, including some – like the weather – that we cannot inﬂ uence. The time factor plays a particularly large role. Despite cutting-edge biotechnology methods, it still takes about ten years to develop a new variety and get it ready for the market. That is why this process of creating value neces- sitates a great degree of strategic planning and continuity. Following a phase of consolidation in the sugarbeet segment, KWS is back on the path to growth in all segments in the ﬁ scal year 2008/2009 now underway. The stock market has already rewarded KWS’ strong business promise and, in particular, has priced in our future proﬁ t potentials. In the period from July 1, 2007, to June 30, 2008, the share price increased by more than 13 percent to € 145. The compara- tive German index for small enterprises, the SDAX, lost about 35 % in value over the same period. Shareholder structure on June 30, 2008 Sentiment on the international capital markets continued its downward spiral at the beginning of the new ﬁ scal year. KWS’ share was not able to escape this trend, especially since higher food prices have kindled a controversial debate on bioenergy production. Despite KWS’ good operating performance, its share has since dropped signiﬁ cantly from its peaks in mid-June 2008. Performance of the KWS share vs. SDAX SDAX KWS 160 140 120 100 80 60 40 20 7 0 / 7 0 7 0 / 8 0 7 0 / 9 0 7 0 / 0 1 7 0 / 1 1 7 0 / 2 1 8 0 / 1 0 8 0 / 2 0 8 0 / 3 0 8 0 / 4 0 8 0 / 5 0 8 0 / 6 0 8 0 / 7 0 8 0 / 8 0 8 0 / 9 0 8 0 / 0 1 16 Corporate Governance Report I Compliance declaration I KWS share I 17 Everywhere, a presentiment precedes knowledge.« Alexander Freiherr von Humboldt, natural scientist We are gathering knowledge of nature’s building blocks in international genome research projects. Report on the performance of the KWS Group The growing demand for high-quality food, increasing energy needs and climate change are the global challenges facing agriculture in the 21st century. High-quality seed is the crucial ingredient for the resource- efﬁ cient intensiﬁ cation of agricultural production of food, fodder and bioenergy. Thanks to our wide-ranging product portfolio, we again beneﬁ ted from increasing global demand in ﬁ scal year 2007/2008. Growth in the corn and cereals segments was particularly strong. As expected, however, our sugarbeet seed business declined in the wake of reform of the European Sugar Regime. Sales and income at the KWS Group again posted double-digit increases. In the race to meet growing demand, worldwide agricul- tural production is experiencing an ever faster process of rationalization. At the same time, government subsidies are being reduced. As a result, farmers must generate more of their income from market revenue. Thanks to higher selling prices for agricultural consumer goods, many farms were able again last year to make structural adjustments and improve their yield per unit area by means of modern culti- vation methods and efﬁ cient operating resources. Use of certiﬁ ed high-yielding seed plays a crucial role here. This meant that our business developed dynamically, both in our growth markets and in our core markets. Consolidation in sugarbeet Due to the sluggish trend in the price of sugar and the re- form of the European Sugar Market Regime, the worldwide cultivation area for sugarbeet fell by 17 %. This development also impacted KWS, the global leader for sugarbeet seed. Net sales in the segment were down only slightly from the previous year, however, since our business performance varied depending on the region. Sugarbeet cultivation in the European Union was restricted to the anticipated extent in the 2008 growing season, and net sales in the EU 27 fell sharply. In contrast, business outside the EU increased strongly despite declining cultivation areas, above all in North America as a result of ﬁ rst-time sales of genetically modiﬁ ed sugarbeet. Corn grows in all regions Our corn business developed very well in all sales regions. We sharply increased our sales volumes, especially in the strategic growth region of Southeastern Europe, as well as in our domestic market of Germany and in Europe’s largest agricultural market, France. The North American joint ven- ture AgReliant contributed to the segment’s growth in net sales, despite the weak US dollar. Cereals proﬁ t from high consumer prices The cultivation of cereals in Europe picked up signiﬁ cantly as a result of the sharp increase in prices for them. The KWS LOCHOW Group, in which KWS’ cereals activities are bundled, successfully shared in this trend. In particular, net sales of hybrid rye increased by around a third. Sales vol- umes of winter barley also developed positively, while slight losses in market share were posted by the wheat business. Strong rise in net sales to about € 600 million In the year under review, the KWS Group’s net sales rose by 11.4 % to € 599.1 (537.9) million. Domestic business developed well, with net sales growing by 14.1 % to € 151.1 (132.4) million. The weak US dollar dampened the positive performance abroad. Due to higher sales volumes, sales in foreign countries as a ratio of total sales remained virtually constant at 75 % (76 %). On the basis of the previous year’s exchange rates, the group’s net sales would have been € 622 million. Net sales in the sugarbeet segment fell by 2.6 % to € 194.8 (199.9) million, accounting for 33 % of the ﬁ gure for the group. The corn segment far exceeded our expectations, recording an increase in net sales of 19.4 % to € 328.9 (275.5) million and now accounting for 55 % of our business volume. The cereals product segment grew its net sales by 23.7 % to € 67.4 (54.5) million, or 11 % of the KWS Group’s total sales. Economies of scale improve return on net sales The cost of sales increased above-proportionately in re- lation to the growth in sales by 15.7 % to € 305.4 (263.9) million. Gross proﬁ t rose by 7.2 % to € 293.7 (274.0) million. Selling and administrative expenses increased less than proportionately to net sales. We were able to achieve sig- niﬁ cant economies of scale here. Selling expenses rose by 4.5 % to € 106.1 (101.5) million, mainly as a result of rigorous expansion of the KWS brand across all product segments and further strategic marketing projects. They fell relative to net sales to 17.7 % (18.9 %). Starting in ﬁ scal Generations of trust in a brand: the result of continuous breeding progress and personal customer care. group earnings. Our breeding & services segment posted stable income of € 9.8 (10.1) million, accounting for 14.0 % (15.8 %) of the group’s earnings. Financial results proﬁ t from sale of afﬁ liated company Net ﬁ nancial income/expense improved by € 11.3 million to € 5.3 (– 6.0) million. This includes a proﬁ t of € 5.8 million from sale of our potato business at the beginning of the ﬁ scal year. The interest result improved due to far higher liquidity and an increase in the level of interest rates. It should also be noted that the net ﬁ nancial result was im- pacted last year by a non-recurring charge of € 3.1 million as a result of the ﬁ nancing out of pension provisions. The result from ordinary activities improved by 30.2 % to € 75.4 (57.9) million. As a result, the gross return on net sales in- creased by 1.8 percentage points to 12.6 % (10.8 %). 2007/2008, research and development expenses, which were included last year in the cost of sales, are reported separately due to their great importance. They rose by 7.2 % to € 80.6 (75.2) million in the period under review. Administrative expenses increased to € 42.3 (38.5) million as a result of numerous maintenance measures, IT projects and higher energy costs and amounted to 7.1 % (7.2 %) of net sales. At € 5.4 (5.1) million, the balance of other operat- ing income and other operating expenses was at the level of the previous year. Operating income sets new record The operating income for the KWS Group increased by 9.7 % to the best-ever mark of € 70.1 (63.9) million. The decline in sales in the high-margin EU market was not able to be compensated for in the sugarbeet segment, where operating income fell to € 28.1 (35.1) million. Its contribution to group income declined to 40.1 % (55.0 %). Operating income in the corn segment improved to € 23.2 (13.3) million despite further expansion of distribution structures and production capacities in Southeastern Europe and North America and accounted for 33.1 % (20.9 %) of the group’s earnings. The cereals segment beneﬁ ted mainly from hybrid rye business and its high contribution to margins. Operating income rose to € 9.0 (5.3) million and was 12.8 % (8.3 %) of 20 Report on the performance I KWS Group I 21 Equity rose to € 398.0 (366.1) million, and fully covered non- current assets and inventories. Debt capital increased by a total of € 29.4 million to € 273.1 (243.7) million, in particular as a result of unpaid royalties, while ﬁ nancial borrowings were reduced as planned to € 6.5 (8.4) million. Short-term borrowings rose by € 27 million to € 182.5 million and were covered at a rate of 196 % (181 %) by cash and cash equiv- alents and trade receivables. Operating activities generate high cash ﬂ ow Net cash from operating activities increased by € 23.5 million to € 74.6 (51.1) million. The ratio of cash ﬂ ow to net sales im- proved to 12.4 % (9.5 %), underlining the KWS Group’s great ﬁ nancial strength. Net funds used in investing activities were € 30.1 (26.7) million while proceeds of € 12.0 million were obtained largely from the disposal of RAGIS KARTOFFEL- ZUCHT- & HANDELSGESELLSCHAFT MBH, Einbeck, yield- ing a free cash ﬂ ow of € 56.5 (24.4) million, with net cash used in ﬁ nancing activities at € 11.6 (11.1) million. Net cash consequently improved markedly to € 106.5 (59.7) million. Proposed appropriation of proﬁ ts For the year under review, KWS SAAT AG achieved net in- come of € 24.1 million, compared to € 18.3 million for the previous year. Of this, € 12.0 (9.0) million has already been allocated to the revenue reserves of KWS SAAT AG. Fol- lowing a dividend of € 1.40 for ﬁ scal 2006/2007, the Execu- tive and Supervisory Boards will propose payment of a dividend of € 1.70 for each of the 6,600,000 shares at the Annual Shareholders’ Meeting, making the total distribution to shareholders this year € 11.2 (9.2) million. € 0.9 million will be carried forward to the new account. The KWS Group Apart from KWS SAAT AG, the consolidated KWS Group comprised a total of 44 (45) subsidiaries and associated companies in ﬁ scal 2007/2008. A total of 42 (41) companies were fully consolidated and 3 foreign companies were pro- portionally consolidated. Two companies that had been included in the KWS Group’s ﬁ nancial statements at equity were sold effective July 1, 2007 (see list of consolidated companies on page 78). A new breeding company was established in Russia. Creation of value added Value added 32% Total output € 633.8 million Raw materials and supplies, purchased goods and services 39 % Other third-party goods and services 26% Distribution of value added Depreciation, amortization, impairment losses 3 % Minority interest 2% Value added € 201.0 million Company 20% Share- holders 6% Public sector 11% Lenders 2% Employees 59 % In ﬁ scal year 2007/2008, the KWS Group generated total output of € 633.8 (563.2) million, consisting of net sales of € 599.1 (537.9) million and other income of € 34.7 (25.3) million. The costs of raw materials and supplies and of third-party goods and services attributable to cost of sales totaled € 247.1 (286.6) million. Deduction of depreciation, amortiza- tion, and impairment losses of € 17.0 (16.1) million and other third-party goods and services of € 168.7 (81.6) million gives value added of € 201.0 (178.9) million. The distribution was as follows: Employees received € 119.0 (111.3) million, including social insurance and retirement beneﬁ t costs. Interest paid fell by € 3.6 million to € 5.1 million. The public sector received € 22.3 million, compared with € 20.7 million in the previous year. Value added of € 3.5 (1.1) million was distributed to minority shareholders. The shareholders will receive a dividend of € 11.2 million, with the result that € 39.9 (27.9) million will be retained by the company. The potato is the most important arable crop after corn, wheat and rice. About 20 million ha of potatoes are grown worldwide. Above-proportionate rise in net income Total tax expenditures rose by 5.6 % to € 20.8 (19.7) million, resulting in a reduction in the tax rate for the group from 34.0 % in the previous year to 27.6 %. This is due in particu- lar to the 2008 corporate income tax reform in Germany, under which the rate of corporate income tax was cut from 25 % to 15 %. A sharp increase in gross proﬁ t and a lower tax rate meant that the KWS Group’s net income increased by 42.9 % to € 54.6 (38.2) million. The return on net sales after tax rose by 2 percentage points from 7.1 % to a gratifying 9.1 %. Investments in expanding production Our capital spending on property, plant and equipment was aimed largely at further improving seed quality and expand- ing breeding and production capacities. The largest indi- vidual investments related to a processing plant for corn seed in Romania, greenhouses and extension of the ofﬁ ce building in Einbeck. The KWS Group invested a total of € 30.4 (27.2) million in the year under review. Depreciation and amortization was € 17.0 (16.1) million, meaning that, once again, investments exceeded depreciation by a signiﬁ - cant margin. Of the total investments by the KWS Group, 46 % went to Germany, 31 % to the rest of Europe, 19 % to North and South America and 4 % to other countries. Just under half of investments were made in the breeding & services segment and almost a third in the corn segment. Solid assets situation Total assets increased in ﬁ scal 2007/2008 by € 61.3 million to € 671.1 (609.8) million. Equity rose by € 31.9 million as a result of the good proﬁ ts situation. The KWS Group has solid ﬁ nancing, with an equity ratio of 59.3 % (60.0 %). Net working capital fell slightly in the ﬁ scal year. Receivables in the corn segment increased by € 23 million as a reﬂ ection of our business expansion, while inventories were reduced by € 7 million. In the sugarbeet segment, net working capi- tal decreased slightly. Totaling € 310.0 (294.8) million, inventories and trade re- ceivables accounted for around 46 % (48 %) of total assets. On the balance sheet date, cash and cash equivalents, including securities, amounted to € 113.0 (68.1) million. 22 Report on the performance I KWS Group I 23 Energy lies in quality.« Friedrich Wilhelm Nietzsche, writer and philosopher Resistance to pests and diseases are the most important qualities of our varieties. After all, only a healthy plant can deliver a full yield. Sugarbeet segment Net sales at our sugarbeet segment were almost on a par with the previous year, despite a huge decline in cultivation area worldwide. Market volume slumped by 17 % in the last growing season, but KWS’ net sales in the segment fell by only 2.6 % in ﬁ scal 2007/2008. There were three major inﬂ uencing factors in the year under review. The main positive impact came from the enormous demand for our genetically modiﬁ ed herbicide-resistant sugarbeet varieties in North America. They are resistant to the active substance glyphosate (Roundup). In their very ﬁ rst year, these special varieties captured a market share of over 60 %. Compared with conventional means of com- bating weeds, American sugarbeet farmers were able to reduce crop protection costs by a third and reduce the use of special herbicides considerably with these innovative varieties. In the EU 27, in contrast, virtually the entire sugar quota was returned in ﬁ scal 2007/2008, something we had originally expected to see happen in 2006/2007. A signiﬁ cant inﬂ u- ence on this were the high consumer prices for corn, wheat, soybean and rapeseed, which reached record levels in the year under review and induced many farmers, in particular in Eastern Europe, to switch from sugarbeet to other crops. (– 51 thousand ha), Germany (– 39 thousand ha) and Hungary (– 30 thousand ha), while sugarbeet cultivation was discontinued completely in Bulgaria. There was a worldwide decline in sugarbeet cultivation area of 17.1 % to 4.25 (5.13) million ha, due not only to sugar quota returns in the EU, but also to the already mentioned high consumer prices for corn, cereals, soybean and rape- seed. Sugarbeet cultivation areas in Ukraine, the Russian Federation and the U.S. were especially affected by this. Net sales in the KWS Group’s sugarbeet segment were € 194.8 (199.9) million, down slightly from the previous year. The losses in sales as a result of these declines in area were largely compensated for by higher revenue in the U.S. Net sales outside the EU increased by 13.1 % to € 87.2 (77.1) million. Our net sales in the EU 27 fell by 12.4 % to € 107.6 (122.8) million, below-proportionately in relation to the decline in area. Cultivation area in the EU 27 fell by 16.3 % to a total of 1.49 (1.78) million ha. The area used to produce quota sugar declined to 1.27 (1.58) million ha. The area for in- dustrial beet, among other things for the production of ethanol, rose slightly to 222 (197) thousand ha. The largest declines in area were in Poland (– 53 thousand ha), France Higher unit costs, accompanied by a decline in net sales and negative exchange rate inﬂ uences, reduced the segment’s income by 19.9 % to € 28.1 (35.1) million. Thanks to rigorous cost optimization in sales and administration, the segment’s return on net sales stabilized at a satisfactory 14.4 %, on a par with the long-term average. The previous year’s Sugarbeet segment sales in millions of € 36.5 158.3 194.8 Leaf health is a key breeding objective. The sugarbeet assimilates energy through its leaves to form its body and store sugar. extraordinarily high return on net sales of 17.6 % was also aided by the marketing of inventories for which allowances had already been charged. The sugarbeet segment still gen- erates the highest return in the KWS Group. The regions Business in Germany was impacted by large reductions in cultivation area, which fell from 407 thousand ha to 368 thousand ha. KWS also suffered slight losses in market share as a result of ﬁ ercer competition. However, it re- mained the market leader by far with a share of just over 53 %. Areas in France also fell from 394 thousand ha to 343 thousand ha, with the result that we were not able to quite achieve the previous year’s high net sales. There were also reductions in area of almost 50 thousand ha in Northern Europe. However, the decline in net sales was only slight thanks to good variety performance and concomitant increases in market share. Cultivation area in Central Europe was reduced by more than 70 thousand ha, and we also lost market share in this region as a result of the competition’s aggressive discount policy. Southeastern Europe also experienced signiﬁ cant reductions in areas. Apart from quota returns in Hungary and Bulgaria, high cereal prices in Croatia and Serbia were also responsible for farmers’ switching to other crops. Overall, the area in this region fell by approximately 34 % to 136 thousand ha. The largest reduction in cultivation area – more than 400 thousand ha – was in Eastern Europe. Nevertheless, we were able to retain our market share there, despite intense competition. Our development in North America and other foreign coun- tries was positive. Sales volumes for Roundup Ready variet- ies in the U.S. were as planned, meaning our North American subsidiary Betaseed was able to grow its market share to almost 60 %. However, this was impacted negatively by the weakening of the US dollar by some 12 %. Our sales situation in Turkey was good, compared with the previous year when an oversupply meant no sales whatever to the Turkish sugar industry. Our business in China and Japan also picked up. 26 Report on the performance | Sugarbeet segment I 27 Corn segment Thanks to its many and varied uses, corn is the world’s most important ﬁ eld crop. Demand increases year by year, with the result that there were even some bottlenecks in seed availability in the 2008 growing season. In this market climate, we were able to expand our corn business in all sales regions. The resultant 19.4 % increase in net sales to € 328.9 (275.5) million far exceeded our expectations. In our strategically important growth region of Southeastern Europe, we even boosted net sales by over 60 %. Our up-front investments in the region over many years are thus gaining traction. We were also able to increase sales volumes by 20 % both in our home market of Germany and in France, Europe’s larg- est agricultural market. Our North American joint venture AgReliant also helped grow the segment’s net sales in the year under review despite a 7 % decline in corn area and a considerable strain because of the weak US dollar. Area for cultivating cereals in Europe increased, primarily at the expense of winter rapeseed. Nevertheless, we man- aged to grow sales in this subarea of the corn segment by just over 20 %. This is attributable to the rapid pace at which farmers are switching from pureline varieties to high- performing hybrids. As a result of the good sales volume and comparably low production costs for seed multiplication in 2007, the seg- ment’s income rose by 74 % to € 23.2 (13.3) million. The regions Soybean cultivation grew sharply in the U.S., in particular at the expense of corn cultivation areas, which fell by just over 7 % year-on-year to 35.3 million ha. Only by expanding its range of varieties with multiple-resistant genetically modi- ﬁ ed products was AgReliant (a 50:50 joint venture with the French breeding group Limagrain/Vilmorin) able to maintain its market share year-on-year and increase its net sales slightly to € 235 (227) million. It retained its market position as the fourth-largest vendor of corn seed in North America. AgReliant was able to record strong growth in soybean seed, where, however, margins are lower. Corn cultivation area in Europe increased in 2008 by around 5 % year-on-year. Moreover, we were able to improve our market position in all of Europe’s regions. The sales season in Germany, in the markets of Northwestern Europe, in France and in the markets of Central and Southeastern Europe went especially well, so that we are now in second position in European corn business. We were able to con- solidate our leadership in Germany and the other Northern European markets for early-maturing corn varieties. Corn segment sales in millions of € 77.2 251.7 328.9 Grain corn is the world’s most important fodder. The harvest from one hectare can be used to produce 15,000 l of milk, 2,000 kg of beef or 3,000 kg of pork. Oil seed contributed about 14.2 % to the corn segment’s net sales. This subarea mainly comprises distribution of winter rapeseed, sunﬂ owers and soybeans in North America. Winter rapeseed performed especially well in the countries of Central and Southeastern Europe. In the EU 27, the share of hybrid rapeseed varieties is now 40 %. This is also attributable to the decision to focus more on breeding rapeseed hybrids, along with the development of pureline varieties in France. In the 2008 growing season, the sunﬂ ower cultivation area increased signiﬁ cantly to around 12 million ha. Approximately 70 % of this area is in Russia and Ukraine, where we were able to sell signiﬁ cant volumes for the ﬁ rst time in the year under review. Further areas of about 15 % for sunﬂ ower cultivation are in Southeastern Europe. We were able to expand our market share there thanks to our good presence in this region. Seed availability The growing demand for corn seed in all regions of Europe is accompanied by expansion in seed multiplication. We build on established partnerships that have proven their strength over the past 10 years. At the same time, we in- vest in seed processing technology wherever this partner- ship concept cannot be implemented. In the current ﬁ scal year, for example, we started building a seed processing plant in Romania and initiated construction of a plant in Ukraine. Further projects are planned for the coming years to ensure the global and regional supply of seed and the high quality of KWS seed in all of Europe’s markets. 28 Report on the performance | Corn segment I 29 Cereals segment The LOCHOW-PETKUS cereals breeding company has a rich tradition and bundles the KWS Group’s cereal activities. We implemented a brand change in this segment effective February 1, 2008: LOCHOW- PETKUS GmbH was renamed KWS LOCHOW GMBH. New color. Same quality. Welcome to the future – welcome to orange! Now everyone can see what has been the case for 40 years: LOCHOW-PETKUS and KWS belong together. On February 1, 2008 our blue will become orange. www.kws-lochow.de This step means that our international cereal activities will beneﬁ t from the KWS brand and that the traditional name LOCHOW is retained in the domestic market of Germany. This measure was implemented against the backdrop of very positive business development. Lengthy periods of drought in the summer of 2007 led to signiﬁ cantly lower yields in the production of cereals for consumption and seed. The resulting price increases in the cereals sector led in turn to above-average demand for seed in the fall sowing season that it was not possible to meet satisfactorily. In particular, the KWS LOCHOW Group sold its entire inventory of hybrid rye varieties and increased net sales by 23.7 % to € 67.4 (54.5) million. We also proﬁ ted from a strong increase in cultivation area for cereals for con- sumption in the 2008 harvest season in Germany due to reduction in the EU’s obligatory fallow land quota. The most important foreign markets were still in the UK, Poland and France. With a stable share slightly more than 50 % from sales abroad, KWS LOCHOW is ﬁ rmly established among European cereal breeders. The unusual market situation in the past ﬁ scal year entailed a sharp increase in the volume of seed sales. Consequently, we were able to post higher net sales for all the main crops: hybrid rye, wheat, barley and rapeseed. The main contribu- tor to net sales and income was hybrid rye, sales of which were around 34 % up year-on-year. We were able to grow our market share for hybrid rye, with its strong contribution to proﬁ ts, to 58 % (48 %) in Germany and about 60 % (54 %) in Poland. The share of hybrid rye relative to our rye busi- ness as a whole increased to around 95 %. The potential proﬁ t contribution from barley and wheat breeding is still unsatisfactory due to the high levels of farm saved seed, meaning that the funds available for promising breeding programs are severely limited. The positive and in some cases exceptional inﬂ uences in the year under review resulted overall in a considerable in- crease in the cereals segment’s income of around 70 % to € 9.0 (5.3) million. The high return on net sales of 13.4 % means a sharp increase in earnings strength (9.8 %) over the previous year. Compared with wheat and barley, rye is especially high-yielding in dry locations. Moreover, this cereal is far more robust in withstanding leaf diseases. Cereals segment sales in millions of € 33.0 34.4 67.4 30 Report on the performance | Cereals segment I 31 Breeding & services segment KWS’ core competence lies in developing innovative, high-yielding varieties adapted to their location for – at present – 70 countries around the world. Other differentiating features of our products are resistance to disease and pests, as well as their speciﬁ c properties for use as food, fodder or raw materials to produce energy. The product portfolio is rounded out by customized treatments, meaning our customers world- wide can choose from several thousand articles. In the calendar year 2008, KWS was awarded 266 (267) distribution approvals for new varieties internationally as part of ofﬁ cial testing: 114 (108) for sugarbeet, 90 (112) for corn, 56 (26) for cereals and 6 (21) for the product area of oil seed. The approved varieties are made available to the product segments in exchange for royalties at a level cus- tomary in the market. Apart from breeding and research, the central corporate functions and farming are operated in this segment. Farm- ing also accounts for most of the segment’s external sales of € 8.0 (8.1) million. Including the internal royalties gener- ated from development of varieties, net sales at the seg- ment in ﬁ scal year 2007/2008 increased to € 121.8 (109.0) million. However, income was € 9.8 (10.1) million, only at the level of the previous year, due to the sharp increase in product development costs and numerous projects in the central functions, in particular for brand development. Success in genome research As a result of genome research, several plant genomes have been sequenced either completely (Arabidopsis, rice, poplar, corn, soybean) or partially (barley, sugarbeet, rape- seed) over the past ten years. As part of this work, it has been possible to acquire extensive knowledge in the area of molecular biology, something that brings with it advan- tages for our traditional crossing and selection processes. Various genome research programs into sugarbeet and corn have produced numerous molecular markers – DNA sections that mark the propensities for a speciﬁ c property. Molecular markers thus make it possible to identify features in the plant for a wide range of breeding objectives (e. g. quality, resistance to disease, tolerance to cold) early on in the laboratory instead of later, in lengthy ﬁ eld trials. One of the molecular markers used is the SNP (single nucleotide polymorphisms) marker. It permits high-through- out applications. As a result of the high-throughout potential of marker technology, larger populations can be selected more quickly for several properties. That means that know l- edge of the properties of the existing breeding material will increase dramatically, enabling even more precise breeding. Our PLANTA marker laboratory has achieved remarkable technological progress in this ﬁ eld and in ﬁ scal 2007/2008 developed a multi-parallel DNA analysis system. Thanks to the introduction of this high-throughput technology (SNP multiplex analysis) and the associated dramatic reduction in costs, the volume of analysis results for sugarbeet and Marketing approval for new varieties 114 90 56 6 266 The secret of plant breeding lies in diversity: The larger the pool of different plants (genotypes) is, the more valuable are the new crossings that can be produced from them. corn will increase almost tenfold in ﬁ scal year 2008/2009. Ultimately, the many low-cost molecular markers are also a prerequisite for being able to test completely new applica- tions for complex breeding objectives. Development of modern plant breeding Year after year, KWS invests in the further technical devel- opment of modern plant breeding. In particular, they include long-term, molecular genome research projects aimed at improving our crops where traditional breeding is no longer able to. The resultant inventions can be protected by pat- ents, which give KWS an exclusive right to use the patented invention for a limited period of time. Adequate patent pro- tection thus promotes technical progress and increases productivity in agriculture. Glyphosate-resistant sugarbeet is one example of such a technical development. KWS was granted a patent for it in the U.S. in February 2008. However, we also achieved technological successes in other areas. KWS has been awarded patent protection for the tissue-speciﬁ c and storage-induced promoters it has de- velo ped; other patent applications are also being processed. Promoters are control units that regulate reading of genetic information (genes). Expansion of breeding activities in new markets Developing varieties that are ideally adapted to their loca- tion is only possible through selection in the target market. For instance, strategic expansion of KWS’ corn breeding program in Hungary has just been completed. There has already been initial success in the testing of medium-late maturity hybrids. Moreover, initial steps have been taken to establish a new corn breeding program with additional testing locations in Romania, Bulgaria, Ukraine and Russia. 32 Report on the performance | Breeding & services segment I 33 Outlook for the 2008/2009 ﬁ scal year In the current ﬁ scal year, we continue to expect the KWS Group to grow its net sales by up to 10 %, and we expect that all product segments will likely contribute to this growth. This also goes for the sugarbeet segment, following the phase of consolidation in the previous year. In addition, we will generate revenue from our new potato business for the ﬁ rst time. The objectives of reform of the Sugar Market Regime in the European Union were largely achieved in the year under review. All that remains to be returned is a quota of 0.3 million tons of sugar, corresponding to a further reduction in area of approximately 30 thousand ha. Assuming this, we ex- pect our sugarbeet sales volumes in the EU 27 to stabi- lize at the level of ﬁ scal 2007/2008, especially given the fact that we have a competitive advantage in Europe in the ﬁ eld of nematode-resistant varieties. We see growth opportu- nities in Eastern Europe. Falling consumer prices for other crops make it more interesting for farmers to grow sugar- beet. Ukraine’s accession to the WTO also means a signiﬁ - cant reduction in protectionist tariff rates, which had virtually prevented us from exporting to Ukraine in the past years. Moreover, we plan to expand sales volumes of our Round- up Ready varieties in the U.S. Based on these anticipated increases in net sales, we assume at present that we will be able to compensate largely for the rising cost of sales and that income at the segment will remain at the level of the year before. While slight growth is forecast again in corn cultivation areas in the U.S., we expect areas in Europe to stagnate. Nev- ertheless, we are planning to increase total net sales in our corn segment, above all by growing sales volumes in France and Southeastern and Southern Europe, and by increasing sales of genetically modiﬁ ed varieties in America. However, the segment’s income will be strained by far higher production costs since the multiplication agree- ments for products to be sold in 2009 were concluded on the basis of the high consumer prices in the fall of 2007. This resulted in sharp price increases for seed multiplication in the various production countries. It is not yet possible to determine the extent to which these cost increases can be passed on, due to ﬁ erce competition in the market. As things now stand, we will likely not be able to repeat the good result of 2007/2008. In the cereals segment, the liberalization of markets re- sulting from the restriction of EU intervention will continue to have a positive impact on net sales. Above all, we ex- pect to grow sales volumes for hybrid rye in Germany and Poland and give a further positive boost to this business activity. We therefore anticipate that the segment will con- tinue its positive net sales and income trend. The seed potato company Van Rijn – KWS B. V., which was launched on July 1, 2008, plans to generate net sales of approximately € 30 million, half of which will be reported for the KWS Group’s breeding & services segment, and break even in its very ﬁ rst ﬁ scal year. In summary, in the current ﬁ scal year we expect income once again on a par with the high level of the previous year, on the strength of an increase in net sales in the KWS Group. There have been no other events of particular signiﬁ cance since the end of last ﬁ scal year. Selective pollination is carried out in the rapeseed breeding garden. Extreme care is vital. Breeding station in Russia Since 2006, KWS has been conducting performance tests to a small extent and on its own responsibility in Lipezk (Central Black Earth region). We plan in the short and me- dium term to establish further trial locations outside the Central Black Earth region in the North Caucasus and Volga/ Ural region. These investments will ensure that sugarbeet, corn, summer cereal and winter rye products developed speciﬁ cally for the Russian and other Eastern Euro pean markets will be available in the future and enable the KWS Group to expand its market position. To this end, a separate breeding infrastructure is being built up in Russia. The cornerstone for the new KWS breeding station near Lipezk was laid at the beginning of July 2008. € 2.8 million has initially been invested to build the station, where performance tests and other breeding work are to be carried out for the crops sugarbeet, corn and cereals, in addition to agrotechnical trials. Moreover, we intend to invest in special technology for trials in the coming years, as well. Repositioning in the potato market The KWS Group has repositioned itself in potato breeding. On July 1, 2008, the new joint venture “Van Rijn – KWS B.V.” launched its international activities in breeding, producing and distributing seed potatoes. As a result, KWS has re- gained an independent, strategic position in this market. The 50:50 joint venture, which is headquartered in Poeldijk near The Hague, operates in around 60 countries with its four subsidiaries in France, the UK, Romania and Morocco and its network of multiplication and distribution partners. Breeding activities are conducted in Emmeloord, the center of potato breeding in the Netherlands. Van Rijn – KWS B. V. has a competitive portfolio of varieties for processing and for consumption as fresh produce. Its market position in Northern and Southern Europe and in North Africa is based on longstanding partnerships of the Van Rijn Group in the potato, fruit and vegetable value chain. Entry into the markets of Eastern and Southeastern Europe opens up signiﬁ cant growth potentials in the me- dium term. 34 Report on the performance | Breeding & services segment | Outlook I 35 Risks for future development KWS acts in an entrepreneurial fashion to exploit market opportunities. The goal of our value-oriented corporate governance is to leverage all proﬁ table strategic potentials. That entails risks. How these risks are handled in entrepre- neurial fashion is a crucial factor of business success. Op- portunities and risks are always analyzed and assessed systematically. Responsible corporate decisions are then made on the basis of this information. Evaluation of opportunities Recognizing and leveraging opportunities secures long- term commercial success. KWS identiﬁ es opportunities by means of a permanent observation of the market and in- tensive dialog with customers, business partners and sci- entiﬁ c institutions. The key to rapid and ﬂ exible exploitation of opportunities when they arise lies in the independence and the long years of breeding experience of KWS and its subsidiaries. A lean, medium-sized organizational structure and an active exchange of knowledge based on trust en- able agility in responding to such opportunities. The main opportunities arise from the global trend of grow- ing demand for food, fodder and energy. This trend is inﬂ u- enced by the world’s growing population and increasing prosperity in individual regions. As their incomes rise, peo- ple demand higher-quality food and use more energy. Re- serves of fossil fuels and land that can be used for agricul- ture on our planet are limited. That is why solutions for cost-effective, resource-saving and efﬁ cient production of food are growing in importance. We have explained how KWS will leverage these opportunities in entrepreneurial fashion in the “Outlook for the 2008/2009 ﬁ scal year” sec- tion on page 35 of this management report. Risk management A suitable risk management system is needed to system- atically and efﬁ ciently evaluate, document and control risks, the likelihood of their occurrence and their potential effects. KWS has ﬁ rmly established such a system in its corporate planning and controlling and in its reporting system. The risk management system is based on strategic planning and investment controlling, continuous operational control- ling and the quality and process monitoring systems. The efﬁ ciency of the risk management system is ensured by a clear assignment of responsibilities and internal control and was checked by the auditors as part of their audit of the annual ﬁ nancial statements. External auditing by experi- enced auditors is conducted at KWS and is a key compo- nent of risk management in ensuring that internal controls work. Several audits are held each year, covering processes and organizational units. The goals are to optimize internal control systems and to increase efﬁ ciency. The KWS Group is subject to the usual economic and po- litical risks in the countries in which it and its subsidiaries operate. In addition, the risks described below may signiﬁ - cantly impair KWS’ net sales, ﬁ nancial position and perfo r m- ance. These risks have been identiﬁ ed. However, other risks that have not yet been recognized or have been un- derestimated may also inﬂ uence its business. No risks that pose a threat to the company’s existence have been identiﬁ ed to date. There was no signiﬁ cant change in the risk situation in ﬁ scal 2007/2008 compared with the pre- vious year. Market risks The medium-term sales risk depends on product perform- ance and the competitive situation. KWS addresses this challenge with systematic analyses of the market and com- petition and by permanently developing higher-quality seed for innovative, high-yielding plants. KWS counters the risk of a decline in cultivation areas with its efforts to win market share and grow sales in other areas of production. A wide- ranging product portfolio contributes to diversiﬁ cation of risks. The company ensures the high quality of its products through strict internal quality standards and monitoring. KWS tackles the risks involved in investing in acquisitions and research and construction projects by means of ef- ﬁ cient controlling and professional project management. It also addresses the liquidity risk with professional cash man- agement, sufﬁ cient long-term, syndicated credit lines – of which only some were made use of in the year under review – and a comfortable equity ratio of 59.3 %. It uses extensive trade credit insurance to counter the risk of losing receiv- ab les in risky regions and business segments. The risk of interest rate changes and currency risks are addressed through the usual standardized hedging instruments. Political risks In the strongly regulated agriculture industry, political risks have a signiﬁ cant impact on business development. The new EU Sugar Market Regime, which came into effect on July 1, 2006, and will remain in force until September 30, 2015, has a serious effect on KWS, the world market leader in sugarbeet seed. However, it has so far largely been pos- sible to cushion the declines in net sales in the EU 27 by higher sales volumes outside the EU, in particular in the U.S. and Turkey. for cultivation of Roundup Ready sugarbeet awarded in March 2005. Although we expect the ruling to be positive for us, a risk to our business in North America cannot be fully ruled out. A further risk is the suspension of approval for a number of common pesticides for treating seed by the German Federal Ofﬁ ce of Consumer Protection and Food Safety. If this directive remains in force, it would necessitate signiﬁ - cant impairment to the value of already treated stocks and a loss of value created from the way we treat our products. Weather-related risks The agricultural production process of breeding and multi- plying seed depends to a large extent on the weather. KWS counteracts the risk of production losses as a result of bad weather with a broad product range that needs a variety of weather conditions for a successful harvest. Seed multiplication is distributed over various locations in Europe and North America. Contraseasonal multiplication is carried out in the winter half-year in Chile and Argentina if there are bottlenecks in seed availability. Demand for high-yielding energy plants is dependent on the price of fossil fuels and on general regulatory condi- tions, such as government market incentive programs for startup ﬁ nancing for the investments needed for bioenergy production, admixture ratios for biofuels or regulations on direct feeding of biogas into existing natural gas networks, to name a few examples. We believe that the Genetic Engineering Act (GenTG) adop- ted by the German Parliament on January 25, 2008, is not efﬁ cacious, since it impedes the use of state-of-the-art, in- ternationally acknowledged breeding methods in Germany. It entails serious competitive disadvantages for agriculture, research institutions and medium-sized enterprises such as KWS, in particular because it fails to deﬁ ne the issue of liability precisely and because the exact plot of areas has to be reported in the location registry. It is not only direct legislative procedures that impact busi- ness operations. Reservations on the part of the population can also inﬂ uence opportunities for business development. For example, there is strong disapproval of “green genetic engineering” in agriculture, especially in Europe. World- wide, on the other hand, genetically improved crops are cultivated on more than 110 million hectares a year, with remarkable economic and ecological advantages. In the U.S. in particular, it is mainly genetically improved varieties that are cultivated and that are helping to solve problems in agriculture. However, rapid market penetration of our herbicide-resistant, genetically modiﬁ ed sugarbeet varieties (Roundup Ready) in the U.S. has also provoked opposition from opponents of genetic engineering in that country. On January 23, 2008, environmental protection associations ﬁ led legal action against the United States Department of Agriculture (USDA), with the aim of revoking the approval KWS sets a clear signal for freedom of research and innovation in Germany – 450 employees support and protect seed sowing in an outdoor trial with genetically modiﬁ ed sugarbeet in the Northeim district. 36 Report on the performance | Risks I 37 Employees Our employees have a personal relationship of trust with customers worldwide – the foundation of our company’s success. The reliability of each employee of KWS and the quality of our products are the factors that create and nurture our customers’ conﬁ dence in our company. Together with its subsidiaries, KWS SAAT AG is a leading global seed company. 2,856 employees in 70 countries worked for the KWS Group worldwide in 2007/2008. Our success is founded on the combination of traditional values with cutting-edge technology and comprehensive know- how. As a result, the company, with its tradition of family ownership, has grown in the international markets for more than 150 years. Our employees deliver on our promises to our customers. Their motivation, abilities and hard work are vital to the entire company’s success. That is why the cru- cial task of HR management is to ensure that employees are deployed in a way that best reﬂ ects their skills, potential and personal inclinations. Leadership and encouragement KWS’ HR management is geared to maximizing the achieve- ments, motivation and development of employees and en- suring that they are assigned effectively and as best possible at the company. Three key tasks were formulated in 2006 by the International Management Circle (IMC): leadership – a common management philosophy; change – controlling and communicating change processes; and analysis of poten- tials – early identiﬁ cation and encouragement of special talents and top performers. Five training courses, in which 44 managers from 26 coun- tries took part, were held to qualify and develop executives. They focused on the global implementation of the company’s shared philosophy. In addition, executives are given regular training on employee leadership methods and support in developing their capacities as a manager and role model. Overcoming uncertainties in the change process To help address changing customer needs and identify at an early stage the long-term trends that are common among individual areas, the people and the organization of modern companies are subject to a state of permanent change. A company’s success depends in large measure on how this change process is handled and communicated. After all, changes sometimes do not motivate employees, but rather irritate or disconcert them. That is why KWS attaches special importance to integrating its employees in change processes at an early stage. The Works Committee 38 is closely involved in such processes in order to ensure a common understanding for change processes and their nature. Identifying and developing potential Early recognition of potential, encouragement of top per- formers and their effective deployment are important ele- ments in the development of managers and experts. In order to identify and help develop employees with high potential, KWS held two Orientation Centers last year – each lasting several days – in which top management also participated. 20 junior executives from six countries took part. Another key aspect apart from identifying the various tal- ents is training and continuing education to ensure that our employees can unfold their talents to the full. In ﬁ scal 2007/2008, KWS invested more than € 600 thousand in employee development alone. In all, 109 seminars, lasting an average of two days each, were attended by more than 1,000 participants. KWS also offers an extensive range of language courses to promote the intercultural skills of its workforce and help it adapt to the requirements of global business. KWS gives junior personnel the chance to gat her experience internationally. We offer business administration apprentices the possibility of working at subsidi aries abroad for several weeks. Participants in KWS’ training program: If continuing education is made to be fun, the outcome is motivation and team spirit. KWS builds on trust We attach special importance to promoting our employees’ achievement, motivation and development. After all, people who are assigned in accordance with their abilities and whose talents are encouraged, and also act independently and responsibly, enjoy their work and identify with the company. Employees in ﬁ gures In the ﬁ scal year 2007/2008, the KWS Group workforce grew by 4.3 % to 2,856 (2,739) people worldwide, of whom 860 (777) were at KWS SAAT AG. Personnel expenses at the KWS Group rose to € 119.0 (111.3) million; KWS SAAT AG accounted for € 43.2 (37.7) million of this. The future of KWS lies in ensuring that its junior staff members receive good training. Moreover, the company is aware of its social responsibilities in its home region and has been training young people for years – in numbers in excess of what we actually need ourselves. In the ﬁ scal year 2007/2008, 75 (72) apprentices and 10 (12) trainees were employed. The company offers a wide variety of vocations: industrial clerks in the area of business administration, technical assistants and laboratory technicians in the ﬁ eld of agricultural re- search, and in the technical ﬁ eld as industrial mechanics, energy-tech engineers specializing in plant engineering, and electronics engineers for operations technology. KWS Group employees by regions KWS Group employees by functions KWS Group employees by age Rest of world 2 % America 31 % Germany 44 % Europe (excluding Germany) 23% Administration 15% R & D 36% Production 19% 40–49 33% 30–39 29 % 20–29 14% Sales and marketing 30% 60 and above 4 % 50–59 20% Report on the performance | Employees I 39 We are just a small particle of a whole, but everyone has an inﬁ nitely great responsibility.« Konrad Lorenz, physician and zoologist In the agricultural production process, we share this responsibility with our customers, since careful use of natural resources is indispensable. Compensation Report The Supervisory Board’s compensation is set by the Annual Shareholders’ Meeting at the proposal of the Executive Board and Supervisory Board. It is based on the size of the company, the duties and responsibilities of the members of the Supervisory Board and the company’s economic situa- tion. The remuneration includes not only a ﬁ xed payment, but also a variable component based on the dividend paid. Accordingly, Supervisory Board members receive ﬁ xed compensation of € 8,000 and a dividend-related payment of € 2,000 for each € 0.10 by which the dividend per share exceeds € 0.20. The Chairman of the Supervisory Board receives three times and his or her deputy one-and-a-half times the total compensation of an ordinary member. There is currently no extra compensation for work on committees. The Chair- man of the Audit Committee receives one-and-a-half times the total compensation of an ordinary member of the Su- pervisory Board, provided he or she does not hold the ofﬁ ce of Chairman or Deputy Chairman of the Supervisory Board. The members of the Supervisory Board are reim- bursed for all expenses – including value-added tax – that they incur while carrying out the duties of their position. Providing that the annual meeting of shareholders re- solves the proposed dividend, total compensation of the members of the Supervisory Board will be € 333 thousand (€ 272 thousand), excluding value-added tax. In all 79 % (75 %) or € 263 thousand (€ 204 thousand) of the total compensation is performance-related. Supervisory Board compensation 2007/08 in € Dr. Guenther H. W. Stratmann*1 Dr. Andreas J. Büchting*2 Dr. Arend Oetker** Hubertus v. Baumbach***2 Jürgen Bolduan2 Cathrina Claas2 Goetz von Engelbrechten1 Eckhard Halbfaß1 Jürgen Kunze1 Dr. Dietmar Stahl2 Prof. Dr. Ernst-Ludwig Winnacker1 * Chairman; ** Deputy Chairman; *** Chairman of the Audit Committee 1 until December 2007, 2 since December 2007 Fixe d 12,000.00 12,000.00 12,000.00 6,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00 P erfor m ance- relate d 45,000.00 45,000.00 45,000.00 22,500.00 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00 15,000.00 Total 57,000.00 57,000.00 57,000.00 28,500.00 19,000.00 19,000.00 19,000.00 19,000.00 19,000.00 19,000.00 19,000.00 70,000.00 262,500.00 332,500.00 The Executive Board’s compensation is set by the Commit- tee for Executive Board Affairs of the Supervisory Board and is based on the size and activity of the company, its economic and ﬁ nancial situation and the level and structure of the compensation received by members of the Executive Board at comparable companies. It is composed of a ﬁ xed and a performance-related component. There are no stock- based components. Executive Board compensation 2007/08 in € Dr. Andreas J. Büchting* Dr. Christoph Amberger Philip von dem Bussche** Dr. Hagen Duenbostel Dr. Léon Broers (Deputy) The ﬁ xed compensation is paid as a monthly salary. Apart from these salaries, there is also non-monetary compensa- tion, such as a company car or phone. There are also ac- cident insurance policies for the members of the Executive Board. The performance-related compensation is calcu- lated on the basis of an individual percentage of the net proﬁ t for the year for the KWS Group. Payments for duties performed in subsidiaries and associated companies were € 37 thousand (€ 24 thousand) and are offset against the performance-related payment. There is an absolute upper limit for the variable compensation. Fixe d B eneﬁ ts in kin d P erfor m ance- relate d Total 112,500.00 42,623.51 304,538.49 459,662.00 180,000.00 22,331.82 547,668.18 750,000.00 202,500.00 16,680.84 553,319.16 772,500.00 180,000.00 19,047.42 550,952.58 750,000.00 150,000.00 24,986.05 304,538.49 479,524.54 825,000.00 125,669.64 2,261,016.90 3,211,686.54 * Chairman, partially until December 2007; ** Chairman since December 2007 Pension obligations are granted in the form of an obligation to provide beneﬁ ts, with the annual pensions ranging be- tween € 130 thousand and € 140 thousand. In ﬁ scal 2007/ 2008, € 117 thousand (€ 296 thousand) was allocated to the pension provisions in accordance with IAS 19 for pension obligations to members of the Executive Board. Pension provisions of € 1,018 thousand (€ 901 thousand) were formed for the following members of the Executive Board of KWS SAAT AG: Compensation of former members of the Executive Board amounted to € 883 thousand (€ 738 thousand). Pension provisions recognized for this group of persons amounted to € 2,745 thousand (€ 3,055 thousand) as of June 30, 2008. No loans were granted to members of the Executive Board and Supervisory Board in the year under review. Pension commitments in € Dr. Christoph Amberger Dr. Hagen Duenbostel 07/01/2007 P erso n nel ex p enses ex p enses Interest 06/30/2008 678,801.00 44,698.00 36,930.00 760,429.00 221,758.00 25,266.00 11,025.00 258,049.00 900,559.00 69,964.00 47,955.00 1,018,478.00 42 Report on the performance | Compensation Report I 43 Annual Financial Statements of the KWS Group 2007/2008 Disclosures in accordance with section 289 (4) and section 315 (4) HGB (German Commercial Code) The Executive Board provides the following explanations of the information in accordance with section 289 (4) and section 315 (4) HGB (German Commercial Code) in the group management report: Kommanditgesellschaft Dr. Arend Oetker Vermögens- verwaltungsgesellschaft mbH & Co., Berlin • The voting shares, including mutual allocations, of the shareholders stated below each exceed 10 % and total 10.6 %. The subscribed capital of KWS SAAT AG is € 19,800,000. It is divided into 6,600,000 no-par bearer shares. Each share grants the holder one vote at the Annual Shareholders’ Meeting. Hans-Joachim Tessner, Goslar Tessner Beteiligungs GmbH, Goslar Tessner Holding KG, Goslar There may be limitations on the voting rights for the shares under the provisions of the German Stock Corporation Act (AktG). For example, shareholders are barred from voting under certain conditions (section 136 AktG). In addition, no voting rights accrue to the company on the basis of the shares it holds (section 71b AktG). The Executive Board is not aware of any contractual restrictions relating to voting rights or transfer of shares. The company has been informed of the following direct or indirect participating interests in the capital of KWS SAAT AG in excess of 10 % of the voting rights in accordance with section 21 and section 22 of the German Securities Trading Act (WpHG): • The voting shares, including mutual allocations, of the members, foundations and companies of the families Büchting/Giesecke and Arend Oetker listed below each exceed 10 % and total 56.3 %. Dr. agr. Carl-Ernst Büchting, Einbeck Dr. Andreas J. Büchting, Einbeck Christiane Stratmann, Meerbusch Dorothea Schuppert, Augsburg Michael C.-E. Büchting, Basel Annette Büchting, Bremen Stephan O. Büchting-Hansing, Ammerbuch-Entringen Elke Giesecke, Altenberge Christa Nagel, Springe AKB Stiftung, Hannover Büchting Beteiligungsgesellschaft mbH, Hannover Dr. Arend Oetker, Berlin 44 Shares with special rights that grant powers of control have not been issued by the company. There is no special type of voting control for the participat- ing interests of employees. Employees who have an inter- est in the company’s capital exercise their control rights in the same way as other shareholders. At KWS SAAT AG, members of the Executive Board are appointed and removed as provided for in section 84 AktG. In compliance with sections 179 ff. AktG, amendments to the Articles of Association of KWS SAAT AG require a reso- lution to be adopted by the Annual Shareholders’ Meeting, by a majority of at least three quarters of the capital stock represented in adopting the resolution. The power to make amendments to the Articles of Association that only affect the wording (section 179 (1) sentence 2 AktG), has been conferred on the Supervisory Board in accordance with the Articles of Association of KWS SAAT AG. The Executive Board is not now authorized to issue or buy back shares. Signiﬁ cant agreements subject to the condition of a change in control pursuant to a takeover bid have not been concluded. Moreover, there are no compensation agreements between the company and the members of the Executive Board or employees governing the case of a change in control. Einbeck, October 7, 2008 KWS SAAT AG THE EXECUTIVE BOARD Balance sheet at June 30, 2008; ﬁ gures in € thou- sands, unless other- wise speciﬁ ed ASSETS Intangible assets Property, plant and equipment Other ﬁ nancial assets Noncurrent tax assets Deferred tax assets Noncurrent assets Inventories and biological assets Trade receivables Available-for-sale securities Cash and cash equivalents Current tax assets Other current assets Subtotal of current assets Noncurrent assets held for sale Current assets Total assets EQUITY AND LIABILITIES Subscribed capital Capital reserve Retained earnings Minority interest Equity Long-term provisions Long-term borrowings Trade payables Deferred tax liabilities Other long-term liabilities Noncurrent liabilities Short-term provisions Short-term borrowings Trade payables Current tax payables Other liabilities N ote N o. 06/30/2008 Previo us year (2) (3) (4) (5) (6) (7) (8) (9) (10) (8) (8) (11) 34,471 35,435 157,086 147,914 5,531 7,182 6,011 7,124 16,858 16,315 221,128 212,799 85,829 90,565 224,163 204,238 17,958 94,973 7,113 19,934 19,980 48,075 7,814 15,889 449,970 386,561 0 10,437 449,970 396,998 671,098 609,797 19,800 5,530 19,800 5,530 351,777 320,718 20,911 20,036 (12) 398,018 366,084 Income statement for the period July 1, 2007 through June 30, 2008; ﬁ gures in € thousands, unless otherwise speciﬁ ed Net sales Cost of sales Gross proﬁ t on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Interest and other income Interest and other expenses Share of proﬁ t from afﬁ liated companies Other income from equity investments Net ﬁ nancial income/expenses Result of ordinary activities Income taxes Net income for the year Share of minority interest 60,872 59,263 Net income after minority interest N ote N o. (19) (20) (21) (22) (23) (25) 2007/08 599,089 305,423 293,666 Previo us year 537,930 263,969 273,961 106,096 101,485 80,576 42,257 24,267 18,890 70,114 3,765 5,139 5,779 848 5,253 75,367 20,816 54,551 3,494 51,057 75,205 38,505 22,575 17,472 63,869 3,112 8,708 – 500 73 – 6,023 57,846 19,674 38,172 1,124 37,048 Earnings per share (in €) 7.74 5.61 (13) 2,629 1,983 13,815 11,259 90,558 88,238 3,842 36,863 22,639 30,940 3,887 2,440 16,683 4,530 86,803 71,282 4,510 39,838 19,151 20,688 Subtotal of current liabilities 182,522 155,469 Liabilities directly connected to noncurrent assets held for sale Current liabilities Liabilities (11) (14) 0 1,441 182,522 156,910 273,080 243,713 Total equity and liabilities 671,098 609,797 46 Annual Financial Statements | Balance sheet I Income statement I 47 Statement of changes in ﬁ xed assets 2007/2008 and 2006/2007 Figures in € thousands, unless otherwise speciﬁ ed translatio n C urrency C han g es in the c o nsol. gro u p A d ditio ns Gross values Disp osals Transfers translatio n C urrency C han g es in the c o nsol. gro u p A d ditio ns Disp osals Transfers Amortization/depreciation Net book values Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and ofﬁ ce equipment Payments on account Balance 07/01/2007 20,657 25,582 46,239 – 288 – 1,399 – 1,687 145,239 – 3,401 120,824 53,049 4,279 – 2,842 – 1,747 – 216 Property, plant and equipment 323,391 – 8,206 0 0 0 0 0 0 0 0 2,476 1,213 0 0 2,476 1,213 Balance 06/30/2008 2 0 2 21,634 24,183 45,817 Balance 07/01/2007 10,137 – 121 667 0 10,804 – 121 8,514 349 2,228 152,231 47,048 – 1,363 5,911 4,980 8,500 6,818 3,565 3,696 120,771 660 53,377 6 – 6,586 5,971 27,905 10,738 – 2 332,350 Financial assets 6,181 31 – 42 6 170 Assets 375,811 – 9,862 – 42 30,387 12,121 Balance 07/01/2006 0 0 6,006 384,173 Balance 06/30/2007 14,986 26,640 41,626 – 93 – 656 – 749 9 5 14 6,826 157 6,983 1,112 0 1,112 41 – 564 – 523 20,657 25,582 46,239 Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and ofﬁ ce equipment Payments on account 139,868 – 469 27 3,859 1,435 3,389 145,239 44,227 – 326 116,392 52,312 4,394 – 84 52 9 164 83 21 4,925 4,805 6,191 3,159 4,520 2,586 120,824 317 53,049 3 – 6,333 4,279 86,245 38,258 0 – 15 140 0 Property, plant and equipment 312,966 – 492 295 19,780 9,117 – 41 323,391 168,730 – 201 Afﬁ liated companies Other ﬁ nancial assets Financial assets 6,074 8,755 14,829 0 33 33 0 0 0 0 422 422 861 36 897 – 5,213 – 2,993 – 8,206 0 6,181 6,181 0 764 764 0 0 0 89,711 38,718 0 – 2,158 – 1,338 0 175,477 – 4,859 170 0 186,451 – 4,980 Balance 07/01/2006 9,985 1,232 11,217 – 38 – 1 – 39 1,873 1,212 0 0 1,873 1,212 3,906 182 6,625 4,283 0 6,719 3,265 0 14,814 10,166 305 0 16,992 11,378 Balance 06/30/2008 Balance 06/30/2008 Previous year 2 0 2 0 – 137 135 0 – 2 0 0 10,679 667 11,346 10,955 23,516 34,471 10,520 24,915 35,435 49,409 102,822 98,191 87,322 38,533 0 33,449 14,844 5,971 31,113 14,331 4,279 175,264 157,086 147,914 475 5,531 6,011 187,085 197,088 189,360 Balance 06/30/2007 Balance 06/30/2007 Previous year 1,278 1,096 0 10,137 0 0 1,278 1,096 – 564 – 564 667 10,804 10,520 24,915 35,435 5,001 25,338 30,339 3,754 768 160 47,048 98,191 95,641 6,534 4,280 0 2,926 4,015 0 14,568 7,709 0 219 219 0 0 0 – 162 2 0 0 0 – 813 – 813 89,711 38,718 0 31,113 14,331 4,279 30,147 14,054 4,394 175,477 147,914 144,236 0 170 170 0 6,011 6,011 6,074 7,991 14,065 0 0 0 0 0 0 0 0 0 0 8 0 8 1 35 53 0 89 0 0 0 Assets 369,421 – 1,208 309 27,185 11,126 – 8,770 375,811 180,711 – 240 97 16,065 8,805 – 1,377 186,451 189,360 188,640 48 Annual Financial Statements | Statement of changes in fixed assets I 49 Statement of changes in equity Figures in € thousands, unless otherwise speciﬁ ed S u bscrib e d ca pital C a pital reserve e q uity fro m earnin gs A ccu m ulate d gro u p A djust m ents fro m cur- rency translatio n R evaluatio n reserve Other transactio ns E q uity Parent company Comprehensive other group income M in ority interest A djust m ents fro m cur- rency translatio n Minority interests Comprehensive other group income Other transactio ns E q uity Group equity Balance as at June 30, 2006 19,800 5,530 298,174 – 4,763 – 9 610 319,342 18,761 – 139 0 18,622 337,964 Dividends paid Other changes Consolidated net income Other recognized gains (losses) Total consolidated gains (losses) – 7,920 37,048 37,048 – 2,470 – 2,470 Balance as at June 30, 2007 19,800 5,530 327,302 – 7,233 Dividends paid Other changes Consolidated net income Other recognized gains (losses) Total consolidated gains (losses) – 9,240 1,560 51,057 – 12,326 51,057 – 12,326 – 7,920 0 37,048 – 2,422 34,626 – 16 – 16 594 346,048 – 9,240 1,560 51,057 – 12,318 0 38,739 64 64 55 8 8 Balance as at June 30, 2008 19,800 5,530 370,679 – 19,559 63 594 377,107 – 264 27 1,124 1,124 19,648 – 426 – 1,993 3,494 3,494 20,723 531 531 392 – 200 – 200 192 – 4 – 4 – 4 0 – 4 – 264 27 1,124 527 1,651 20,036 – 426 – 1,993 3,494 – 200 3,294 20,911 – 8,184 27 38,172 – 1,895 36,277 366,084 – 9,666 – 433 54,551 – 12,518 42,033 398,018 50 Annual Financial Statements | Statement of changes in equity I 51 Cash ﬂ ow statement Figures in € thousands, unless otherwise speciﬁ ed Notes to the cash ﬂ ow statement Figures in € thousands, unless otherwise speciﬁ ed; previous-year ﬁ gures in parentheses Net income Depreciation/reversal of impairment losses (–) on property, plant, and equipment Increase/decrease (–) in long-term provisions Other noncash expenses/income (–) Cash earnings 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 ﬁ nancing activities Increase/decrease (–) in trade payables and other liabilities not attributable to investing or ﬁ nancing activities Net cash from operating activities before external ﬁ nancing of pension provisions External ﬁ nancing of pension provisions Net cash from operating activities 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 ﬁ nancial assets Payments (–) for ﬁ nancial assets Proceeds from the sale of consolidated companies and other business units Payments (–) for the acquisition of consolidated companies and other business units N ote 2007/08 54,551 16,992 1,565 – 8,830 64,278 20,089 – 6,051 Previo us year 38,172 16,065 – 1,113 – 5,147 47,977 7,923 – 375 – 27,090 – 7,353 23,354 74,580 14,216 62,388 0 – 11,256 (A) 74,580 51,132 848 1,783 – 26,668 – 24,024 1 15 – 2,476 – 4,390 170 – 6 12,025 – 1,969 36 – 62 0 – 95 Net cash from investing activities (B) – 18,075 – 26,737 Equity capital increase with no effect on proﬁ ts Dividend payments (–) to shareholders parent and minority Payments (–) to redeem borrowings Net cash from ﬁ nancing activities 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 Cash and cash equivalents at end of year 0 – 9,666 – 1,927 71 – 8,184 – 2,955 (C) – 11,593 – 11,068 44,912 13,327 0 0 – 36 – 36 68,055 (D) 112,931 893 – 1,939 154 – 892 55,620 68,055 The cash ﬂ ow statement, which has been prepared ac- cording to IAS 7 (indirect method), shows the changes in cash and cash equivalents of the KWS Group in the three categories of operating activities, investing activities, and ﬁ nancing activities. The effects of exchange rate changes and changes in the consolidated group have been elimi- nated from the respective balance sheet items, except those affecting cash and cash equivalents. (A) Cash ﬂ ows from operating activities The cash proceeds from operating activities are primarily determined by cash earnings. They were € 64,278 thou- sand, € 16,301 thousand higher than the previous year. The proportion of cash earnings included in sales was 10.7 % (8.9 %). Lower inventories, higher receivables and an in- crease in current provisions and liabilities resulted in cash proceeds of € 10,302 thousand (€ 14,411 thousand). The cash proceeds from operating activities also include inter- est income of € 3,342 thousand (€ 3,052 thousand) and dividend income of € 1,153 thousand (138 thousand) as well as interest expense of € 1,607 thousand (€ 2,051 thou- sand). € 0 (11,256) thousand was paid out for the external ﬁ nancing of pension commitments. Income tax payments amounted to € 21,324 thousand (€ 14,679 thousand). (B) Cash ﬂ ows from investing activities A net total of € 18,075 thousand (€ 26,737 thousand) was required to ﬁ nance investing activities. An amount of € 29,144 thousand (€ 28,414 thousand) was paid for intan- gible and tangible assets and an amount of € 6 thousand (€ 62 thousand) for ﬁ nancial assets. There were total cash receipts of € 1,019 thousand (€ 1,834 thousand) for dis- posals of assets. In the ﬁ scal year under review, shares in afﬁ liated companies were sold at a total price of € 12,025 thousand. (C) Cash ﬂ ows from ﬁ nancing activities Financing activities resulted in cash outﬂ ows of € 11,593 thousand (€ 11,068 thousand). The dividend payments to shareholders parent and minority related to the dividends of € 9,240 thousand (€ 7,920 thousand) paid to the share- holders of KWS SAAT AG, as well as proﬁ t distributions paid to other shareholders of and capital reductions at fully consolidated subsidiaries of € 426 thousand (€ 264 thou- sand). In addition, borrowings of € 1,927 thousand (€ 2,955 thousand) were repaid. (D) Supplementary information on the cash ﬂ ow statement As in previous years, cash and cash equivalents are composed of cash (on hand and balances with banks) and current available-for-sale securities. Cash and cash equivalents includes € 9,217 thousand (€ 15,031 thousand) from partially consolidated companies. Information on acquisitions and disposals of sub sidiaries and other business units Total amount of all purchase prices 2007/08 0 Total amount of sales prices 12,025 Total amount of cash components of purchase prices Total amount of cash components of sales prices Total amount of all cash and cash equi valents acquired with the com- panies Total amount of all cash and cash equivalents sold with the companies 0 12,025 0 0 Previo us year 95 0 95 0 153 0 Amounts of other assets and liabilities acquired or sold with the companies ac q uire d sold ac q uire d sold 2007/08 Previous year Assets 0 7,393 207 Current assets, incl. prepaid ex penses (excluding cash and cash equivalents) Provisions Liabilities, incl. deferred income 0 0 0 3,072 1,302 1,208 – 90 3,009 –1,630 0 0 0 0 52 Annual Financial Statements | Cash flow statement I Notes to the cash flow statement I 53 Segment reporting Figures in € thousands, unless otherwise speciﬁ ed; previous-year ﬁ gures in parentheses Breeding & services This segment includes the centrally controlled corporate functions of research and breeding, as well as services for the KWS product segments of sugarbeet, corn and cereals and consulting services for the KWS Group and other customers. Considered a core competence for the KWS Group’s entire product range, plant breeding, including the related bio- technology research, is essentially concentrated at the parent company in Einbeck. All the breeding material, including the relevant information and expertise about how to use it, is owned by KWS SAAT AG, with respect to sugarbeet and corn, and by KWS LOCHOW GMBH, with respect to cereals. Research and breeding are also performed by the wholly-owned German subsidiary PLANTA ANGEWANDTE PFLANZENGENETIK UND BIO- TECHNOLOGIE GMBH and breeding activities are con- ducted by eight (ten) other German and foreign subsidi- aries and afﬁ liated companies. Consulting services include the systems business of KWS SAAT AG and its agricultural operations, KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH, KWS SAATFINANZ GMBH and EUROHYBRID GESELL- SCHAFT FÜR GETREIDEZÜCHTUNG MBH. The other services performed for the KWS product seg- ments essentially include all the management services of KWS SAAT AG, such as holding company and administra- tive functions, including strategic development projects, which are not directly charged to the product segments or indirectly allocated to them by means of an appropriate cost formula. In accordance with its internal reporting system, the KWS Group is primarily organized by the following business segments: • Sugarbeet • Corn • Cereals • Breeding & services The research and development function is contained in the breeding & services segment. Because of their minor im- portance within the KWS Group, the distribution and pro- duction of oil and ﬁ eld seed are reported in the cereals and corn segments, depending on the legal entities involved. Description of segments Sugarbeet The results of the multiplication, processing and distribu- tion activities for sugarbeet seed are reported under the sugarbeet segment. Under the leadership of KWS SAAT AG, fourteen foreign subsidiaries and afﬁ liated companies and one subsidiary in Germany are active in this segment, as in the previous ﬁ scal year. Corn KWS MAIS GMBH is the lead company for the corn seg- ment. In addition to KWS MAIS GMBH, business activities are (as in the previous year) conducted by one German company and fourteen foreign 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 ﬁ eld seed. Cereals The lead company of this segment, which essentially concerns the production and distribution of hybrid rye, wheat, and barley, as well as oil and ﬁ eld seed, is KWS LOCHOW GMBH, an 81 %-owned subsidiary of KWS SAAT AG, with – as in the previous year – its three foreign subsidiaries and afﬁ liated companies in France, Great Britain, and Poland. Segment information Segment sales contains both sales from third parties (external sales) and sales between the segments (interseg- ment sales). The prices for intersegment sales are deter- mined on an arm’s-length basis. Uniform royalty rates per segment are used as the basis for this. The breeding & services segment generates 93.4 % (92.6 %) of its sales from the other segments. The sales of this seg- ment represents 1.3 % (1.5 %) of the group’s external sales. The corn segment is the largest contributor of external sales, accounting for 54.9 % (51.2 %) of external sales, fol- lowed by sugarbeet with 32.5 % (37.2 %) and cereals with 11.3 % (10.1 %). 2007/08 Previo us year 2007/08 Previo us year 2007/08 Previo us year Segment sales Internal sales External sales 194,796 329,131 69,401 121,755 715,083 199,880 275,689 57,195 109,043 641,807 27 212 2,018 113,737 115,994 0 160 2,727 100,990 103,877 194,769 328,919 67,383 8,018 199,880 275,529 54,468 8,053 599,089 537,930 Sugarbeet Corn Cereals Breeding & services KWS Group External sales by region 2007/08 Previo us year Germany 151,106 132,437 Europe (excluding Germany) 263,298 244,818 Americas Rest of world KWS Group 160,342 141,956 24,343 18,719 599,089 537,930 69.1 % (70.1 %) of total sales are recorded in Europe (including Germany). The other noncash items recognized in the income statement relate to noncash changes in the allowances on inventories and receivables, and in provisions. The operating income of each segment is reported as the segment result. The segment results are presented on a consolidated basis. Depreciation and amortization charges of € 16,687 thousand (€ 15,631 thousand) allocated to the segments relate exclusively to intangible assets and property, plant, and equipment. 54 Annual Financial Statements | Segment reporting I 55 2007/08 Previo us year 2007/08 Previo us year 2007/08 Previo us year 2007/08 Previo us year 2007/08 Previo us year Segment earnings Depreciation and amortization Other noncash items Assets Liabilities Notes Figures in € thousands, unless otherwise speciﬁ ed; previous-year ﬁ gures in parentheses Corn Cereals Breeding & services Sugarbeet 28,081 35,104 23,230 13,321 8,968 5,341 3,770 2,575 1,529 3,904 18,119 3,855 135,817 136,941 30,553 27,462 2,462 14,166 13,656 217,339 199,317 119,688 105,537 1,250 285 543 33,376 30,586 8,638 8,431 9,835 10,103 8,813 8,015 3,864 – 6,694 150,568 140,090 63,957 60,782 Total segments 70,114 63,869 16,687 15,631 36,434 11,360 537,100 506,934 222,836 202,212 Others 0 0 0 0 0 0 133,998 102,863 50,244 41,501 KWS Group 70,114 63,869 16,687 15,631 36,434 11,360 671,098 609,797 273,080 243,713 The operating assets of the segments are composed of intangible assets, property, plant, and equipment, inven- tories and all receivables, other assets, and prepaid ex- penses that can be charged directly to the segments or indirectly allocated to them by means of an appropriate cost formula. 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 borrowings reported on the balance sheet, less provi- sions for taxes and the portion of other liabilities that can- not be charged directly to the segments or indirectly allo- cated 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 allocated to the segments are reported as “Others.” Capital expenditure on assets was mainly attributable to the breeding & services segment, where it amounted to € 13,865 thousand (€ 15,787 thousand), and the sugarbeet segment, where it amounted to € 4,275 thousand (€ 4,868 thousand). 46 % (56 %) of capital expenditure was made in Germany, mainly in Einbeck, and 32 % (21 %) in Europe (excluding Germany). Investments in long-term assets by segment Sugarbeet Corn Cereals Breeding & services KWS Gruppe 2007/08 Previo us year 4,275 8,293 3,948 13,865 30,381 4,868 3,612 2,496 15,787 26,763 Investments in long-term assets by region 2007/08 Previo us year Germany 13,885 14,887 Europe (excluding Germany) North and South America Rest of world KWS Gruppe 9,579 5,845 1,072 5,526 5,513 837 30,381 26,763 Operating assets by region 2007/08 Previo us year Germany 201,714 194,521 Europe (excluding Germany) 185,261 176,776 North and South America 141,148 127,452 Rest of world KWS Gruppe 8,977 8,185 537,100 506,934 The KWS Group (KWS Konzern) is a consolidated group as deﬁ ned in the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), London, taking into account the interpreta- tions of the International Financial Reporting Interpretations Committee (IFRIC) and in addition the commercial law regu- lations to be applied pursuant to section 315a (1) of the HGB (German Commercial Code). The consolidated ﬁ nancial statements discharge the obligations of KWS LOCHOW GMBH, Bergen, and KWS MAIS GMBH, Einbeck, to pro- duce its own ﬁ nancial statements. The following standards and interpretations have already been published, but have not yet been applied: Amendments to IAS 1, 16, 19, 20, 23, 27, 28, 29, 31, 32, 36, 38, 39, 40, 41, IFRS 1, 2, 3, 5, 8 and IFRIC 12–14. Since these relate to supplementary dis- closure obligations, there will be no effects on the balance sheet or income statement. The possible effects of the other changes are currently being examined. IFRS 7 was applied for the ﬁ rst time in the year under review. The statements were prepared under the assumption that the operations of the company will be continued. General disclosures Companies consolidated in the KWS Group The consolidated ﬁ nancial statements of the KWS Group include the single-entity ﬁ nancial statements of KWS SAAT AG and its subsidiaries in Germany and other countries in which it directly or indirectly controls more than 50 % of the voting rights. In addition, joint ventures are proportionately consolidated, according to the percentage of equity held in those companies. Subsidiaries and joint ventures that are considered immaterial for the presentation and evaluation of the ﬁ nancial position and performance of the group are not included. Consolidation methods The single-entity ﬁ nancial statements of the individual sub- sidiaries and joint ventures included in the consolidated ﬁ nan cial statements were uniformly prepared on the basis of the accounting and measurement methods applied at KWS SAAT AG; they were audited by independent audi- tors. For fully or proportionately consolidated units ac- quired before July 1, 2003, the group exercised the option allowed by IFRS 1 to maintain the consolidation proced u res chosen to date. The goodwill reported in the HGB ﬁ nancial statements as of June 30, 2003 was therefore transferred unchanged at its carrying amount to the opening IFRS balance sheet. For acquisitions made after June 30, 2003, capital consolidation follows the purchase met h od by allocating the cost of acquisition to the group’s interest in the subsidiary’s equity at the time of acquisition. Any excess of interest in equity over cost is recognized as an asset, up to the amount by which fair value exceeds the carrying amount. Any goodwill remaining after ﬁ rst-time consolidation is recognized under intangible assets. Ac- cording to IFRS 3, goodwill is not amortized, but tested for impairment at least once a year (impairment only approach). Investments in non-consolidated companies are carried at cost. Goodwill is reported under intangible assets. Joint ventures are carried according to the percentage of equity held in the companies concerned using IAS 31. Subsidiaries and joint ventures are consolidated and asso- ciated companies measured at equity only if such recogni- tion is considered material for the fair presentation of the ﬁ nancial position and results of operations of the KWS Group. As part of the elimination of intra-group balances, borrowings, receivables, liabilities, and provisions are net- ted between the consolidated companies. Intercompany proﬁ ts not realized at group level are eliminated from intra- group transactions. Sales, income, and expenses are netted between consolidated companies, and intra-group distributions of proﬁ t are eliminated. Deferred taxes on consolidation transactions recognized in income are calculated at the tax rate applicable to the company concerned. These deferred taxes are aggregated with the deferred taxes recognized in the separate ﬁ nancial statements. Minority interests are recognized in the amount of the im- puted percentage of equity in the consolidated companies. 56 Annual Financial Statements | Segment reporting | Notes | General disclosures I 57 Currency translation Under IAS 21, the ﬁ nancial statements of the consolidated foreign subsidiaries and joint ventures that conduct their business as ﬁ nancially, economically, and organizationally independent entities are translated into euros using the functional currency method as follows: • Income statement items at the average exchange rate for the year. • Balance sheet items at the exchange rate on the balance sheet date. The difference resulting from the application of annual average rates to the net proﬁ t for the period in the income statement is taken directly to equity. Classiﬁ cation of the balance sheet and the income statement The costs for the functions include all directly attributable costs, including other taxes. Research and development expenses were included to date in the cost of sales and are now reported separately for reasons of transparency. The previous year’s gross proﬁ t on sales has been adjusted accordingly. Research grants are not deducted from the costs to which they relate, but reported gross under other operating income. Accounting policies indeﬁ nite useful life is not amortized, but tested for impair- ment at least once a year. The procedure for the impair- ment test is explained in the notes to the balance sheet. Intangible assets acquired as part of business combina- tions are carried separately from goodwill if they are sepa- rable according to the deﬁ nition in IAS 38 or result from a contractual or legal right, and fair value can be reliably measured. Property, plant, and equipment Property, plant, and equipment is measured at cost less straight-line depreciation. A loss is recognized for an im- pairment expected to be permanent. In addition to directly attributable costs, the cost of self-produced plant or equip- ment also includes a proportion of the overheads and depreciation/amortization, but no ﬁ nance charges. Depre- ciation of buildings is based on a useful life of up to 50 years. The useful lives of technical equipment and machinery range from 5 to 15 years, and for operating and ofﬁ ce equipment from 3 to 10 years. Low-value assets are fully expensed in the year of purchase; they are reported as additions and disposals in the year of purchase in the statement of changes in noncurrent assets. Impairment losses on pro perty, plant, and equipment are recognized according to IAS 36 whenever the recoverable amount of the assets is less than its carrying amount. The recover- able amount is the higher of the asset’s net realizable value and its value in use (value of future cash ﬂ ow expected to be derived from the asset). Consistency of accounting policies The accounting policies are largely unchanged from the previous year. All estimates and assessments as part of accounting and measurement are continually reviewed; they are based on historical patterns and expectations about the future regarded as reasonable in the particular circumstances. Intangible assets Purchased intangible assets are carried at cost less straight- line amortization over a useful life of three to ten years. Impairment losses on intangible assets with ﬁ nite useful lives are recognized according to IAS 36. Goodwill with an Financial instruments Financial instruments are in particular ﬁ nancial assets and ﬁ nancial liabilities. The ﬁ nancial assets consist primarily of bank balances and cash on hand, trade receivables, other receivables, and securities. The credit risk mainly com- prises trade receivables. The amount recognized in the balance sheet is net of allowances for receivables expected to be uncollectible, estimated on the basis of historical patterns and the current economic environment. The credit risk on cash and derivative ﬁ nancial instruments is limited because they are kept with banks that have been given a good credit rating by international rating agencies. There is no signiﬁ cant concentration of credit risks, because the risks are spread over a large number of contract partners and customers. The entire credit risk is limited to the re- spective carrying amount. Comments on the risk manage- ment system can be found in the management report. The fair value of ﬁ nancial liabilities with a long-term ﬁ xed interest rate is determined as present values of the pay- ments related to the liabilities, using a yield curve applicable on the balance sheet date. Investments are measured at cost. The cost of at equity ac- counted investments is increased or decreased by propor- tionate changes in equity. Assets available for sale are carried at market value if this can be reliably measured. Unrealized gains and losses, including deferred taxes, are recognized directly in the revaluation reserve under equity. Permanent impairment losses are recognized immediately through the income statement. Loans are carried at amor- tized cost. The ﬁ nancial liabilities comprise in particular trade payables, borrowings and other liabilities. The fair value of ﬁ nancial instruments is determined on the basis of the market information available on the balance sheet date and in accordance with the measurement met h- ods applied. The other noncurrrent ﬁ nancial assets are essentially available for sale and are carried at market value where possible. If a market value cannot be determined, the amortized costs are carried as an alternative. The carrying amount of receivables ﬁ xed-income securities and cash is assumed as the fair value due to their short term and the ﬁ xed-interest structure of the investments. Derivative instruments held for trading are carried at market values in accordance with IAS 39 and may have a positive or negative value. This relates essentially to common de- rivative ﬁ nancial instruments that are used to hedge interest rate and foreign currency risks. In particular, the derivative ﬁ nancial instruments are measured using recognized math- ematical models, such as present value or Black-Scholes, to calculate option values, taking their volatility, remaining maturity, and capital market interest rates into account. Subsequent measurement of the ﬁ nancial instruments depends on their classiﬁ cation in one of the following categories deﬁ ned in IAS 39: • Loans and receivables This category mainly comprises trade receivables, other receivables, loans and cash, including ﬁ xed-income short-term securities. Loans are measured at cost. Loans that carry no interest or only low interest are measured at their present value. Discernable risks are taken into account by recognition of an impairment loss. After their initial recognition, the other ﬁ nancial assets in this category are measured at amortized cost using the effective interest method, minus impairments. Receiv- ables that do not carry any interest or only low interest and with a term of more than twelve months are dis- counted. Necessary value impairments are based on the expected credit risk and are carried in separate impairment accounts. Receivables are derecognized if they are settled or uncollectible. Other assets are derecognized at the time they are disposed of or if they have no value. • Financial assets at fair value Held-for-trading securities acquired with the intention of being sold in the short term are assigned to this cat- egory. Derivate ﬁ nancial instruments with a positive market value are also categorized as held for trading, unless they are designated hedging instruments in ac- cordance with IAS 39. They are measured at fair value. Changes in value are recognized in income. Securities are derecognized after being sold on the settlement date. • Available-for-sale ﬁ nancial assets This category covers all ﬁ nancial assets that have not been assigned to one of the above categories. In prin- ciple, securities are classed as available for sale, un- less a different classiﬁ cation is required due to the fact that they have an explicit purpose. Equity instruments, 58 Annual Financial Statements | Notes | General disclosures I 59 such as shares in (unconsolidated) afﬁ liated companies and shares held in listed companies, are also included in this category. In principle, ﬁ nancial instruments in this category are measured at their fair value in subse- quent recognition. The changes to their fair value in subsequent recognition are recognized as unrealized gains and losses directly in equity in the revaluation reserve. The realized gains or losses are not recog- nized as proﬁ t or loss until they are disposed of. If there is objective evidence of permanent impairment on the balance sheet date, the instruments are written down to the lower value. The amount carried in the revalua- tion reserve is derecognized in equity. Any subsequent decreases in the impairment loss are recognized di- rectly in equity. • Financial liabilities measured at amortized cost All ﬁ nancial liabilities, with the exception of derivative ﬁ nancial instruments, are measured at amortized cost using the effective interest method. The liabilities are derecognized at the time they are settled or when the reason why they were formed no longer exists. • Financial liabilities at fair value This category covers derivative ﬁ nancial instruments that have a negative market value and are categorized in principle as held for trading. Derivates that are desig- nated hedging instruments in accordance with IAS 39 are excluded from this provision. Derivatives Derivatives cannot be designated as hedging instruments pursuant to the regulations of IAS 39. They are measured at their market value. The changes in their market value are recognized in the income statement. Derivatives are derec- ognized on their day of settlement. Inventories and biological assets Inventories are carried at cost less an allowance for obso- lescent or slow-moving items. In addition to directly attrib- utable costs, the cost of sales also includes indirect labor and materials including depreciation under IAS 2. Under IAS 41, biological assets are measured at the expected sales proceeds, less costs to sell. The measurement pro- cedure used is based on standard industry value tables. Assets for sale In accordance with IFRS 5, assets for sale are measured at the lower of carrying amount and fair value less costs to sell at the time they are intended to be sold. Deferred taxes Deferred taxes are calculated on differences between the IFRS carrying amounts of assets and liabilities and their tax base, and on loss carryforwards; they are reported on a gross basis. Under IAS 12, deferred taxes are calculated on the basis of the applicable local income tax. Provisions for pensions and other employee beneﬁ ts Under IAS 19, obligations from direct pension commitments are measured using actuarial principles under the accrued beneﬁ t valuation method. Gains or losses from unplanned changes in accrued beneﬁ ts and from changes in actuarial assumptions are disregarded if the change moves within a 10 % corridor of the accrued beneﬁ ts. Only if the gains or losses exceed this threshold they will be recognized as in- come and distributed over the remaining working lives and included in the provision. Other provisions Tax and other provisions account for all discernible risks and contingent liabilities. Depending on circumstances, they are measured at the most probable amount or at the expected value. Contingent liabilities The contingent liabilities recognized in the balance sheet correspond to the loan amounts drawn down as of the balance sheet date. Consolidated group and changes in the consolidated group Number of companies including KWS SAAT AG D o m estic F oreig n Total D o m estic F oreig n Total 2007/08 Previous year Consolidated 11 31 42 11 30 41 Consolidated at quota At equity Total 0 11 0 11 3 34 0 34 3 45 0 45 0 11 2 13 3 33 0 33 3 44 2 46 The companies are listed under item number (32). Changes in the fully consolidated companies relate to establishment of the new wholly-owned subsidiary of KWS INTERSAAT GMBH • KWS SCANDINAVIA A/S, Guldborgsund, Denmark establishment of the new wholly-owned subsidiary of KWS RUS OOO, Moscow, Russia • KWS R&D RUS LTD., Lipezk, Russia and ﬁ rst-time consolidation of the wholly-owned subsidiary of KWS SAAT AG • RAGIS KARTOFFELZUCHT- UND HANDELSGESELL- SCHAFT MBH, Klein Wanzleben, which is to run the KWS Group’s future potato activities. On the other hand KWS SAAT AG sold its 100 % stake in RAGIS KARTOFFELZUCHT- & HANDELSGESELLSCHAFT MBH, Einbeck, effective July 1, 2007. The sale resulted in the disposal of the following assets and liabilities (previous year: € 0 thousand): Investments in afﬁ liated companies Other ﬁ nancial assets Noncurrent tax receivables Other assets Total assets Pension provisions Other provisions Tax liabilities Trade payables Other liabilities Total liabilities 2007/08 5,213 2,180 370 2,674 10,437 1,040 19 150 32 2,975 4,216 The previously unconsolidated subsidiary • ZKW ZÜCHTUNGSGESELLSCHAFT KLEIN WANZLE- BEN MBH, Klein Wanzleben, which was merged with KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH effective July 1, 2007 In addition, KWS INTERSAAT GMBH sold its 100 % stake in KWS SCANDINAVIA AB, Stockholm, Sweden, in the year under review at the proportion of equity held of € 25 thou- sand. 60 Annual Financial Statements | Notes | General disclosures I 61 The ﬁ nancial position and results of operations of proportionately consolidated and at equity accounted companies are as follows: 2007/08 Previo us year 2007/08 Previo us year Noncurrent assets Current assets Total assets Equity Noncurrent liabilities Current liabilities Total equity and liabilities Net sales Net proﬁ t for the year Proportionately consolidated companies Companies carried at equity 25,621 78,696 104,317 49,332 752 54,233 104,317 126,775 7,966 27,571 77,713 105,284 53,781 802 50,701 105,284 120,899 11,922 0 0 0 0 0 0 0 0 0 20,000 10,000 30,000 22,700 2,800 4,500 30,000 9,500 1,200 The companies carried at equity in the previous year re- lated solely to the potato activities that were sold effective July 1, 2007, and had been assigned to the breeding & services segment. The details for ﬁ scal 2006/07 corre- sponded to the ﬁ gures anticipated at the time of the intended sale. Notes to the balance sheet Figures in € thousands, unless otherwise speciﬁ ed; previous-year ﬁ gures in parentheses (1) Assets The statement of changes in noncurrent assets contains a breakdown of assets summarized in the balance sheet and shows how they changed in 2007/08. Capital expenditure on assets was € 30,387 thousand (€ 27,185 thousand). The management report describes the signiﬁ cant additions to assets. Depreciation and amortization amounted to € 16,992 thousand (€ 16,065 thousand). (2) Intangible assets This item includes purchased varieties, rights to varieties and distribution rights, software licenses for electronic data processing, and goodwill. Additions to intangible assets amounting to € 2,476 thousand (€ 6,983 thousand) relate primarily to the acquisition of software licenses. Amortiza- tion of intangible assets amounted to € 1,873 thousand (€ 1,278 thousand); this charge is included in the relevant functional costs, depending on the operational use of the intangible assets. The goodwill recognized as an asset relates mainly to the company AGRELIANT GENETICS LLC. (€ 15,595 thou- sand) in the corn segment and the companies SOCIETE DE MARTINVAL S.A. (€ 3,706 thousand) and KWS UK LTD. (€ 1,693 thousand) in the cereals segment. In order to meet the requirements of IFRS 3 in combination with IAS 36 and to determine any impairment of goodwill, cash-generating units have been deﬁ ned in line with inter- nal reporting guidelines. In the KWS Group, these units are the legal entities. To test for impairment, the carrying amount of each entity is determined by allocating the assets and liabilities, including attributable goodwill and intangible assets. An 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 en- tity’s net realizable value and its value in use (value of fu- ture cash ﬂ ows expected to be derived from the entity). The impairment test uses the expected future cash ﬂ ows on which the medium-term plans of the companies are based; these plans, which cover a period of four years, have been approved by the Executive Board. They are based on historical patterns and expectations about future market development. For the European and American markets, the key assump- tions on which corporate planning is based include as- sumptions about price trends for seed, in addition to the development of market shares and the regulatory frame- work. Company-internal projections take the assumptions of industry-speciﬁ c market analyses and company-related growth perspectives into account. A standard discount rate of 8.0 % (7.9 %) has been as- sumed to calculate present values. A growth rate of 1.5 % (1.5 %) has been assumed beyond the detailed planning horizon in order to allow for extrapolation in line with the expected inﬂ ation rate. Tests provided evidence that the goodwill recognized in the consolidated balance sheet and determined for the cash-generating units is not impaired. No impairment losses were required. (3) Property, plant, and equipment Capital expenditure amounted to € 27,905 thousand (€ 19,780 thousand) and depreciation amounted to € 14,814 thousand (€ 14,568 thousand). The management report describes the signiﬁ cant capital expenditure. (4) Financial assets Investments in non-consolidated subsidiaries and shares in cooperatives and GmbHs that are of minor signiﬁ cance, with an amortized cost totaling € 988 thousand (€ 1,398 thousand), are reported in this account since a market value cannot be reliably determined. As a result, the mutual investment in our French partner RAGT SEMENCES S.A. is carried at an unchanged cost of € 4,000 thousand. Listed shares are carried at market value of € 68 thousand (€ 97 thousand). This account also includes interest-bearing homebuilding loans to employees and other interest- bearing loans totaling € 475 thousand (€ 516 thousand). Amortization of ﬁ nancial assets amounted to € 305 thou- sand (€ 219 thousand). (5) Noncurrent tax receivables This relates to the present value of the corporate income tax credit balance, which was last determined at Decem- ber 31, 2006, and will be paid in 10 equal annual amounts starting on September 30, 2008. 62 Annual Financial Statements | Notes | General disclosures | Notes to the balance sheet I 63 (6) Deferred tax assets Under IAS 12, deferred tax assets are calculated as the difference between the IFRS balance sheet amount and the tax base. They are reported on a gross basis and total € 16,858 thousand (€ 16,315 thousand), of which € 2,290 thousand (€ 1,285 thousand) will be carried forward for the future use of tax losses. (8) Current receivables Trade receivables Current tax assets Other current assets 06/30/2008 Previo us year 224,163 204,238 7,113 7,814 19,934 15,889 251,210 227,941 (7) Inventories and biological assets Trade receivables amounted to € 224,163 thousand, an increase of 9.8 % over the ﬁ gure of € 204,238 thousand for the previous year; this amount includes € 309 thousand (€ 926 thousand) receivables from related parties. The already overdue trade receivables that have not been written down fully amount to € 7,226 thousand (€ 896 thousand). There are no indications on the balance sheet date that customers who owe trade receivables that have not been written down and are not overdue will not meet their pay- ment obligations. Raw materials and consumables Work in process Immature biological assets Finished goods 06/30/2008 Previo us year 15,290 26,518 7,348 36,673 85,829 13,147 27,078 6,092 44,248 90,565 Inventories decreased by € 4,736 thousand, or – 5.2 %, net of writedowns totaling € 30,262 thousand (€ 32,190 thou- sand). Immature biological assets relate to living plants in the process of growing (before harvest). The ﬁ eld inven- tories of the previous year have been harvested in full and the ﬁ elds have been newly tilled in the year under review. Public subsidies of € 1,363 thousand (€ 1,261 thousand), for which all the requirements were met at the balance sheet date, were granted for the total area under cultivation of 4,289 (4,218) ha. Future subsidies depend on the further development of European agricultural policy. ≤ 60 d ays 61–120 d ays 121–180 d ays > 180 d ays 06/30/2008 Trade receivables Other receivables 06/30/2007 Trade receivables Other receivables Carrying amount 224,163 3,144 227,307 204,238 4,487 208,725 Of which: neither written down nor overdue on the balance sheet date Of which: not written down on the balance sheet date and overdue in the following time frames Of which: written down and not overdue on the balance sheet date 181,535 16,141 6,986 1,390 3,140 0 0 0 184,675 16,141 6,986 1,390 0 4 4 174,733 15,115 4,076 4,462 0 7 179,195 15,115 4,083 347 0 347 5,249 18 5,267 10,885 0 10,885 3,822 0 3,822 The following allowances have been made for possible risks of non-payment: Allowances for receivables 07/01 A d ditio n Disp osal R eversal 06/30 2007/08 19,707 2006/07 17,322 2,499 5,660 3,923 2,212 3,925 14,358 1,063 19,707 Other current assets also include current ﬁ nancing receiv- ables and prepaid expenses. Current ﬁ nancing receivables include an amount of € 68 thousand (€ 11 thousand) receivable from related parties. (10) Cash Cash of € 94,973 thousand (€ 48,075 thousand) consists of balances with banks and cash on hand. The cash ﬂ ow statement explains the change in this item compared with the previous year, together with the change in securities. (11) Noncurrent assets held for sale The at equity accounted investments in potato business, which was sold effective July 1, 2007, and all further related assets were reported in the previous year. (12) Equity The fully paid-up subscribed capital of KWS SAAT AG is still € 19,800,000.00. The bearer shares are certiﬁ cated by a global certiﬁ cate for 6,600,000 shares. The company does not hold any shares on its own. Current receivables include an amount of € 124 thousand (€ 470 thousand) due after more than one year. Equity (including minority interest) increased by € 31,934 thousand, from € 366,084 thousand to € 398,018 thou- sand. For details, see the statement of changes in equity. (9) Securities Securities amounting to € 17,958 thousand (€ 19,980 thou- sand) relate primarily to short-term liabilities securities and fund shares. 64 Annual Financial Statements | Notes | Notes to the balance sheet I 65 (13) Noncurrent liabilities The planned assets changed as follows during the ﬁ scal year: Long-term provisions Pension provisions Other provisions 07/01/2007 55,403 3,860 59,263 C han g es in the c o nsol. gro u p, currency 126 888 1,014 A d ditio n 4,599 558 5,157 C o nsu m ptio n 3,820 293 4,113 R eversal 28 421 449 06/30/2008 56,280 4,592 60,872 06/30/2008 Previo us year Long-term provisions 60,872 59,263 Long-term ﬁ nancial borrowings Trade payables Deferred tax liabilities Other long-term liabilities 2,692 1,983 13,815 11,259 90,558 3,887 2,440 16,683 4,530 86,803 Retirement beneﬁ ts are based on deﬁ ned beneﬁ t obliga- tions, determined by years of service and pensionable compensation. Pension provisions are measured using the accrued beneﬁ t method under IAS 19, on the basis of assumptions about future development. The assumptions in detail are that wages and salaries will increase by 2.80 % (2.00 %) annu- ally and pensions by 2.00 % (1.50 %) annually. The discount rate was 6.40 %, compared with 5.00 % the year before. No income or expenses were recognized as a result of changes in retirement obligations or beneﬁ ts payable or from the adjustment to assumptions. For beneﬁ t obliga- tions backed by a guarantee by an insurance company, the planned assets of € 7,416 thousand (€ 8,174 thousand) cor- respond to the present value of the obligation. The interest expenses on the remaining pension provisions are recognized in net-ﬁ nancial income/expenses or cost. The expenses of the new pension entitlements that arose during the ﬁ scal year are recognized in functional costs. The accrued beneﬁ t is reconciled to the provisions reported in the consolidated ﬁ nancial statements as follows: Accrued beneﬁ t entitlements at beginning of ﬁ scal year Cost of additional beneﬁ t entitlements Interest expenses on beneﬁ t entitlements acquired in previous years Changes in consolidated group and currency Changes in actuarial gains/losses Pension payments Accrued beneﬁ t entitlements at end of ﬁ scal year Present value of planned assets Actuarial gains/losses Pension provisions at end of ﬁ scal year 2007/08 Previo us year 73,207 72,802 1,744 3,213 1,169 3,573 126 – 1,040 – 5,711 4,207 68,372 13,577 550 3,847 73,207 14,086 1,485 – 3,718 56,280 55,403 Present value of planned assets at July 1 Expected gains from planned assets Changes in actuarial gains/losses Employer's contribution to external social security bodies Payments from external social security bodies Adjustments to the planned assets Present value of planned assets at June 30 2007/08 14,086 866 – 770 Previo us year 5,012 1,111 11 0 11,256 605 0 13,577 222 – 3,082 14,086 In addition, the beneﬁ t obligation from salary conversion was backed by a guarantee that exactly matches the present val- ue of the obligation of € 3,744 thousand (€ 4,113 thousand) (deﬁ ned contribution plan). The long-term ﬁ nancial borrowings include loans from banks amounting to € 2,629 thousand (€ 3,045 thousand). The remaining loans payable have remaining maturities through 2017. Under IAS 12, deferred tax liabilities are calculated as the difference between the IFRS balance sheet amount and the tax base. They are reported on a gross basis and total € 13,815 thousand (€ 16,683 thousand). (14) Current liabilities Short-term provisions Current liabilities to banks Current liabilities to afﬁ liates Other current ﬁ nancial liabilities Short-term borrowings Trade payables to afﬁ liates Trade payables to third party Trade payables Tax liabilities Other liabilities Liabilities directly connected to noncurrent assets held for sale 06/30/2008 Previo us year 88,238 71,282 2,784 3,275 65 993 760 475 3,842 4,510 0 36,863 36,863 34 39,804 39,838 22,639 19,151 30,940 20,688 0 1,441 182,522 156,910 Short-term liabilities increased by a total of € 25,612 thou- sand to € 182,522 thousand. The tax liabilities of € 22,639 thousand (€ 19,151 thousand) include amounts for the year under review and the period not yet concluded by the external tax audit. Liabilities in direct connection with noncurrent assets held for sale relate to the liabilities disposed of as part of sale of the potato activities. 66 Annual Financial Statements | Notes | Notes to the balance sheet I 67 The carrying amounts and fair values of the ﬁ nancial instruments are as follows: receiva bles L o ans an d Financial assets at fair value A vaila ble-for-sale ﬁ nancial assets Total carryin g a m o u nt Financial instruments Balance as at June 30, 2008 Financial assets Other ﬁ nancial assets Trade receivables Securities Cash and cash equivalents Other current assets Derivative ﬁ nancial instruments Total per category Fair values Carrying amounts 5,531 224,163 17,958 94,973 19,333 601 0 224,163 17,958 94,973 19,333 0 362,559 356,427 0 0 0 0 0 601 601 5,531 0 0 0 0 0 5,531 224,163 17,958 94,973 19,333 601 5,531 362,559 Financial lia bilities a m ortize d c ost m easure d at Financial lia bilities at fair value Total carryin g a m o u nt Financial instruments Fair values Carrying amounts 2,491 1,983 11,259 3,842 36,863 29,179 1,761 87,378 2,629 1,983 11,259 3,842 36,863 29,179 0 85,755 0 0 0 0 0 0 1,761 1,761 2,629 1,983 11,259 3,842 36,863 29,179 1,761 87,516 Balance as at June 30, 2008 Financial liabilities Long-term borrowings Long-term trade payables Other noncurrent liabilities Short-term borrowings Short-term trade payables Other liabilities Derivative ﬁ nancial instruments Total per category 07/01/2007 C han g es in the c o nsol. gro u p, currency A d ditio n C o nsu m ptio n R eversal 06/30/2008 49,331 – 6,629 62,014 33,971 2,073 68,672 11,165 10,786 71,282 0 – 353 – 6,982 5,513 12,747 80,274 10,880 8,801 53,652 179 432 2,684 5,619 13,947 88,238 Short-term provisions Obligations from sales transaction Obligations from purchase transaction Other obligations (15) Derivative instruments N o m inal v olu m e C arryin g a m o u nts M arket v alues 06/30/2008 Currency hedges 38,096 – 1,845 – 1,845 Interest-rate hedges Commodity hedges 39,600 10,765 543 0 543 0 Of the currency hedges, € 4,839 thousand have remaining maturities of more than one year. Of the interest-rate de- rivatives, hedges with a nominal volume of € 14,000 thou- sand will mature within one to ﬁ ve years. Transactions with a volume of € 20,600 thousand have remaining maturities of more than 5 years. The commodity hedges have remain- ing maturities of less than one year. In order to assess the risk of exchange rate changes, the sensitivity of a currency to ﬂ uctuations was determined. After the euro, the US dollar is the most important currency in the KWS Group. All other currencies are of minor impor- tance. The average exchange rate in the ﬁ scal year was 1.49 USD/€. If the US dollar depreciated by 10 %, net sales would decline by around 3 % and operating income like- wise by around 3 %. If the US dollar appreciated by 10 %, net sales and income would each rise by 3 %. Equity would change by up to € 1.2 million in the event of such a change in the exchange rate. In order to assess the risk of interest rate changes, the sensitivity of interest rates to ﬂ uctuations was determined. The average rate of interest in the ﬁ scal year was 4.5 %. A 1 % increase in the rate of interest would add a further € 0.5 million to interest result; a reduction of 1 % would reduce it by € 0.5 million. Equity would change by up to € 0.4 million in the event of such a change in the rate of interest. In order to assess the risk of changes in commodity prices, the sensitivity of commodity prices to ﬂ uctuations was determined. A 10 % increase in commodity prices would increase the cost of sales by around 5 %; a fall would re- duce it by around 5 %. Equity would change by around € 11 million in the event of such a change in commodity prices. (16) Financial instruments The table below presents the net gains/losses carried in the income statement for ﬁ nancial instruments in each measurement category. 2007/08 Previo us year Available-for-sale ﬁ nancial assets Financial assets at fair value Loans and receivables Financial liabilities measured at amortized cost Financial liabilities at fair value 6,626 29 5,783 – 427 114 – 932 – 1,707 – 3,575 – 1,696 384 The net income from ﬁ nancial assets includes income and expenses from ﬁ nancial assets apart from income from the sale of the potato activities (€ 5,779 thousand). The net gain/loss from loans and receivables mainly includes ef- fects from changes in the allowances for impairment. The net gains/losses from ﬁ nancial assets at fair value and ﬁ - nancial liabilities at fair value mainly include changes in the market value of derivative ﬁ nancial instruments. The net losses from ﬁ nancial liabilities measured at amortized cost mainly consist of interest expense. Interest income from ﬁ nancial assets that are not measured at fair value and recognized in the income statement was € 3,424 thousand (€ 2,793 thousand). Interest expenses for ﬁ nancial borrowings were € 1,707 thousand (€ 2,000 thou- sand). 68 Annual Financial Statements | Notes | Notes to the balance sheet I 69 receiva bles L o ans an d Financial assets at fair value A vaila ble-for-sale ﬁ nancial assets Total carryin g a m o u nt Financial instruments Notes to the income statement Figures in € thousands, unless otherwise speciﬁ ed; previous-year ﬁ gures in parentheses Balance as at June 30, 2007 Financial assets Other ﬁ nancial assets Trade receivables Securities Cash and cash equivalents Other current assets Derivative ﬁ nancial instruments Total per category Fair values Carrying amounts 6,010 204,238 19,980 48,075 15,296 593 0 204,238 19,980 48,075 15,296 0 294,193 287,590 0 0 0 0 0 593 593 6,010 0 0 0 0 0 6,010 204,238 19,980 48,075 15,296 593 6,010 294,193 Financial lia bilities a m ortize d c ost m easure d at Financial lia bilities at fair value Financial instruments Balance as at June 30, 2007 Financial liabilities Long-term borrowings Long-term trade payables Other noncurrent liabilities Short-term borrowings Short-term trade payables Other liabilities Derivative ﬁ nancial instruments Total per category Fair values Carrying amounts 3,766 2,440 4,530 4,510 39,838 20,489 199 75,772 3,887 2,440 4,530 4,510 39,838 20,489 0 75,694 0 0 0 0 0 0 199 199 Total carryin g a m o u nt 3,887 2,440 4,530 4,510 39,838 20,489 199 75,893 None of the reported ﬁ nancial instruments will be held until it ﬁ nally matures. which a total of € 1,769 thousand (€ 2,089 thousand) was paid in the year under review. The main leasehold obliga- tions relate to land under cultivation. (17) Contingent liabilities As in the previous year, there are no contingent liabilities to report. (18) Other ﬁ nancial obligations There was a € 3,961 thousand (€ 2,571 thousand) obligation from uncompleted capital expenditure projects. The leases relate primarily to full-service agreements for IT equipment and ﬂ eet vehicles, which also include services for Obligations under rental agreements and leases Due in ﬁ scal year 2008/2009 Due 2009/10 through 2012/2013 Due after 2012/13 06/30/2008 6,065 8,055 2,266 Previo us year 7,509 9,951 2,494 16,386 19,954 Income statement for the period July 1, 2007 through June 30, 2008 Net sales Cost of sales Gross proﬁ t on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Net ﬁ nancial income/expenses Result of ordinary activities Income taxes Net income for the year Shares of minority interest Net income after minority interest € millio ns % of sales € millio ns % of sales 2007/08 Previous year 599.1 305.4 293.7 106.1 80.6 42.3 24.3 18.9 70.1 5.3 75.4 20.8 54.6 3.5 51.1 100.0 51.0 49.0 17.7 13.5 7.1 4.2 3.2 11.7 0.9 12.6 3.5 9.1 0.6 8.5 537.9 263.9 274.0 101.5 75.2 38.5 22.6 17.5 63.9 – 6.0 57.9 19.7 38.2 1.1 37.1 100.0 49.1 50.9 18.9 13.9 7.2 4.2 3.2 11.9 –1.1 10.8 3.7 7.1 0.2 6.9 (19) Net sales By product category 2007/08 Previo us year Certiﬁ ed seed sales 545,063 488,536 Royalties income Basic seed sales Services fee income Other sales By region Germany Europe Americas Rest of world 30,267 28,011 6,898 3,082 5,649 3,234 13,779 12,500 599,089 537,930 151,106 132,437 263,298 244,818 160,342 141,956 24,343 18,719 599,089 537,930 For further details of sales, see segment reporting. Sales are recognized 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. The cost of sales increased by € 41,454 thousand to € 305,423 thousand, or 51.0 % (49.1 %) of sales. The total cost of goods sold was € 143,851 thousand (€ 132,853 thousand). Allowances on inventories totaling € 1,929 thousand, less than the previous year’s € – 3,061 thousand, were required. They were charged to segment results as follows: charged to corn € 952 thousand (€ 3,829 thousand) and to breed- ing & services € 88 thousand (€ – 709 thousand); there was a reduction of € 2,821 thousand (€ 312 thousand) in the allowances at the sugarbeet segment and of € 148 thou- sand (€ – 253 thousand) at cereals. Research and development is recognized as an expense in the year it is incurred; in the year under review, this amounted to € 80,576 thousand (€ 75,205 thousand the year before). Development costs for new varieties are not recognized as an asset because evidence of future eco- nomic beneﬁ t can only be provided after the variety has been ofﬁ cially certiﬁ ed. The € 4,611 thousand increase in selling expenses to € 106,096 thousand is mainly due to 70 Annual Financial Statements | Notes | Notes to the balance sheet | Notes to the income statement I 71 expanded activities in the North America and Southern/ Southeastern Europe regions. This is 17.7 % of sales, down from 18.9 % the year before. Legal form expenses Allowances on receivables Counterparty default 2007/08 Previo us year 843 2,499 302 800 5,660 1,172 10,781 3,792 129 1,349 2,987 856 1,893 3,299 18,890 17,472 2007/08 Previo us year 3,589 1,707 45 131 0 3,052 2,052 0 60 1 3,213 6,655 167 52 0 0 Exchange rate losses and losses on currency and interest rate hedges Losses from sales of ﬁ xed assets Expenses relating to previous periods Other expenses (22) Net ﬁ nancial income/expenses Interest income Interest expenses Income from securities Income from other ﬁ nancial assets Reversal of impairment losses on other long-term investments Interest expenses on donation of pension provisions Interest expense for other long-term provisions Interest expense for ﬁ nance leasing Net interest expense – 1,374 – 5,596 Proﬁ t from afﬁ liated companies 5,779 – 500 Net income from subsidiaries and joint ventures Impairment losses on goodwill from afﬁ liated companies Depreciations of subsidiaries Net income from equity investments 1,147 0 6 305 138 65 6,627 – 427 Net ﬁ nancial income/expenses 5,253 – 6,023 The net ﬁ nancial result increased by a total € 11,276 thou- sand to € 5,253 thousand. In the previous year, the interest expenses on donation of pension provisions contained € 3,082 thousand for adjustment of the planned assets as part of the pension obligations, with the result that net ﬁ nancial income/expenses was € – 1,374 thousand compared with € – 5,596 thousand the year before. Net income from equity investments increased by € 7,054 thousand to € 6,627 thou- sand, in particular due to disposal of the potato business. General and administrative expenses increased by € 3,752 thousand to € 42,257 thousand, representing 7.1 % of sales, after 7.2 % the year before. (20) Other operating income 2007/08 Previo us year Income from sales of ﬁ xed assets 401 1,231 Income from the reversal of provisions 3,133 3,372 Exchange rate gains and gains from currency and interest rate hedges 6,240 5,692 Income from recoveries on receivables written off Income from reversal of allowances of receivables Research grants Income relating to previous periods Income from cost allocations Income from loss compensation received Miscellaneous other operating income 23 7 3,925 1,620 658 174 1,063 1,561 1,034 4 88 461 8,005 8,150 24,267 22,575 Income from foreign exchange transactions, reversals of pro- visions and allowances for receivables that were no longer required, together with book proﬁ ts from disposals of prop- erty, plant and equipment and research grants received, re- sulted in other operating income totaling € 24,267 thousand, compared with € 22,575 thousand the year before. (21) Other operating expenses Other operating expenses indicate in particular the lower risk of counterparty defaults, whereas the cost of foreign exchange cover and losses on currency and interest rate hedges increased sharply. Of the necessary allowances for receivables, € 1,468 thousand (€ 2,987 thousand) was charged to the sugarbeet segment, € 1,004 thousand (€ 2,521 thousand) to the corn segment, € 27 thousand (€ 0 thousand) to the cereals segment and € 0 thousand (€ 152 thousand) to the breeding & services segment. 72 (23) Income taxes Income tax expense is computed as follows: 2007/08 Previo us year Income taxes, Germany 10,141 10,514 Income taxes, other countries 14,671 10,762 Current expenses from income taxes Thereof from previous years Deferred taxes, Germany 24,812 21,276 1,483 465 709 – 111 Deferred taxes, other countries – 4,461 – 1,491 Deferred tax income/expense – 3,996 – 1,602 Reported income tax expense 20,816 19,674 The 2008 German Corporate Tax Reform Act was passed in July 2007 and means that, adjusted for tax relating to previous periods, KWS pays tax in Germany at a rate of 29.1 %. Corporate income tax of 15.0 % (25.0 %) and soli- darity tax of 5.5 % (5.5 %) are applied uniformly to distrib- uted and retained proﬁ ts. In addition, municipal trade in- come tax is payable on proﬁ ts generated in Germany. Trade income tax is applied at a weighted average rate of 13.3 % (16.0 %), resulting in a total tax rate of 29.1 % (38.1 %). The “Law on Tax Measures Accompanying Introduction of the Societas Europaea and Amending Further Tax Regula- tions” (SEStEG), which was passed at the end of 2006, means that the corporate income tax credit balance at De- cember 31, 2006, can be realized. It will be paid out in ten equal annual amounts from 2008 to 2017. The German group companies carried these claims as assets at their present value totaling € 7,182 thousand (€ 7,124 thousand) at June 30, 2008. Under German tax law, both German and foreign dividends are 95 % tax exempt. The proﬁ ts generated by group companies outside Ger- many are taxed at the rates applicable in the country in which they are based. For the German group companies, deferred tax was cal- culated at 29.1 % (38.1 %). For foreign group companies, deferred tax was calculated using the tax rates applicable in the country in which they are based. Deferred taxes are calculated on the basis of the following temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base: 2007/08 Previo us year 2007/08 Previo us year Deferred tax assets Deferred tax liabilities 6 425 351 Intangible assets Property, plant and equipment Financial assets Inventories Current assets Noncurrent liabilities 8 68 4,151 4,933 2,696 369 Current liabilities 2,091 126 193 4,937 1,990 2,526 5,049 Tax loss carryforward Other consol. transactions Deferred taxes recognized 2,290 1,285 252 203 11,086 12,938 0 498 217 196 1,355 2,112 235 197 0 19 616 220 0 33 16,858 16,315 13,815 16,683 In the year under review, deferred taxes of € 446 thousand (€ 149 thousand) were directly credited to equity, without recognition in proﬁ t or loss. Tax loss carryforwards of € 4,058 thousand (€ 11,123 thousand) were regarded as not being able to be utilized, with the result that no de- ferred tax assets were able to be recognized as an asset for them. The anticipated taxable proﬁ ts projected in the medium-term plans of the companies were used for this in principle; these plans, which cover a period of four years, have been approved by the Executive Board. They are based on historical patterns and expectations about future market development. The following schedule reconciles the expected income tax expense to the reported income tax expense. The calcula- tion assumes an expected tax expense, applying the Ge r- man tax rate to the proﬁ t before tax of the entire group: Annual Financial Statements | Notes | Notes to the income statement I 73 2007/08 Previo us year Earnings before income taxes 75,367 57,846 Expected income tax expense * 21,932 22,039 Difference in income tax liability outside Germany – 416 – 162 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 – 1,768 – 10 1,850 2,097 – 1,916 3,144 – 356 – 8,133 1,483 7 709 – 10 Reported income tax expense 20,816 19,674 Effective tax rate 27.6 % 34.0 % * Tax rate in Germany 29.1 % (38.1) % Other taxes, primarily real estate tax, are allocated to the relevant functions. (24) Personnel costs/employees 2007/08 Previo us year Wages and salaries 93,705 88,564 Social security contributions, expenses for pension plans and beneﬁ ts 25,298 22,688 119,003 111,252 Personnel costs went up by € 7,751 thousand to € 119,003 thousand, an increase of 7.0 %. The number of employees (including trainees and interns) increased by 117 (or +4.3 %) to 2,856. Compensation increased by 5.8 % to € 93,705 thousand. Social security contributions, expenses for pension plans and beneﬁ ts were € 2,610 thousand higher than in the previous year. An amount of € 6,074 thousand (€ 5,992 thousand) was recognized as an expense for deﬁ ned con- tribution plans, including state pension insurance, in the year under review. Employees* Germany Rest of Europe (without Germany) Americas Rest of world Total * Annual average 2007/08 Previo us year 1,260 1,179 670 872 54 633 884 43 2,856 2,739 Of the above number, 528 (568) employees are included according to the percentage of equity held in the compa- nies that employ them. 1,057 (1,137) employees are em- ployed by now three proportionately consolidated inves- tees. If these persons are included in full, the workforce total is 3,385 (3,308). The reported number of employees is greatly inﬂ uenced by seasonal labor. (25) Net income for the year Net income for the year rose by € 16,379 thousand to € 54,551 thousand, representing a return on sales of 9.1 %, up from 7.1 % the year before. The net proﬁ t for the period after minority interest is € 51,057 thousand, and € 7.74 (€ 5.61) for each of the 6,600,000 shares on issue. The dividend distributed is geared to the earnings strength of the KWS Group; the goal is to ensure adequate internal ﬁ nancing of further business expansion in the long term. The equ ity ratio is currently 59.3 %, following 60.0 % in the previous year. (26) Total remuneration of the Supervisory Board and Executive Board and of former members of the Super- visory Board and Executive Board of KWS SAAT AG The members of the Supervisory Board receive ﬁ xed compensation and variable compensation based on the dividend paid. Providing that the annual meeting of shareholders resolves the proposed dividend, total com- pensation of the members of the Supervisory Board will be € 333 thousand (€ 272 thousand), excluding value- added tax. € 263 thousand (€ 204 thousand) of the total compensation is performance-related. In the year under review, Dr. Guenther H. W. Stratmann was a partner in the consulting ﬁ rm Freshﬁ elds Bruckhaus Deringer, Düsseldorf. In this period, this ﬁ rm invoiced KWS € 34 thousand (€ 147 thousand) for consulting services. (29) Declaration of compliance with the German Corporate Governance Code KWS SAAT AG has issued the declaration of compliance with the German Corporate Governance Code required by section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) and made this accessible to its share- holders. (30) Related party disclosures As part of its operations, KWS procures goods and serv- ices worldwide from a large number of business partners, including companies in which KWS has an interest. Busi- ness dealings with these companies are always conducted on an arm’s length basis; from the KWS Group’s perspec- tive, these dealings have not been material. As part of group ﬁ nancing, short-term loans are taken out from and granted to subsidiaries at market interest rates. A total of 14 shareholders declared to KWS SAAT AG in 2002 that as a result of mutual allocations, they respectively hold more than 50 % of the voting rights. No other related parties have been identiﬁ ed for whom there is a special reporting re- quirement under IAS 24. In ﬁ scal year 2007/08, total Executive Board compensa- tion amounted to € 3,212 thousand (€ 2,372 thousand). Variable compensation of € 2,261 thousand (€ 1,491 thou- sand), calculated on the basis of the net proﬁ t for the period of the KWS Group, includes compensation of € 37 thousand (€ 24 thousand) for duties performed in subsidiaries. The ﬁ xed compensation includes not only the agreed salaries, but also non-monetary compensa- tion granted by KWS SAAT AG. Compensation of former members of the Executive Board amounted to € 883 thousand (€ 738 thousand). Pension provisions recognized for this group of persons amounted to € 2,745 thousand (€ 3,055 thousand) as of June 30, 2008. (27) Shareholdings of members of the Supervisory Board and Executive Board (as of August 31, 2008) Dr. Arend Oetker indirectly holds a total of 1,650,010 shares and Dr. Dr. h. c. Andreas J. Büchting 100,020 shares in KWS SAAT AG. All together, the members of the Super- visory Board hold 1,750,030 shares in KWS SAAT AG. (28) Audit of the annual ﬁ nancial statements On December 13, 2007, the Annual Shareholders’ Meeting of KWS SAAT AG elected the accounting ﬁ rm Deloitte & Touche GmbH, Hanover, to be the group’s auditors for ﬁ scal year 2007/08. Fee paid to the external auditors under section 314 sentence 1 no. 9 of the HGB a) Audit of the consolidated ﬁ nancial statements b) Certiﬁ cation and valuation services c) Tax consulting d) Other services Total fee paid 2007/08 572 25 19 85 701 For ﬁ scal year 2008/09, fees for consulting services (excluding auditing) of € 100 thousand are expected. 74 Annual Financial Statements | Notes | Notes to the income statement I 75 (31) Supervisory and Executive Board of KWS SAAT AG SUPERVISORY BOARD Dr. Carl-Ernst Büchting Einbeck Honorary Chairman Dr. Dr. h. c. Andreas J. Büchting Einbeck Agricultural Biologist Chairman since December 2007 Membership of other legally mandated Supervisory Boards: • Conergy AG, Hamburg Dr. Guenther H. W. Stratmann Düsseldorf Attorney-at-law Chairman until December 2007 Membership of other legally mandated Supervisory Boards: apetito AG, Rheine (Deputy Chairman) AGCO GmbH, Marktoberdorf IXOS SOFTWARE AG, Grasbrunn (Chairman) • • • Membership of comparable German and foreign oversight boards: • apetito catering GmbH, Rheine (Deputy Chairman) Dr. Arend Oetker Berlin Businessman Deputy Chairman Membership of other legally mandated Supervisory Boards: • Schwartauer Werke GmbH & Co. KGaA, Bad Schwartau (Chairman) • Merck KGaA, Darmstadt • Cognos AG, Hamburg (Chairman) Membership of comparable German and foreign oversight boards: • • • • • Hero AG, Lenzburg (President) Bâloise Holding AG, Basle, Schwitzerland E. Gundlach GmbH & Co. KG, Bielefeld Leipziger Messe GmbH, Leipzig Berliner Philharmonie GmbH, Berlin (Chairman) Hubertus von Baumbach Ingelheim Businessman since December 2007 Jürgen Bolduan Einbeck Seed Breeding Employee Chairman of the Central Works Committee of KWS SAAT AG since December 2007 Cathrina Claas Frankfurt/Main Businesswoman since December 2007 Membership of other legally mandated Supervisory Boards: • CLAAS KGaA mbH, Harsewinkel Membership of comparable German and foreign oversight boards: • CLAAS KGaA mbH, Harsewinkel (Deputy Chairwoman of the Shareholders’ Committee) Goetz von Engelbrechten Uelzen Farmer until December 2007 Membership of other legally mandated Supervisory Boards: • Nordzucker AG, Braunschweig (until July 2007) Philip von dem Bussche Einbeck Chairman (since December 2007) Corporate Affairs, Sugarbeet, Human Resources Membership of legally mandated Supervisory Boards: • Sisi Wasabi AG, Berlin (since December 2007) Dr. Christoph Amberger Northeim Corn, Cereals, Marketing Dr. Hagen Duenbostel Einbeck Finance, Controlling, Information Technology, Legal Membership of legally mandated Supervisory Boards: • Sievert AG, Osnabrück (since July 2007) Dr. Léon Broers (Deputy) Einbeck, D / Heythuysen, NL Research and Breeding, Energy plants Eckhard Halbfaß Einbeck Farmer Member of the Works Committee of KWS SAAT AG, until December 2007 Jürgen Kunze Einbeck Chairman of the Works Committee of KWS SAAT AG, until December 2007 Dr. Dietmar Stahl Einbeck Biochemist Employee Representative since December 2007 Prof. Dr. Dr. h. c. Ernst-Ludwig Winnacker Brussels Belgium European Research Council (ERC) – Secretary General until December 2007 Membership of other legally mandated Supervisory Boards: • Bayer AG, Leverkusen • MediGene AG, Munich • Wacker Chemie AG, Munich EXECUTIVE BOARD Dr. Dr. h. c. Andreas J. Büchting Einbeck Chairman Corporate Affairs until December 2007 Membership of legally mandated Supervisory Boards: • Conergy AG, Hamburg 76 Annual Financial Statements | Notes | Notes to the income statement I 77 (32) Signiﬁ cant subsidiaries and afﬁ liated companies A list of shareholdings of KWS SAAT AG is published in the Electronic Federal Gazette. Subsidiaries and associated companies, which were included in the consolidated group 1) Sugarbeet Corn Cereals Breeding & Services 90 % KWS MAIS GMBH 81 % KWS LOCHOW GMBH 100 % PLANTA ANGEWANDTE 100 % BETASEED INC. 2) Shakopee, MN/USA Einbeck 100 % KWS FRANCE S. A. R. L. 100 % KWS BENELUX B. V.5) Roye/France 100 % DELITZSCH PFLANZENZUCHT GMBH 10) Einbeck 100 % O. O. O. KWS RUS 12) Moscow/Russian Federation 100 % KWS ITALIA S. P. A. Forli/Italy 100 % KWS POLSKA SP. Z O. O. Poznan/Poland 100 % KWS SCANDINAVIA A/S 10) Guldborgsund/Denmark 100 % KWS SEMILLAS IBERICA S. L.10) Zaratán/Spain 100 % SEMILLAS KWS CHILE LTDA. Santiago de Chile/Chile 100 % KWS SEME YU D. O. O. Belgrad/Serbia 100 % KWS SUISSE SA Basle/Switzerland 100 % ACH SEEDS INC.4) Amsterdam/Netherlands 100 % KWS SEMENA S. R. O.5) Zahorska Ves/Slovakia 100 % KWS MAIS FRANCE S. A. R. L.5) Sarreguemines/France 100 % KWS AUSTRIA SAAT GMBH 5) Vienna/Austria 100 % KWS SEMINTE S. R. L.5) Bukarest/Romania 100 % DUNASEM S. R. L.13) Bukarest/Romania 100 % KWS SJEME D. O. O.5) Pozega/Croatia 100 % KWS OSIVA S. R. O.5) Velke Mezirici/Czech Republic 100 % KWS SEMENA BULGARIA E. O. O. D.5) Soﬁ a/Bulgaria 100 % AGROMAIS GMBH5) Everswinkel 100 % KWS MAGYARORSZÁG KFT.5) Györ/Hungary Eden Prairie, MN/USA 100 % BETASEED FRANCE S. A. R. L.4) Sarreguemines/France 100 % KWS UKRAINE T.O.W.12) 95 % KWS ARGENTINA S. A.5) Balcarce/Argentina 51 % RAZES HYBRIDES S. A. R. L.3) Alzonne/France Kiew/Ukraine 50 % AGRELIANT GENETICS LLC.6) * 100 % KWS TÜRK TARIM TICARET Westﬁ eld, IND/USA A. S. 10) Eskisehir/Turkey 50 % AGRELIANT GENETICS INC.* Chatham, Ontario/Canada Bergen 100 % KWS UK LTD.7) Thriplow/Great Britain PFLANZENGENETIK UND BIOTECHNOLOGIE GMBH** Einbeck 100 % KWS LOCHOW 100 % KWS INTERSAAT GMBH POLSKA SP.Z O.O.7) Kondratowice/Poland 49 % SOCIETE DE MARTINVAL S. A.8) * Mons-en-Pévèle/France Einbeck 100 % KWS SEEDS INC.9) Shakopee, MN/USA 100 % GLH SEEDS, INC.2) Shakopee, MN/USA 100 % KWS SAATFINANZ GMBH Einbeck 100 % KWS KLOSTERGUT WIEBRECHTS HAUSEN GMBH Northeim-Wiebrechtshausen 100 % EURO HYBRID GESELLSCHAFT FÜR GETREIDEZÜCHTUNG MBH Einbeck 100 % KWS R & D RUS LTD. 11) Lipezk/Russian Federation 100 % RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH Klein Wanzleben * Proportionate consolidation ** Proﬁ t transfer agreement 1) The percentages stated relate to the interest held by the parent 2) Subsidiary of KWS SEEDS INC. 3) Subsidiary of KWS FRANCE S. A. R. L. 4) Subsidiary of BETASEED INC. 5) Subsidiary of KWS MAIS GMBH 6) Investee of GLH SEEDS, INC. 7) Subsidiary of KWS LOCHOW GMBH 8) Investee of KWS LOCHOW GMBH 9) Subsidiary of KWS INTERSAAT GMBH und KWS SAAT AG 10) Subsidiary of KWS INTERSAAT GMBH 11) Subsidiary of O. O. O. KWS RUS 12) Subsidiary of EURO HYBRID GMBH und KWS SAATFINANZ GMBH 13) Subsidiary of KWS MAIS GMBH und KWS SAATFINANZ GMBH June 30, 2008 (33) Proposal for the appropriation of net retained proﬁ ts A proposal will be made to the Annual Shareholders’ Meet- ing that an amount of € 11,220,000.00 of KWS SAAT AG’s net retained proﬁ t of € 12,080,000.00 should be distributed as a dividend of € 1.70 (€ 1.40) for each of the 6,600,000 shares. The balance of € 860,000.00 is to be carried for- ward to the new account. Declaration by legal representatives We declare to the best of our knowledge, and in accordance with the applicable reporting principles for ﬁ nancial report- ing, the consolidated ﬁ nancial statements give a true and fair view of the assets, liabilities, ﬁ nancial position and proﬁ t or loss of the group, and the management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associ- ated with the expected development of the group. Einbeck, October 6, 2008 KWS SAAT AG THE EXECUTIVE BOARD On the basis of our audit, we have no reservations to note. In our opinion pursuant to the ﬁ ndings gained during the audit, the consolidated ﬁ nancial statements of KWS SAAT AG, Einbeck, comply with the IFRS as applicable in the EU, and in addition with the commercial law regulations to be applied pursuant to section 315a (1) of the HGB (German Commercial Code) and give a true and fair view of the as- sets, ﬁ nancial position and earnings of the group, taking into account these regulations. The group management report accords with the consolidated ﬁ nancial statements, conveys overall an accurate view of the group’s position and accurately presents the opportunities and risks of fu- ture development. Hanover, October 10, 2008 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft (Dr. F. Beine) Auditor (T. Römgens) Auditor Auditor’s Report We have audited the annual ﬁ nancial statements of the KWS Group – consisting of the balance sheet, the Income Statement, the Notes, the Cash Flow Statement, Segment reporting and the Statement of Changes in Equity – and the group management report for the ﬁ scal year from July 1, 2007, to June 30, 2008, all of which were prepared by KWS SAAT AG, Einbeck. The preparation of the consoli- dated ﬁ nancial statements and group management report according to the International Financial Reporting Stand- ards (IFRS) as applicable in the EU, and in addition accord- ing to the commercial law regulations to be applied pursu- ant to section 315a (1) of the HGB (German Commercial Code), is the responsibility of the Executive Board of the company. Our task, on the basis of the audit we have con- ducted, is to give an opinion on the consolidated ﬁ nancial statements and the group management report. We conducted our audit of the annual ﬁ nancial statements in accordance with section 317 HGB and the generally accepted standards for the audit of ﬁ nancial statements promulgated by the Institut der Wirtschaftsprüfer (German Institute of Certiﬁ ed Public Accountants). According to these standards, the audit must be planned and executed in such a way that misstatements and violations materially affecting the presentation of the view of the assets, ﬁ nan- cial position and earnings conveyed by the consolidated ﬁ nancial statements, taking into account the applicable regulations on orderly accounting, and by the group man- agement report are detected with reasonable certainty. Knowledge of the business activities and the economic and legal operating environment of the group and evalua- tions of possible errors are taken into account. The effec- tiveness of the internal accounting control system and the evidence supporting the disclosures in the consolidated ﬁ nancial statements and the group management report are evaluated mainly on the basis of test samples within the framework of the audit. The audit includes the assessment of the annual ﬁ nancial statements of the companies included in the consolidated ﬁ nancial statements, the deﬁ nition of the companies consolidated, the accounting and consoli- dation principles used and any signiﬁ cant estimates made by the Executive Board, as well as the evaluation of the overall presentation of the consolidated ﬁ nancial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. P. von dem Bussche Ch. Amberger H. Duenbostel L. Broers 78 Annual Financial Statements | Notes | Notes to the income statement | Auditors’ Report I 79 Agenda of the Annual Shareholders’ Meeting on December 16, 2008 The Company’s Executive Board hereby invites you to the Annual Shareholders’ Meeting on Tuesday, December 16, 2008, at 11 a.m., at the Company’s premises in 37574 Einbeck, Grimsehlstrasse 31, Germany. AGENDA 1. Presentation of the approved Financial Statements of KWS SAAT AG, the Financial Statements of the KWS Group (consolidated Financial Statements) approved by the Supervisory Board, the management reports for KWS SAAT AG and the KWS Group for the ﬁ scal year from July 1, 2007, to June 30, 2008, the Report of the Supervisory Board and the explanatory report by the Executive Board on the disclosures in accordance with section 289 (4) and section 315 (4) HGB (German Commercial Code) 2. Resolution on the appropriation of the net retained proﬁ t 3. Resolution on the ratiﬁ cation of the acts of the Executive Board 4. Resolution on the ratiﬁ cation of the acts of the Supervisory Board 5. Appointment of the independent auditor for ﬁ scal year 2008/2009 Financial calendar November 28, 2008 December 16, 2008 February 26, 2009 May 28, 2009 October 29, 2009 Key data of KWS SAAT AG Securities identiﬁ cation number ISIN Stock exchange identiﬁ er Transparency level Index Share class Number of shares Capital stock at June 30, 2008 Share price high June 12, 2008 (Xetra) Share price low August 10, 2007 (Xetra) Average number of shares traded – in Xetra – in ﬂ oor trading in Frankfurt Designated sponsor 80 Report on the 1st quarter of 2008/2009 Annual Shareholders’ Meeting in Einbeck Report on the 2nd quarter of 2008/2009 Report on the 3rd quarter of 2008/2009 Annual press conference in Hanover; Analyst conference in Frankfurt 707400 DE0007074007 KWS Prime Standard SDAX, GEX Individual share certiﬁ cates 6,600,000 € 19,800,000 € 174.72 € 103.10 8,602 930 Sal. Oppenheim jr. & Cie. KGaA

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