KWS Group
Annual Report 2011

Plain-text annual report

t r o p e R 1 0 2 l 1 1 0 2 2 Annual Report 2011 I 2012 a u n n A l KWS Sa at a G t r o p e R 1 0 2 l 1 1 0 2 2 Annual Report 2011 I 2012 a u n n A l KWS Sa at a G Key figures of the KWS Group Figures in € millions. unless otherwise specified (IFRS) KWS is the independent seed company for farmers in the 21st century. Fiscal year Net sales 2011/12 2010/11 2009/10 2008/09 2007/08 986.3 855.4 754.1 717.2 599.1 Operating income (= EBIT) 140.9 116.6 as a % of net sales (= ROS) Net income as a % of net sales Operative cash flow Net cash from investing activities Equity Equity ratio in % 14.3 94.4 9.6 104.2 –56.6 13.6 72.9 8.5 101.2 –52.4 603.1 530.3 55.2 58.8 82.4 10.9 51.5 6.8 27.4 –55.4 492.9 57.5 Balance sheet total 1,092.3 902.0 857.4 756.0 Return on equity in % Return on assets in % 18.3 10.7 15.2 8.8 12.2 7.1 13.0 7.8 77.9 10.9 50.1 7.0 82.0 70.1 11.7 54.6 9.1 74.6 –59.4 –18.1 434.5 398.0 57.5 59.3 671.1 15.3 9.2 Fixed assets 378.2 290.1 275.2 231.9 197.1 Capital expenditure Depreciation Average number of employees Personnel costs Performance of KWS shares in € Dividend per share Earnings per share Operative cash flow per share Equity per share 111.5 28.4 3,851 182.5 2.80 13.89 15.79 91.38 49.3 27.6 58.4 22.0 3,560 3,492 165.0 147.2 2.30 10.64 15.33 80.35 1.90 7.51 4.15 74.68 61.1 23.3 3,215 135.0 1.80 6.98 12.42 65.83 30.4 17.0 2,856 119.0 1.70 7.74 11.30 60.31 We are committed to sustainable agriculture and the responsible use of natural resources. We concentrate on develop- ing top-quality seed for the diverse needs of farmers and society as a whole. We see ourselves as a reliable partner, specialist and expert adviser dedicated to the sustainable success of farmers. Financial calendar November 29, 2012 December 13, 2012 February 26, 2013 May 28, 2013 October 23, 2013 December 19, 2013 Key data of KWS SAAT AG Securities identification number ISIN Stock exchange identifier Transparency level Index Share class Number of shares Capital stock at June 30, 2012 Share price high June 29, 2012 (Xetra) Share price low August 22, 2011 (Xetra) Average number of shares traded – in Xetra – in floor trading in Frankfurt Report on the 1st quarter of 2012/2013 Annual Shareholders’ Meeting in Einbeck Report on the 2nd quarter of 2012/2013 Report on the 3rd quarter of 2012/2013 Publication of 2012/2013 financial statements Annual press conference in Frankfurt; Analyst conference in Frankfurt Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 6,600,000 €19,800,000 €205.00 €131.40 3,735 246 KWS Saat aG Grimsehlstrasse 31 • 37555 Einbeck/Germany • P.O. Box 1463 Phone +49 (0) 5561/311-0 • Fax +49 (0) 5561/311-322 www.kws.com • E-mail: info@kws.com 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. Photos/Illustrations: Eberhard Franke • Michael Löwa • Dominik Obertreis • Kevin Zhang • Corinna Lerch • Corbis Images • KWS Group archive Key figures of the KWS Group Figures in € millions. unless otherwise specified (IFRS) KWS is the independent seed company for farmers in the 21st century. Fiscal year Net sales 2011/12 2010/11 2009/10 2008/09 2007/08 986.3 855.4 754.1 717.2 599.1 Operating income (= EBIT) 140.9 116.6 as a % of net sales (= ROS) Net income as a % of net sales Operative cash flow Net cash from investing activities Equity Equity ratio in % 14.3 94.4 9.6 104.2 –56.6 13.6 72.9 8.5 101.2 –52.4 603.1 530.3 55.2 58.8 82.4 10.9 51.5 6.8 27.4 –55.4 492.9 57.5 Balance sheet total 1,092.3 902.0 857.4 756.0 Return on equity in % Return on assets in % 18.3 10.7 15.2 8.8 12.2 7.1 13.0 7.8 77.9 10.9 50.1 7.0 82.0 70.1 11.7 54.6 9.1 74.6 –59.4 –18.1 434.5 398.0 57.5 59.3 671.1 15.3 9.2 Fixed assets 378.2 290.1 275.2 231.9 197.1 Capital expenditure Depreciation Average number of employees Personnel costs Performance of KWS shares in € Dividend per share Earnings per share Operative cash flow per share Equity per share 111.5 28.4 3,851 182.5 2.80 13.89 15.79 91.38 49.3 27.6 58.4 22.0 3,560 3,492 165.0 147.2 2.30 10.64 15.33 80.35 1.90 7.51 4.15 74.68 61.1 23.3 3,215 135.0 1.80 6.98 12.42 65.83 30.4 17.0 2,856 119.0 1.70 7.74 11.30 60.31 We are committed to sustainable agriculture and the responsible use of natural resources. We concentrate on develop- ing top-quality seed for the diverse needs of farmers and society as a whole. We see ourselves as a reliable partner, specialist and expert adviser dedicated to the sustainable success of farmers. Financial calendar November 29, 2012 December 13, 2012 February 26, 2013 May 28, 2013 October 23, 2013 December 19, 2013 Key data of KWS SAAT AG Securities identification number ISIN Stock exchange identifier Transparency level Index Share class Number of shares Capital stock at June 30, 2012 Share price high June 29, 2012 (Xetra) Share price low August 22, 2011 (Xetra) Average number of shares traded – in Xetra – in floor trading in Frankfurt Report on the 1st quarter of 2012/2013 Annual Shareholders’ Meeting in Einbeck Report on the 2nd quarter of 2012/2013 Report on the 3rd quarter of 2012/2013 Publication of 2012/2013 financial statements Annual press conference in Frankfurt; Analyst conference in Frankfurt Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 6,600,000 €19,800,000 €205.00 €131.40 3,735 246 KWS Saat aG Grimsehlstrasse 31 • 37555 Einbeck/Germany • P.O. Box 1463 Phone +49 (0) 5561/311-0 • Fax +49 (0) 5561/311-322 www.kws.com • E-mail: info@kws.com 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. Photos/Illustrations: Eberhard Franke • Michael Löwa • Dominik Obertreis • Kevin Zhang • Corinna Lerch • Corbis Images • KWS Group archive Table of contents 7 8 12 15 15 16 18 19 22 25 30 32 34 38 39 44 48 49 Foreword of the Executive Board Spotlight topic: Where corn grows fastest – KWS in Brazil Report of the Supervisory Board Declaration regarding Corporate Governance Compliance declaration in accordance with Section 161 AktG (German Stock Corporation Act) Compensation Report The KWS share Agenda of the Annual Shareholders’ Meeting Management Report of the KWS Group • Corporate • Corn Segment • Sugarbeet Segment • Cereals Segment • Outlook for the fiscal year 2012/2013 • Employees • Risks for future development • Disclosures in accordance with Section 315 (4) HGB (German Commercial Code) Annual Financial Statements of the KWS Group 2011/2012 Foreword of the Executive Board Our company is continuing on its impressive path to suc- cess. As the world’s population grows, so does the demand for food. Agriculture must deliver the answers to that de- mand. KWS’ solution is to continuously improve the per- formance of its plant varieties and the technical quality of its seed, enabling its customers – the world’s farmers – to steadily increase their productivity per unit area and their yield. For fiscal 2011/2012, we are again able to report strong growth in all segments. The KWS Group with its 62 subsidiaries and associated companies and a workforce totaling 3,850 people generated net sales of €986 million, a year-on-year rise of 15%. Operating income grew by 21% to €141 million, giving an EBIT margin of just over 14%. The key factor in this success is our outstanding and excep- tionally committed colleagues throughout the world. Our thanks go out to them for their exemplary dedication. All three product segments – Corn, Sugarbeet and Cereals – again contributed to this above-average success for the Group. Apart from our strong position in our home market of Germany, we were able to increase sales volumes signifi- cantly in North America, France, Southeastern Europe, Rus- sia and Ukraine in particular. These good results mean that we are continuing to consoli- date our position among the world’s top seed companies. Every year we offer improved solutions for the vital future market of food and for the bioenergy sector to the bene- fit of our customers worldwide. Our portfolio comprises a broad range of sugarbeet, corn and cereal seed, as well as oil seed and seed potatoes. We have a presence in around 70 countries throughout the world. We have strengthened the KWS brand in all impor- tant growth regions, for instance in China, where we have operated for more than 30 years and which, with 31 mil- lion hectares, is the second-largest corn market in terms of area after the U.S. In 2011, we expanded cooperation with our longstanding partners Kenfeng in Heilongjiang Province and Condy in Xinjiang and thus boosted our market posi- tion in the north and northwest of the country. In addition to our wholly owned research subsidiary in Hefei, we intend to keep on expanding our cooperation with Chinese partners in the form of joint ventures and license agreements. In June 2012 we broke new ground in the Corn Segment by launching business activities in Brazil, where we were able to acquire two corn breeding companies. We have also taken a majority stake in the production and distribution company Riber Sementes Ltda. as part of a partnership in order to quickly gain a foothold in what is still a largely unfamiliar market for us in South America. As a result, KWS now has a presence with its own subsidiaries in Brazil, the world’s third-largest corn market, with a cultivation area of some 15 million hectares. Modern plant breeding is high-tech work in which we steadily improve our seed. Every year, we invest between 10% and 15% of our revenue in research & development. In the year under review, we again increased our expenditure on product development by just over 11% to €127 million in order to keep on improving our competitiveness. We see this as the most vital strategy in safeguarding our sustainability. A sustainable corporate policy also means offering you, our shareholders, as continuous as possible a return on your investment. Our share performance and dividend are key measures of this. In the past ten years, our share price has increased by more than 400%, while the comparative index SDAX rose by 97% and the DAX by around 41% in the same period of time. The Executive Board will propose to the next Annual Shareholders’ Meeting a dividend of €2.80 a share for fiscal year 2011/2012. This Annual Report once again proves: We are on the right track. On behalf of the entire Executive Board, I offer my best regards from Einbeck. Philip von dem Bussche, Chief Executive Officer Foreword of the Executive Board I 7 from left: Philip von dem Bussche (CEO) – Corporate Affairs, Sugarbeet, Human Resources Dr. Christoph Amberger – Corn, Cereals, Marketing Dr. Hagen Duenbostel – Finance, Controlling, Information Technology, Legal Dr. Léon Broers – Research & Breeding, Energy plants Where corn grows fastest – KWS in Brazil Corn is now the most important crop in terms of productivity per unit area. This versatile crop is cultivated worldwide on 162 million hectares. North America, China and Europe are the largest corn seed markets in the moderate climatic zone. By systematically expanding our grain corn breeding operations, we have become the third-largest corn breeder in these markets in the past ten years. We keep on working to secure and build on this position. By moving into Brazil, KWS is now extending its activities to the world’s third-largest corn market – one that also has the strongest growth potential. Brazil is a huge country, making up almost 50% of South America’s area and almost as big as the U.S. Its strength has always been based mainly on agriculture, which ac- counts for 35% of exports – as much as the country’s en- tire industrial segment. Compared to German agriculture, which accounts for less than 1% of exports, it is therefore an immensely important sector. But if you associate Brazil primarily with cane sugar and coffee, you are still living in the 1970s: The main export of the agricultural sector is now soybeans – followed by meat. In the past 20 years, beef production has risen by around 100%, pork production by 200% and poultry production by 350%, turning Brazil into the world’s third-largest meat exporter and the largest beef exporter. That’s why Brazil’s most important crop after soybeans is corn. Some 90% of the annual corn harvest is needed as feed for Brazilian production – and that figure is increasing. More than 10 million tons of corn are still im- ported each year to cover needs. Safra and safrinha – harvest after harvest Reflecting the world rankings for meat production, Brazil is the country with the largest corn cultivation area after the U.S. and China. Yet it has the greatest potential for in- creasing productivity further in the near future. Corn was sown on 15 million hectares of farmland in Brazil in 2011 – and corn production is forecast to increase by 26% by 2025 if the cultivation area remains the same. Mechanization of agriculture is well advanced compared to other dynamically KWS locations in Brazil Corn growing areas Primary corn growing areas Brasilia Petrolina: Breeding station Magalhaes: Breeding station Formosa: Trial location Patos de Minas: Headquarters RIBER-KWS growing markets such as China and India. The farms have a very large-scale structure, especially in the main corn cultivation region in the south of the country, and have an average size of 150 to 200 hectares. However, farms with several hundred thousand hectares are not unusu- al. That not only has a positive impact on efficiency and thus on investment in technology, but also indirectly on yields. Around 4 tons of corn per hectare are achieved today, compared with just 2 tons in India. The U.S. shows what is possible if innovations in the sector are leveraged optimally: An average of 10 tons of corn per hectare are harvested in the U.S. There is no doubt that Brazil is aiming to exploit its existing potential. The general condi- tions for highly productive farming exist. Plant breeding will make a key contribution to achieving the forecast increases in productivity. The increased use of hybrid corn results in a progress in yields in absolute terms, while genetically modified varieties help protect the harvest. Since 2007, use of this technology has increased to about 60%. While farm-saved seed is used on just over half of the cultivation area in India, the figure in Brazil is Londrina: Breeding station Campo Largo: Breeding station Rio de Janeiro São Paulo Passo Fundo: Trial location Thanks to the constant and warm climate, corn can be planted at any time of the year in some regions of Brazil provided it is watered. Our seed production is therefore independent of the rainy season. In 20 years’ time, Brazil could feed 40% of the world’s population – and not at the expense of its precious rainforest, but through more efficient and improved agricultural technologies, such as here on a large farm in Mato Grosso. only 2% – farmers put their money on quality seed. A fur- ther dynamic boost to the corn seed market comes from the growing importance of the winter harvest. In some re- gions of Brazil’s lowlands, there are two harvests a year – “safra” and “safrinha.” The lion’s share of corn is produced as a summer crop in the first harvest. Safrinha, the win- ter harvest, is sown between January and April after the early-maturing soybean varieties. It is expected to increase by more than 50% by 2015. Breeding in best company – Riber and KWS As can be expected, the process of consolidation is well advanced in this attractive and dynamically growing seed market. We are therefore delighted to have found excellent partners for our business activities in Brazil. By acquiring the breeding companies Semília and Delta, KWS now has a diverse gene pool of Brazilian corn and a total of four breeding stations in the states of Bahia and Paraná – excel- lent prerequisites for developing varieties for its own dis- tribution. Corn is grown largely in Central and Southern Brazil, above all in the states of São Paulo, Rio Grande do Sul, Paraná, Mato Grosso and Minas Gerais, where the production and distribution company Riber, in which we have acquired a stake, is headquartered. Our partner and co-owner Cláudio Nasser de Carvalho will manage RIBER-KWS and contribute his outstanding knowledge of products and the market, as well as a broad distribution network in all of Brazil’s major corn regions. Thanks to this partnership, we cover the whole seed value chain, from breeding to production to distribution – in line with KWS’ proven model. Our experience with the prin- ciple of integration has been a good one. The continuing cooperation with the previous owners, breeders and em- ployees of Delta, Semília and Riber will be of particular benefit. As a result, we can unite Brazilian product know- how, our global breeding network, cutting-edge technol- ogy and direct access to key customers under one roof. 8 Spotlight topic I 9 ›› The most important resource for the future is our biodiversity. Exotic corn lines sometimes have valuable traits we can use for our agricultural varieties. That means DNA detective work on my part. Dr. Helena Sofia Pereira da Silva, corn breeder, KWS SAAT AG ‹‹ H / Orange Box Head 65 Medium 20 pt white I / Orange Box Copy 55 Roman 9 pt white I / Orange Box Copy 55 Roman 9 pt white I / Orange Box Copy 55 Roman 9 pt white Report of the Supervisory Board company was run properly and in compliance with the law and that it was organized efficiently and cost-effectively. Both boards successfully continued their constructive coopera- tion based on mutual trust. Among other things, this was demonstrated by the fact that, as is customary, the Supervi- sory Board was involved in all decisions of fundamental im- portance to the company at an early stage. The Supervisory Board was provided with the necessary information in writ- ten and oral form regularly, promptly and comprehensively. This included all key information on relevant questions of strategy, planning, the business performance and situation of the company and the KWS Group, including the risk sit- uation, risk management and compliance. Business trans- actions requiring consent were submitted to and discussed and approved by the Supervisory Board in compliance with the bylaws for the Executive Board. The company’s busi- ness policy, corporate and financial planning, profitability and situation, the general development of the various busi- nesses, market trends and the competitive environment, re- search and product development and, along with important individual projects, risk management at the KWS Group were also the subject of detailed discussions. The Chairman of the Supervisory Board continued his bilateral discussions with the Chief Executive Officer and individual members of the Executive Board in regular talks outside the meetings of the Supervisory Board. In addition, there were monthly meetings between the Chairman of the Supervisory Board and the Executive Board as a whole, where the company’s current business development and, in particular, its strategy, occurrences of special importance and risk management were dealt with. The Chairman of the Supervisory Board informed the Supervisory Board of the results of these meetings. The Supervisory Board did not make use of its right to conduct an examination as granted by Section 111 (2) AktG (German Stock Corporation Act), since the reporting by the Executive Board meant there was no reason to do so. The full Supervisory Board held five regular meetings in fiscal 2011/2012. Its members participated in all of the meetings, with the exception of two members who were each unable to attend one meeting. Focal areas of deliberations The meeting of the Supervisory Board to discuss the finan- cial statements on October 26, 2011, was devoted to exam- ining and approving the financial statements of KWS SAAT AG and the consolidated financial statements of the KWS Group as of June 30, 2011. In addition, the Supervisory Board discussed the details of the cooperation between KWS and Vilmorin in the development of genetically improved traits for corn. The results of the 2010/2011 efficiency review were also discussed. The focus of the meetings on December 13 and 14, 2011, was on the KWS Group’s strategic planning, which covers a ten-year period, and on the expansion of ac- tivities in Eastern Europe. The current performance of cereal and rapeseed breeding compared with the competition was also presented. This was followed on April 25, 2012, by ex- tensive information on the progress of sugarbeet and corn breeding and the status of all important research projects. In addition, the Supervisory Board gave its consent to KWS’ investment in the Brazilian corn market and the related acquisitions at this meeting. In the final meeting of the Supervisory Board in fiscal year 2011/2012, on June 20, 2012, the Supervisory Board ap- proved the planning for fiscal 2012/2013 and relevant medi- um-term planning up to 2015/2016, including extensive proj- ects to expand our production capacities for sugarbeet and corn seed. In addition, the survey of the Supervisory Board aimed at avoiding and identifying fraud was also conducted. No fraudulent acts are known to the Supervisory Board. Annual and consolidated financial statements and auditing Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Hanover, the auditor chosen at the Annual Shareholders’ Meeting on December 14, 2011, and commissioned by the Audit Committee, has audited the financial statements of KWS SAAT AG that were presented by the Executive Board and prepared in accordance with the provisions of the Ger- man Commercial Code (HGB) for fiscal 2011/2012 and the financial statements of the KWS Group (IFRS consolidated financial statements), as well as the Management Report of KWS SAAT AG and the KWS Group Management Report, including the accounting reports, and awarded them its un- qualified audit certificate. In addition, the auditor concluded that the audit of the financial statements did not reveal any facts that might indicate a misstatement in the declaration of compliance with the German Corporate Governance Code issued by the Executive Board and Supervisory Board (cf. Clause 7.2.3 (2) of the German Corporate Governance Code). The Supervisory Board received and discussed the financial statements of KWS SAAT AG and the consolidated financial statements and Management Reports of KWS SAAT AG and the KWS Group, along with the report of the independent au- ditor of KWS SAAT AG and the KWS Group and the proposal on utilization of the net profit for the year made by KWS SAAT AG, in due time. The financial statements, Management Re- ports and audit reports of the independent auditors were submitted to all members of the Supervisory Board. It also held detailed discussions of questions on the agenda at its meeting to discuss the financial statements on October 17, 2012. The auditors took part in the meeting and reported on the main results of the audit and were also available to answer additional questions and provide further information for the Supervisory Board. According to the report of the independent auditor, there were no material weaknesses in the internal control and risk management system in rela- tion to the accounting process. There were also no circum- stances that might indicate a lack of impartiality on the part of the independent auditor. The small extent of services ad- ditionally provided by the independent auditor can be seen from the Notes. In accordance with the final results of its own examination, the Supervisory Board endorsed the results of the audit, among other things as a result of the vote by the Audit Com- mittee and did not raise any objections. The Supervisory Board gave its consent to the annual financial statements of KWS SAAT AG prepared by the Executive Board and to the consolidated financial statements of the KWS Group, along with the Management Reports of KWS SAAT AG and the KWS Group. The financial statements are thereby approved. The Supervisory Board also endorses the proposal by the Executive Board to the Annual Shareholders’ Meeting on the appropriation of the net retained profit of KWS SAAT AG after having examined it. Corporate Governance The Supervisory Board’s efficiency review was conducted for fiscal 2011/2012 in the form of a questionnaire that was to be completed anonymously and was created and eval- uated by Deutsche Agentur für Aufsichtsräte, a company that advises supervisory boards. It found that the efficiency and quality of the work performed by the Supervisory Board of KWS SAAT AG as a monitoring and control body com- plies with best practices. As in the previous year, the re- commendations of the Deutsche Agentur für Aufsichts- räte were adopted and implemented without exception. At their meeting on October 17, 2012, the Executive Board and Supervisory Board discussed updating the declara- tion of compliance from October 2011 and issued a new declaration in accordance with section 161 AktG (German Stock Corporation Act). Like previous declarations, it is al- ways available to the public on the company’s Internet site. The Supervisory Board regularly addressed the question of any conflicts of interest on the part of its members and those of the Executive Board. In the year under review, such conflicts of interests, which are to be disclosed immediately to the Supervisory Board or reported to the Annual Share- holders’ Meeting, did not occur. Report of the Supervisory Board I 13 Dr. Dr. h.c. mult. Andreas J. Büchting, Chairman of the Supervisory Board Fiscal 2011/2012 was a year of further operational growth and important decisions about our strategic direction. Af- ter adjustment for all special effects, the KWS Group was able to post solid growth in net sales and income. At the same time, we expanded our distribution structures and production capacities and increased our research budget – and as a whole initiated extensive measures to secure the company’s future. This is reflected in our capital expenditure of around €110 million (previous year: €49.3 million), which also included our new commitment in Brazil. New markets like Brazil and China will make a significant contribution to the KWS Group’s net sales as early as the current fiscal year. However, organic growth is founded on our innovative strength. Given the long development cycles in our industry, we have to make decisions that have a long-term impact and thus need to be discussed intensively by the Supervi- sory Board. This includes, for example, the decision to es- tablish a breeding program for tropical corn in Brazil or for winter wheat in North America. In the past fiscal year, the Supervisory Board advised and monitored the Executive Board of KWS SAAT AG in its activities and carefully supported it in all fundamental de- cisions of vital importance for the company, in accordance with the law, the company’s Articles of Association and the bylaws. The Supervisory Board satisfied itself that the 12 Supervisory Board Committees The Supervisory Board of KWS has an Audit Committee, a Committee for Executive Board Affairs and a Nominating Committee. In fiscal year 2011/2012, the committees dealt with the following subjects. extensive network. The Nominating Committee did not therefore follow the general suggestion in the bylaws for the Supervisory Board of KWS SAAT AG (Section 6 (2)) to the effect that a candidate should not be 70 or older when nominated. The Audit Committee convened for two joint meetings in fiscal 2011/2012 and also held three telephone con- ferences. In its meeting on October 18, 2011, the Audit Committee discussed the 2010/2011 annual financial statements and accounting of KWS SAAT AG and con- solidated financial statements of the KWS Group. The Annual Compliance Report and the results of the audit- ing projects were on the agenda on April 25, 2012. The audit plan for fiscal 2012/2013 was also discussed and adopted. In addition, there was an exchange of informa- tion and ideas with an acknowledged expert in the field of international accounting at the meeting. The quarterly reports and the semiannual report for fiscal 2011/2012 were discussed in detail in the telephone conferences on November 21, 2011, February 22, 2012, and May 21, 2012. All reports were approved for publication. In addition, the Audit Committee obtained the statement of independence from the auditor in accordance with Clause 7.2.1 of the German Corporate Governance Code and monitored the auditor’s independence. The Audit Committee also satisfied itself that the regulations on in- ternal rotation pursuant to Section 319 a (1) No. 4 HGB were observed by the independent auditor. The Audit Committee convened on September 24, 2012, to discuss the annual financial statements of KWS SAAT AG and KWS’ consolidated financial statements and account- ing. The independent auditor explained the results of its audit of the 2011/2012 financial statements and pointed out that there were no grounds for assuming a lack of impartiality on the part of the independent auditor in its audit. The Audit Committee also dealt with the propos- al by the Executive Board on the appropriation of the net retained profit of KWS SAAT AG and recommended that the Supervisory Board approve it. The Supervisory Board of KWS SAAT AG is to be elected on December 13, 2012. On July 10, 2012, the Nominating Committee proposed all the current shareholder representatives for reelection as the Supervisory Board’s nominations to the Annual Shareholders’ Meeting. The Supervisory Board un- animously welcomed this proposal and in particular the willingness of Dr. Arend Oetker to stand for reelection, noting that his involvement is of special importance to KWS given his business experience, strategic vision and The deliberations of the Committee for Executive Board Affairs in the year under review focused on the future as- signment of responsibilities on the Executive Board and creation of the profile for the Chief Financial Officer, a function that is to be filled by a new person. Dr. Hagen Duenbostel will take charge of the Corn Segment and relinquish his previous functions effective July 1, 2013, at the proposal of the Committee for Executive Board Affairs and pursuant to the decision by the Supervisory Board on March 14, 2012. He will therefore succeed Dr. Christoph Amberger, who will not extend his contract when it expires on June 30, 2013, for personal reasons. The Supervisory Board respects the personal decision of Christoph Amberger while also regretting it in view of the excellent contributions he has made to KWS’ business development. Responsibility for the Cereals Segment will be assumed by Philip von dem Bussche, whose contract has been extended until the Annual Shareholders’ Meeting in December 2014, and thus to when he turns 65, at the proposal of the Committee for Executive Board Affairs and pursuant to the decision by the Supervisory Board on March 14, 2012. The Committee for Executive Board Affairs conducted its regular review of the quality of the Executive Board’s work on July 10, 2012. The Supervisory Board expresses its great appreciation and special thanks to the Executive Board and all employees of the KWS Group for their work and outstanding performance as reflected in the annual financial statements. Einbeck, October 17, 2012 Dr. Dr. h.c. mult. Andreas J. Büchting Chairman of the Supervisory Board Supervisory Board Committees Chairman Members Audit Committee Hubertus von Baumbach Andreas J. Büchting, Cathrina Claas-Mühlhäuser Committee for Executive Board Affairs Andreas J. Büchting Arend Oetker, Cathrina Claas-Mühlhäuser Nominating Committee Andreas J. Büchting Arend Oetker, Cathrina Claas-Mühlhäuser Declaration regarding Corporate Governance Good corporate governance and control and a sustain- able corporate policy are vital in KWS’ everyday busi- ness. Respecting the interests of our customers, busi- ness partners, shareholders, employees and society is of fundamental importance. Our actions are guided by the values of an international agricultural company with a tradition of family ownership. These values include, in particular, reliability, team spirit, sustainability, foresight and independence. We of course comply with the rele- vant legal requirements regarding managing and super- vising German stock corporations and the internationally and nationally acknowledged standards of good and re- sponsible corporate governance (German Corporate Gover- nance Code). In May 2012 the Government Commission for the German Corporate Governance Code again made amendments to the code after not making any changes in the previous year. In its modifications, the Commission paid special attention to the issues of the work, indepen- dence, qualifications, composition and compensation of the Supervisory Board. The amendments it formu- lated have already been fulfilled by KWS. The Com- mission also expressly stated that deviations from the code’s recommendations may well be in the interests of good corporate governance. The only such deviation at KWS is in relation to the recommended deadlines for publishing the consolidated financial statements and quarterly reports. The complete declaration on corporate governance in accor- dance with Section 289 a of the German Commercial Code (HGB), which also contains the compliance declaration in accordance with Section 161 AktG (German Stock Corpora- tion Act), has been published in the Internet at www.kws.com > Company > Investor Relations > Corporate Governance. Compliance declaration in accordance with Section 161 AktG (German Stock Corporation Act) The Executive Board and Supervisory Board of KWS SAAT AG declare in compliance with section 161 AktG (German Stock Corporation Act) that – with the exception of the dead- lines for publishing the consolidated financial statements and interim reports – the company has complied with the recom- mendations of the German Corporate Governance Code in the version dated May 26, 2010, since the last compliance declaration in October 2011; that it has complied with the re- commendations of the German Corporate Governance Code in the version dated May 15, 2012, since that date; and that it does now comply and will comply in the future with these latter recommendations. KWS SAAT AG publishes its con- solidated financial statements and interim reports within the period of time defined in the regulations for the Prime Stan- dard of the German Stock Exchange. It does not comply with the recommended deadlines of 90 and 45 days respectively in Clause 7.1.2 of the German Corporate Governance Code because of the seasonal course of its business. Einbeck, October 1, 2012 The Supervisory Board The Executive Board 14 Report of the Supervisory Board I Corporate Governance I 15 Compensation Report The Supervisory Board’s compensation was set by the An- nual Shareholders’ Meeting on December 17, 2009. 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 situation. The remuneration includes not only a fixed payment and payment for work on committees, but also a performance-related component, which is oriented toward the company’s sustainable development. The Chairman of the Supervisory Board receives three times and his or her depu- ty one-and-a-half times the total compensation of an ordinary member. There is currently no extra compensation for them for work on committees. The Chairman of the Audit Committee receives €25 thousand. Ordinary members of the Supervisory Board receive €5 thousand for their work on the Committee for Executive Board Affairs and €10 thousand for their work on the Audit Committee. The members of the Supervisory Board are reimbursed for all expenses – including value-added tax – that they incur while carrying out the duties of their position. The total compensation for members of the Supervisory Board therefore amounts to €509 thousand (€438 thou- sand), excluding value-added tax. In all, 45% (37%) or €231 thousand (€160 thousand) of the total compensation is performance-related. Supervisory Board compensation 2011/12 in € Fixed Work on committees Performance- related Total Previous year Dr. Dr. h. c. mult. Andreas J. Büchting* 84,000.00 Dr. Arend Oetker** 42,000.00 0.00 0.00 81,600.00 165,600.00 140,400.00 40,800.00 82,800.00 70,200.00 Hubertus v. Baumbach*** 28,000.00 25,000.00 27,200.00 80,200.00 71,800.00 Jürgen Bolduan 28,000.00 0.00 27,200.00 55,200.00 46,800.00 Cathrina Claas-Mühlhäuser 28,000.00 15,000.00 27,200.00 70,200.00 61,800.00 Dr. Dietmar Stahl 28,000.00 0.00 27,200.00 55,200.00 46,800.00 238,000.00 40,000.00 231,200.00 509,200.00 437,800.00 * Chairman ** Deputy Chairman *** Chairman of the Audit Committee The compensation of members of the Executive Board was set by the Supervisory Board and approved by the An- nual Shareholders’ Meeting. It is based on the size and ac- tivity of the company, its economic and financial situation and the level and structure of compensation for managing board members at comparable companies. The total com- pensation is made up of a fixed and a performance-related component. The performance-related compensation is cal- culated on the basis of a declining scale as a percentage of the sustainable net income for the year for the KWS Group. Payments for duties performed in subsidiaries and associ- ated companies were €38 thousand (€29 thousand) and are offset against the performance-related payment. Ev- ery member of the Executive Board must acquire shares in KWS to an amount of between 20% and 50% of the gross performance-related bonus payment. After five years, the members of the Executive Board receive a long-term in- centive payment (LTI) calculated on the basis of the per- formance of KWS SAAT AG’s stock and the KWS Group’s return on sales over this holding period. In the year under review, €119 thousand were allocated to the provisions for this for the first time. One third of the LTI before taxes must be reinvested in KWS shares after it has been paid out. Executive Board compensation 2011/12 in € Basic com- pensation Benefits in kind Performance- related Total Previous year Philip von dem Bussche* Dr. Christoph Amberger Dr. Léon Broers Dr. Hagen Duenbostel * Chief Executive Officer 270,000.00 18,998.21 515,001.79 804,000.00 780,510.41 216,000.00 21,984.52 512,015.48 750,000.00 730,210.65 216,000.00 20,597.34 513,402.66 750,000.00 728,557.62 216,000.00 16,452.21 517,547.79 750,000.00 724,028.37 918,000.00 78,032.28 2,057,967.72 3,054,000.00 2,963,307.05 The basic compensation is paid as a monthly salary. Apart from these salaries, there is also non-monetary compensation, such as a company car or a phone. There are also accident insurance policies for the members of the Executive Board. There is an absolute upper limit for the total compensation. Pension obligations are grant- ed both in the form of a direct obligation to provide ben- efits and a defined contribution plan, with the annual anticipated pensions ranging between €130 thousand and €140 thousand. In fiscal 2011/2012, €72 thousand (€72 thousand) were paid to a provident fund backed by a guarantee and €146 thousand (€147 thousand) had to be allocated to the pension provisions in ac- cordance with IAS 19 for pension commitments to mem- bers of the Executive Board. Pension provisions total- ing €1,496 thousand (€1,351 thousand) were formed for the following members of the Executive Board of KWS SAAT AG: Pension commitments in € Dr. Christoph Amberger Dr. Hagen Duenbostel 07/01/2011 Personnel expenses Interest expenses 06/30/2012 1,089,771.00 67,313.00 64,922.00 1,222,006.00 260,843.00 26.00 13,479.00 274,348.00 1,350,614.00 67,339.00 78,401.00 1,496,354.00 Compensation of former members of the Executive Board and their surviving dependents amounted to €1,052 thou- sand (€1,055 thousand). Pension provisions recognized for this group of persons amounted to €1,394 thousand (€1,726 thousand) as of June 30, 2012. The pension commitments for three former members of the Executive Board are backed by a guarantee. No loans were granted to members of the Executive Board and Supervisory Board in the year under review. 16 Compensation Report I 17 The KWS share The length of product development cycles in plant breeding means that our business model is essentially long-term in nature. KWS’ business policy is therefore not aimed at achieving short-term profit. Instead, we invest continu- ously in research & development and thus secure our future growth and create new jobs. This strategy has helped us become one of the world’s top plant breeders. In this regard, we were delighted to be awarded first prize in the contest “Germany’s Best” – one could also say “Germany’s Most Sustainable” – from PricewaterhouseCoopers and the news- paper DIE WELT on September 13, 2012. This prize acknowl- edged German companies that orient their business strategy to long-term success and economic sustainability. Since June 2006, KWS’ shares have been listed on the SDAX, the selective index for small and medium-sized enterprises. In terms of market capitalization and trading volumes, it is now among the upper ranks of the securities listed in the index. The performance of KWS’ share is par- ticularly impressive when looked at in comparison with the SDAX and DAX over a ten-year period. While KWS’ share price more than quadrupled from July 1, 2002, to June 30, 2012, the SDAX rose by 97%. In the same period, the blue chip index DAX increased by just 41%. KWS’ share has also turned in an impressive above-average performance when looked at over a five-year period. Its price rose by 57% from July 1, 2007, to June 30, 2012, while the SDAX fell in value by 28% and the DAX by 23%. 5-year price trend of the KWS share compared to SDAX July 1, 2007, to June 30, 2012 KWS SDAX The Company’s Executive Board hereby invites you to the Agenda of the Annual Shareholders’ Meeting on December 13, 2012 160 140 120 100 80 60 40 7 0 0 2 / 7 0 8 0 0 2 / 7 0 9 0 0 2 / 7 0 0 1 0 2 / 7 0 1 1 0 2 / 7 0 2 1 0 2 / 7 0 twice revised our original net sales and earnings guidance upward. With this boost from operational business, KWS’ share climbed by more than 30% between July 1, 2011, and June 30, 2012 – while the SDAX dropped by more than 11% and the DAX by 13%. KWS SAAT AG is also represented in the DAXplus Family Index, which tracks the performance of listed family busi- nesses in which the founding families are co-owners and hold at least a 25 percent share of the voting rights. In 2011/2012, the DAXplus Family Index fell by almost 19%. Annual Shareholders’ Meeting on Thursday, December 13, 2012, 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 fiscal year from July 1, 2011, to June 30, 2012, the Report of the Supervisory Board and the Explanatory Report by the Executive Board on the disclosures in accordance with Section 289 (4) and (5) and Section 315 (4) German Commercial Code (HGB) 2. Resolution on the appropriation of the net retained profit 3. Resolution on the ratification of the acts of the Executive Board 4. Resolution on the ratification of the acts of the Supervisory Board 5. Election of the Supervisory Board 6. Election of the independent auditor of the financial statements of KWS SAAT AG and the independent auditor of the consolidated financial statements for the fiscal year 2012/2013 Although our focus is on our share’s long-term performance on the stock market, outstanding fiscal years are also reflected in its price in the short term. In the year under review, we Our dividend policy is also geared to the long term. For that reason, our company has raised the dividend in each of the past eight years to reflect the KWS Group’s earnings performance. SHAREHolDER STRuCTuRE Net sales of the KWS Group (5 years) in millions of € EBIT of the KWS Group (5 years) in millions of € 3 . 3 % p . a . 1 1000 800 600 400 200 9 . 1 % p . a . 1 140 120 100 80 60 40 20 8 0 / 7 0 0 2 9 0 / 8 0 0 2 0 1 / 9 0 0 2 1 1 / 0 1 0 2 2 1 / 1 1 0 2 8 0 / 7 0 0 2 9 0 / 8 0 0 2 0 1 / 9 0 0 2 1 1 / 0 1 0 2 2 1 / 1 1 0 2 Families Büchting/ Arend Oetker/ Giesecke 56.1% Tessner Beteiligungs GmbH 13.8% Free float 30.1% 18 KWS share I Agenda of the Annual Shareholders’ Meeting I 19 ›› The focus of my training: Getting ›› me ready to take on responsibility. We trainees learn much more here than just the fundamentals of electrical engineering and mechanics – for example, how to take responsibility for our projects together. That forges us into a team. André Dillgart, workshop trainee, KWS SAAT AG ‹‹ H / Orange Box Head 65 Medium 20 pt white I / Orange Box Copy 55 Roman 9 pt white I / Orange Box Copy 55 Roman 9 pt white I / Orange Box Copy 55 Roman 9 pt white Management Report of the KWS Group Prospering agricultural markets, innovative products and creative employees were key in making this fiscal year the most successful to date in KWS’ history. The company entered new markets, launched forward- looking partnerships and made its administrative structures more efficient. At the same time, our mission was to preserve the spirit of our family business and KWS’ values. We were able to leverage our strengths and opportunities in fiscal 2011/2012. That is also reflected in KWS’ performance on the stock market. The KWS Group’s earnings again received a positive boost from special factors. However, we also posted solid oper- ational growth. We expanded our distribution structures and our efforts in the research and development of new varieties. In addition, we have not slackened in our invest- ment activities, but instead laid new foundations for future growth: The vast majority of our investments this year were not on maintenance measures, but rather on increasing ca- pacities at our 62 subsidiaries worldwide. Regional weather extremes not only hit our customers but also our seed production. Considerable funds are tied up in ensuring we can make sufficient seed available to our cus- tomers. As a result, we were able to compensate for the damage caused by frost in some regions of Europe in early 2012 by delivering new seed. A further challenge relates to the agricultural policy agenda. At one time, the cultivation of energy plants was regarded as a cornerstone of the energy shift in Germany. Now, corn grown for producing energy is a particular focus of public criticism. Careful and differentiated analysis is required here. KWS has always advocated the most efficient way of obtaining energy from plants. We still believe this to be bio- gas production. We provide a broad portfolio of products for this, one that enables rotation of energy crops. KWS in figures The KWS Group grew its net sales again in fiscal 2011/2012 by 15.3% over the outstanding previous year to €986.3 (855.4) million and was thus above the growth rates for the past 5 years (average of 13%). Net foreign sales rose by €113.5 million to €758.0 (644.5) million and now make up 76.8% (75.3%) of total revenue. The largest growth was re- corded in North America. Net sales in Germany likewise increased strongly by 8.3% to €228.3 (210.9) million. As in the previous year, all product segments contributed to this growth. Net sales in the Corn Segment were bolstered by higher demand for high-quality corn varieties and in- creased by 19.7% to €571.5 (477.5) million or 57.9% (55.8%) of total net sales. The Sugarbeet Segment like- wise grew its net sales by 6.7% to €313.4 (293.6) million, accounting for 31.8% (34.3%) of our total business volume. Net sales at the Cereals Segment grew by 19.9% to €93.3 (77.8) million or 9.5% (9.1%) of the KWS Group’s total. Function costs focused on growth The cost of sales increased by 20.3% to €521.3 (433.4) million due to a sharp rise in the cost of seed multiplication and higher license costs, but we nevertheless improved our gross profit to €465.0 (422.0) million. Intensified market cultivation and diversification of sales channels resulted in further selling expenses, which rose by 16.5% to €161.4 (138.5) million. The share of selling expenses relative to net sales consequently increased to 16.4% (16.2%). To enable the future development of high-yielding varieties, research and development expenditure rose as planned by 11.5% to €126.6 (113.5) million or 12.8% (13.3%) of net sales. We also intend to expand our breeding activities continu- ously to safeguard the KWS Group’s high level of innova- tion. Administrative expenses were reduced year on year by 0.8% to €59.5 (60.0) million and are now 6.0% (7.0%) of net sales. The balance of other operating income and other operating expenses is €23.4 (6.6) million and was impacted in the year under review by foreign exchange gains and the rever- sal of allowances for receivables. Sharp increase in operating income The KWS Group’s operating income rose by 20.8% to €140.9 (116.6) million on the back of its positive business performance. Operating income in the Sugarbeet Segment improved to €79.9 (65.9) million or 56.7% of the Group’s total income. The Corn Segment grew its operating income to €77.8 (63.6) million and thus contributed 55.2% of the Group’s income. The Cereals Segment achieved income of €18.9 (€14.5) million or 13.4% of the KWS Group’s to- tal. The Corporate Segment’s operating income includes all cross-segment expenses. That includes administrative costs for all central functions at the KWS Group as well as costs for long-term research projects whose results are not yet ready for the market. The segment’s income fell to € –35.7 (–27.4) million. Net income for the year grows sharply again The result from ordinary activities rose to €135.7 (109.6) million, while net financial income/expenses also improved by €1.8 million to € –5.2 (–7.0) million. Low tax rates in our growth regions led to total tax expenditures of €41.3 (36.7) million. That represented a tax rate for the Group of just over 30%, well below the previous year’s figure of approx- imately 34%. Consequently, net income for the year im- proved to €94.4 (72.9) million, giving a return on sales after tax of 9.6% (8.5%). KWS specializes in high-performance hybrid seed. In the market for winter rapeseed as well, the quality of these varieties has proved a winner. Expansion of the product portfolio and safeguarding of future competitiveness The acquisition of two breeding companies and the ma- jority stake in a production and distribution company in Brazil was a key element of our investment strategy last fiscal year and will allow us to expand our corn business to tropical cultivation regions. We also made investments in the expansion of our corn seed production capacities in Argentina and purchased new breeding areas for our potato business in the Netherlands in the year under re- view. In fiscal 2011/2012, the KWS Group invested a total of €111.5 (49.3) million, of which around €61.1 million was spent on acquiring the Brazilian companies. Investments again exceeded depreciation and amortization, which amounted to €28.4 (27.6) million. Of the total investments by the KWS Group, 13.4% went to Germany, 18.6% to the rest of Europe, 67.7% to North and South America and 0.3% to other countries. Just over two-thirds were invested in the Corn Segment and some 20% in the Sugarbeet Segment. 22 Management Report I KWS Group I 23 Company‘s growth backed by solid financing Total assets increased in fiscal 2011/2012 by €190.3 million to €1,092.3 (902.0) million. Equity increased by €72.8 mil- lion. The main factors in this were the 29.5% increase in net income for the year to €94.4 million and currency translation effects of €18.8 million that are not recognized in the income statement. However, the inclusion of our Brazilian activities led to a reduction of €25.7 million, which is likewise not rec- ognized in the income statement. The KWS Group still has solid financing, with an equity ratio of 55.2% (58.8%). Net working capital rose to €197.4 (177.7) thousand despite the company’s significant growth last fiscal year. Totaling €449.1 (397.2) million, inventories and trade receiv- ables accounted for around 41.1% (44.0%) of total assets. On the balance sheet date, cash and cash equivalents were €183.0 (146.9) million and, after deduction of financial bor- rowings, net liquidity was €107.9 (113.3) million. Equity rose to €603.1 (530.3) million and, as in the previous year, fully covered noncurrent assets and inventories. Debt capital increased by €117.5 million to €489.2 (371.7) million, above all as a result of the increase in short-term borrowings and short-term and long-term provisions. This increase in noncurrent liabilities includes €44.1 million due to our in- vestments in the Brazilian corn market. Distribution of value added (around 31% of the total output) Minority interest 1% Company 22% Shareholders 6% Public sector 13% Lenders 2% Value added €327.5 million Employees 56% Higher cash earnings improve cash flow from operating activities The KWS Group’s cash earnings increased to €117.8 (104.1) million in the year under review. The cash flow from oper- ating activities was €104.2 (101.2) million on the back of an increase in receivables and inventories and higher short- term provisions. €56.6 (52.4) million were used for investments. €9.0 million of this was spent on the acquisition of two Brazilian breed- ing companies. The investment in the Brazilian production and distribution company RIBER-KWS S.A. will not result in a cash outflow until the fiscal year 2012/2013. The net cash used in financing activities by the KWS Group was €19.1 (10.2) million. Single-entity financial statements of KWS SAAT AG KWS SAAT AG again benefited from its growing sugar- beet and corn business in fiscal 2011/2012 and must finance the further expansion of all its research and de- velopment activities. As part of this, Group-wide adminis- trative expenses reported in the Corporate Segment are borne at the level of KWS SAAT AG. Net income was therefore slightly down from the previous year at €11.9 (24.2) million. Aided by improved net financial income/ expense, mainly resulting from the receipt of profits from subsidiaries, net income pursuant to the accounting reg- ulations of the German Commercial Code (HGB) was €27.9 (15.9) million. With the net profit of €0.8 million carried forward from the previous year and an allocation of €10.0 million to the revenue reserves, the net retained profit was ultimately €18.7 million. Proposed appropriation of profits The Executive and Supervisory Boards will propose pay- ment of a dividend of €2.80 for each of the 6,600,000 shares to the Annual Shareholders’ Meeting, an increase of 21.7% over the previous year’s €2.30. This reflects the continuation of our earnings-oriented dividend policy in fis- cal 2011/2012. The KWS Group’s operating income rose by 20.8% to €140.9 (116.6) million in the year under review. This reflects KWS’ good success in the market. Net income for the year increased by 29.5% to €94.4 (72.9) million due to the lower tax rate for the Group, which resulted from tax income from other periods and higher earnings in low-tax countries. A total of €18.5 (15.2) million from KWS SAAT AG’s net retained profit is thus expected to be distributed to shareholders in December 2012. Corporate We restructured our segments effective July 1, 2011. Since then, product-related expenses for breeding activities have been carried directly in the product segments and the former Breeding & Services has been disbanded. Revenue from our farms, services for third parties and net sales from strategic projects, such as our corn activities in China, will be consolidated under the remaining segment, which is now called Cor- porate. Its net sales in the year under review totaled q8.1 (6.5) million. The operating income for Corporate also includes our cross-segment expenses. That includes administrative costs for all central functions at the KWS Group, as well as costs for long-term research projects whose results are not yet ready for the market. The segment’s income in the past fiscal year was q –35.7 (–27.4) million. This above all reflects the further intensification of our research activities. Focused crop breeding work is KWS’ core competence. And a key indicator of our innovativeness is the official sales approvals for our new varieties. Breeding progress means enhanced crop performance and higher yields for farmers. In fiscal 2011/2012, KWS obtained 303 (296) sales approv- als for new varieties worldwide. KWS and Vilmorin: Establishment of the joint venture GENECTIVE In 2011, KWS founded the joint venture GENECTIvE together with the French breeding company Vilmorin. The shared objective is to establish our own technology platform for producing genetically modified varietal traits in corn. The cooperation will focus initially on further developing resis- tance to herbicides and insects. These standard charac- teristics – also termed gatekeeper traits – will be added to later. In North America, applications for approval to grow corn crops with a new herbicide resistance and to use them for food and feed have already been submitted to the authorities. The approvals are expected to be granted by 2014. Alongside this, applications for their use in food and feed in the main export markets are being prepared. If the development work continues to proceed success- fully, we expect to market corn hybrids with combined herbicide and insect resistance as of 2019. Marketing approval from new varieties 120 109 274 35 10 119 117 35 25 296 129 111 49 14 303 2009/2010 2010/2011 2011/2012 Sugarbeet Corn Cereals Others Total 24 Management Report I KWS Group I Corporate I 25 Innovation in sugarbeet: Development of an alternative herbicide concept Together with Bayer CropScience, KWS has developed a herbicide concept for conventional sugarbeet cultivation. This herbicide tolerance is based on a very rarely occurring natural change in the sugarbeet’s genetic makeup. Out of 1.5 billion individual cells, a sugarbeet cell was identified as having tolerance against herbicides from the class of ALS inhibitors. Tolerant sugarbeet plants were created from this individual cell using in-vitro multiplication. While KWS pushes ahead with developing the tolerant varieties, Bayer CropScience is conducting the process for registering the relevant herbicide in all European target markets. Pinpoint- ed use of molecular markers helps to significantly speed up the breeding process, with the result that initial varieties will be able to be launched in the market in the medium term. Plant phenotyping has made enormous progress. There is, for example, the rapid development of sensor technologies to enable automated, more robust and precise assessment of plant traits in the lab, greenhouse and field using high- throughput processes. Many of a plant’s traits can be de- termined using non-invasive methods, in which the plant is not destroyed. The technologies comprise, for instance, radar sensor systems, hyperspectral image analyses and fluorescence measurements. For many years now, KWS has invested in the development of its own techniques to assess plant traits. The near-infrared spectroscopy (NIRS) analysis method, in which light is measured in the near-in- frared range, is already used as standard in determining the constituents of KWS’ crops. Installed on special har- vesting machines, the NIRS technology makes it possible to determine sugar content while harvesting the trial plots, for example. The importance of phenotyping in plant breeding Phenotyping, one of the key competencies in plant breed- ing, covers the precise assessment of traits of the individual plants in the field to their analysis at the molecular level in the lab. Launched in 2009, the research project “CropSense.net” aims to further develop quantitative and qualitative analysis methods for traits in crops. KWS is involved in the “Sug- arbeet” subproject of this initiative, which is sponsored by One of the most important tasks at our lab for biotechnology and breeding is the molecular analysis of plants’ constituents. Expansion of sunflower breeding in Southeastern Europe In the past year we broadened the basis for an efficient breeding program by establishing a breeding team in Boly in Southwestern Hungary. Construction of a new, state-of- the-art breeding station is to begin before the end of 2012. This is to complement the existing corn breeding station in Eastern Hungary. Establishment of the infrastructure was accompanied in the past three years by development of the breeding material. The first tests on new hybrids from the program are scheduled for the summer of 2014. the German Federal Ministry for Education and Research and is supported by institutional research facilities and business enterprises. Expansion of the corn breeding program in China In line with the growing importance of high-performance hy- brids in commercial corn cultivation in China, KWS also ex- panded its breeding program there in the past year, doubling its testing capacities and increasing the number of individu- al trial regions. KWS varieties are now undergoing approval tests in all major cultivation regions, with the exception of the tropics. Consequently, the focus in the coming year will be on expanding testing capacities through greater mecha- nization of sowing and harvesting and a further increase in the accuracy of testing by training new employees. We have also begun establishing a team to produce basic seed and experimental hybrids. Plant breeding is high tech combined with a fine touch. 26 Management Report I Corporate I 27 ›› The genetic pool is what counts. In cell biology, we regenerate complete plants from individual cells or pieces of tissue and select them according to their traits. The genotypes characterized in this way then form the basis of our breeding programs. Clemens Springmann, Head of Cell Service, KWS SAAT AG ‹‹ Corn Segment The Corn Segment’s dynamic growth continued without interruption in the year under review. We were again able to build on our position in the highly competitive corn seed business, thanks to our portfolio of high-performance varieties and the availability of sufficient seed. The foundation for this success was our customer-centric, regionally differentiated distribution systems. Net sales in the Corn Segment rose by 19.7% to €571.5 (477.5) million in the year under review. Operating income increased by 22.3% to €77.8 (63.6) million. The segment’s profitability therefore remains at a gratifyingly high level of 13.6% (EBIT margin). The high prices for agricultural raw materials worldwide induced many farmers to use quality seed only and further expand the cultivation area for grain corn. Farmers also grew more corn in Germany, especially as this was the best alternative following the regional failure of the winter wheat harvest. That resulted overall in unex- pectedly high demand for seed in the spring 2012 sowing season, which more than compensated for the increase in selling and development costs. The segment’s income was improved by the reversal of allowances set up in previous years for receivables, in particular from Eastern Europe. We also made advances in breeding. In the coming year, we will be able to market 111 (119) new corn varieties in 27 countries and 12 (25) new rapeseed and sunflower varieties in six countries. The markets High prices for corn for consumption caused an increase in cultivation area in the U.S. by some 2 million hectares to 39 million, the largest figure since 1937. Seed compa- nies were nevertheless able to satisfy the high demand, despite the fact that the multiplication conditions in the summer of 2011 had resulted in a significantly lower pro- duction volume. Seed inventories at the end of the 2012 season are now well below the long-term average. Thanks to good product performance and sufficient availability of important varieties, AGRELIANT – our North American joint venture with the French breeding company Vilmorin – was able to grow its market share further in the highly com- petitive U.S. corn market. In the past fiscal year, AGRELIANT also made significant investments aimed at further expanding its market posi- tion. All production sites are now able to make seed using the new “refuge in the bag” system, which makes it easier for our customers to implement resistance management as prescribed by law. Seed with genetically engineered resis- tance to insects is mixed with a proportion of seed without this resistance so as to ensure sustained and long-term ef- fectiveness against insect pests. Start of construction of a seed production and logistics center in Iowa is scheduled for the coming fiscal year to enable AGRELIANT to increase its own seed processing capacities. Corn Segment sales in millions of € 108.7 304.7 123.6 353.9 413.4 477.5 132.5 439.0 571.5 Domestic sales Foreign sales Total sales 30 2009/2010 2010/2011 2011/2012 Corn is a true photosynthetic powerhouse. As a result, it grows up to 10 cm a day in early summer. There was a sharp increase in cultivation area in some regions of Europe. This was attributable to the reduced sowing of winter cereals due to weather conditions (e.g. in Romania), as well as damage by frost, which resulted in winter cereals and rapeseed having to be plowed un- der in Ukraine, Poland and partly in Germany. Total corn cultivation area in Europe rose by around 10% to just over 22 million hectares. In Europe, KWS recorded increases in sales volumes above the general rate of market growth and thus further expand- ed its market share. The company posted above-average growth in sales volumes in France, Central and Eastern Eu- rope and Southeastern Europe. We were also able to not only defend, but even grow our market position in Germany and Northern Europe, where KWS traditionally has the larg- est market share. In these regions, biogas produced from corn is an efficient source of alternative energy; all the same, of the 2.7 million hectares on which corn is cultivated in Ger- many, just 810,000 are used for growing corn for energy. That is around 7% of the country’s arable land. However, this figure is perceived to be far higher by policymakers and the general public. Our oil seed and protein crops accounted for 11.0% (12.0%) of the segment’s net sales. This figure is accounted for mainly by winter and summer rapeseed and sunflowers in Europe and by soybeans in North America. The largest rapeseed markets in Europe are France and Germany, while sunflowers are cultivated mainly in Russia and Ukraine. The most important market for soybeans is the U.S. Soy- bean is the major supplier of vegetable protein in global feed production. Around 35 million tons of (predominantly genetically modified) soybean meal are imported to Europe every year. One major challenge is seed traceability. In this regard, we have taken a large step toward rolling out a new bar- code system throughout the Group. The goal is to make it easier to identify and locate every seed unit – from mul- tiplication, seed processing and the stages of marketing, right to the individual farmer. Management Report I Corn Segment I 31 Sugarbeet Segment Our seed potato business was consolidated fully in the Sugarbeet Segment for the first time in fiscal 2011/2012. Net sales in the segment surpassed the q300 million mark for the first time. This was mainly due to our North American business, which now contributes more than 30% to the segment’s net sales. Our success there is based on our genetically improved sugarbeet varieties. The segment’s sales were €313.4 (293.6) million, a rise of 6.7%. Its income rose above-proportionately by 21.2% to €79.9 (65.9) million. Apart from large contribution mar- gins – in particular from North America – reversals of allow- ances for receivables also had a positive impact on the segment’s income. As announced in last year’s Annual Report, a new struc- ture was also introduced within the segments of the KWS Group. As a result, research and development expenditure on sugarbeets and potatoes is now charged directly to this segment. However, there are no longer any internal royalty payments by the product segments to the former Breeding & Services Segment. In addition, the Sugarbeet Segment now also obtains value added from herbicide tolerance technology in North America. We continue to increase our R&D expenditures, a strategy that is paying off. In 2012, KWS obtained 129 (117) sales approvals for new varieties in 27 countries. In addition, two potato varieties bred by KWS were given approval for the first time. The regions The Sugarbeet Segment accounted for €280.6 (266.9) mil- lion of total net sales. The main growth regions in the past fiscal year were North America and Eastern Europe. Net sales in the EU 27 were €126.2 (131.8) million, not quite at the level of the previous year. However, net sugarbeet sales outside the EU increased considerably to €154.4 (135.1) million. Total cultivation area fell by approximately 50,000 hectares to just over 4.7 million since, as stated in the last Annual Report, some farmers had decided to switch crops due to the high prices for cereals. KWS was able to grow its net sales again in North Amer- ica. Despite the fact that legal action relating to the ap- proval of Roundup Ready® sugarbeet was still ongoing at the beginning of the sowing season, farmers in North America decided in favor of this technology on 97% of the cultivation area for the crop. Moreover, net sales in North America were positively impacted by exchange rate movements. Sugarbeet Segment sales in millions of € 43.9 249.7 46.6 266.8 293.6 313.4 38.7 208.7 247.4 Domestic sales Foreign sales Total sales * including potato sales 2009/2010 2010/2011* 2011/2012* We were also able to expand our market position in East- ern Europe significantly. Despite subsidization of locally produced seed in Russia, KWS managed to increase sales volumes and net sales year on year by linking up with a new distribution partner. Sales in Ukraine were grown by 50%, albeit from a relatively low base. Net sales in Germany also rose slightly, while we suffered losses in market share in France as a result of unfavorable variety performance. We were not quite able to maintain the extremely high mar- ket share in Northern Europe that we achieved in fiscal 2010/2011. In Southern Europe, however, we significantly expanded our market share, despite a further decline in cultivation area. Another positive aspect is the trend in China, where net sales soared again. By contrast, net sales declined in Tur- key, since many dealers still had large stocks of seed from the previous year. The key to success – even in small sugarbeets – is how they develop when young. The sooner the leaves are fully developed, the sooner sugar can be stored in the roots, and the better the yield. Seed potatoes The very good potato harvest in 2011 led to an excess sup- ply of ware potatoes throughout Europe. Consequently, con- sumer prices fell to an extremely low level, causing far lower demand for certified seed. Low prices and quantities that could not be sold, above all in Central and Eastern Europe, strained KWS’ potato business. However, sales of seed po- tato varieties for use in making French fries or chips had a stabilizing effect. Prices in this segment are less volatile and sales quantities are agreed to over a period of several years. We therefore plan to expand this segment gradually. Following the complete acquisition of the shares in the for- mer joint venture in fiscal 2010/2011, KWS POTATO B.v. faced extensive consolidation and integration activities. We also began to establish our own potato breeding station at Emmeloord in the Netherlands. The infrastructure required for successful product development will be created there over an area of 96 hectares; completion is scheduled for June 2013. Net sales in our seed potato business totaled €32.8 million. In the previous year, the joint venture net sales of €41.2 million. 32 Management Report I Sugarbeet Segment I 33 Cereals Segment KWS’ cereals business, which is bundled in the KWS LOCHOW Group, posted record sales and income in fiscal 2011/2012. This was due in part to positive price trends for cereals for consumption on the com- modity futures exchanges but also to the fact that KWS LOCHOW successfully established QualityPlus® in Germany, a brand that sets a new standard of quality for cereal seed. We recorded our biggest increase in net sales – just over 25% – for our hybrid rye varieties, since rye is now being used more and more fre- quently as feed. Net sales in the Cereals Segment totaled €93.3 (77.8) million, a rise of 19.9%. The segment also posted better income than anticipated in the course of the year. On the back of a fur- ther expansion of our breeding and distribution activities, in- come at June 30, 2012, rose by 30.3% to €18.9 (14.5) million. Apart from good direct business with hybrid rye, there was also an increase in our wheat and barley business, which is mainly license-based. Rye is still the main contributor to net sales in the Cereals Segment, accounting for around 50% of the total figure, followed by wheat, barley and rapeseed. The segment’s EBIT margin increased to 20.3% (18.6%). In the past year, KWS LOCHOW again invested a large 20% of its net sales in the national and international devel- opment of cereal varieties. It also undertook great efforts in strategic projects aimed at increasing its long-term com- petitiveness, in particular a new wheat breeding program in the U.S., where all the preparations to establish KWS’ first cereal breeding station of its own – in the Champaign, Illinois, region – were made in the year under review. Another ex- ample that should be mentioned is our special breeding program for winter malting barley, in which KWS is already the market leader. We are conducting a trend-setting proj- ect for adapting our hybrid rye varieties to the continental weather conditions of Eastern Europe. The objective is to tap additional market potential there in the medium term. In Cen- tral and Western Europe, our varieties demonstrated their excellent winter hardiness in the severe conditions of the last winter. KWS was awarded 49 (35) sales approvals for new varieties in 13 countries in the Cereals Segment and can look to the future with optimism. The regions Sales volumes of certified cereals seed in Germany fell by around 3% year on year to below 505,000 tons due to low- er availability as a result of the weather. Nevertheless, KWS LOCHOW was able to increase its net sales in its home market by some 13% and thus to expand its market share. The QualityPlus® concept launched to coincide with the 2011 sowing season was implemented successfully. QualityPlus® is the new quality brand for cereal seed from KWS LOCHOW. It exceeds the already high quality requirements demanded Cereals Segment sales in millions of € 45.9 39.5 36.1 33.9 70.0 38.3 77.8 47.4 93.3 The quality of winter barley is shown in severe winters like 2011/2012. Our top varieties produced good results and survived the periods of black frost well. by law. With this initiative, KWS LOCHOW is clearly under- scoring its commitment to higher seed quality in the Ger- man market. The goal is to ensure greater production re- liability and improve the competitiveness of cereal farmers. Hybrid rye sales volumes in Poland more than doubled due to the very good market climate compared with the pre- vious year, with higher prices being paid in some cases for rye for consumption than for wheat. There was particularly high demand for the ergot-tolerant Pollen Plus varieties from KWS LOCHOW. The ergot is a fungus that grows on the ears of rye and, because of its toxicity, must not be allowed to enter the food chain. KWS LOCHOW also grew its net sales in its other impor- tant markets of the UK, France and Denmark. Our market share for wheat seed in the UK increased to 45%. Domestic sales Foreign sales Total sales 34 2009/2010 2010/2011 2011/2012 Management Report I Cereals Segment I 35 ›› The sun rises in the east. I’m delighted that the friendly brand with the sun shining on the fields is also gaining in importance in my country. Xu Ning, office assistant, KWS Representative office Beijing, China‹‹ Outlook for the fiscal year 2012/2013 Employees The KWS Group will likely continue its path of operational growth in fiscal 2012/2013. However, special Deep and well-developed roots give a plant a solid footing and enable it to flourish. The positive inter- factors like those that had an extremely positive impact in the previous year are not anticipated. Once again, working of all elements generates sustainable growth and yield. This image can also be applied to KWS’ we see growth potential for our corn business, in particular in North America, Brazil and China. We intend workforce. The roots of a family business and the culture shaped by them are vital to KWS’ sustainable to maintain our sugarbeet business at its high level and expand seed potato business after a year that growth as a company and the development of every single employee. was impacted by tough market conditions. The prospects for cereals look good as a result of the positive price situation in agricultural raw material markets. Consequently, sales opportunities have probably not deteriorated over the previous year. Overall, we expect to be able to increase the KWS Group’s net sales by up to 10%. As always, this forecast is pred- icated on the performance of our varieties, which again demonstrated our innovativeness in official approval tests in 2012. Consequently, we intend to increase expenditure on product development by around €10 million in the cur- rent year. At the same time, we plan to significantly expand our distribution and production activities, especially in North and South America. After the particularly high return on sales of 14.3% in fiscal 2011/2012, we aim to increase the RoS in the KWS Group by just over 11% in the current year, despite the cost increases. That is a level which, excluding special factors, accords with our general objective of achiev- ing a double-digit EBIT margin. We again expect a double-digit increase in net sales in the Corn Segment in fiscal 2012/2013. This will be help- ed for the first time by net sales from our new production and distribution activities in Brazil. In addition, we assign- ed our China operations to the Corn Segment effective July 1, 2012. In its establishment phase, the activities in this strategic project were initially assigned to the Corpo- rate Segment. We plan to increase sales volumes in all regions apart from our home market of Germany, where we intend to secure our leading position in the market. Due to considerable additional research & development expenditure and expansion of our production and distri- bution structure, we expect the segment’s income to fall by just over 10% in fiscal 2012/2013. An EBIT margin of over 10% is still planned. There are signs that the sugarbeet cultivation area in the EU 27 will decline as a result of the large harvests in pre- vious years. However, we see growth potential in Eastern Europe and the Middle East. On July 19, 2012, the United States Department of Agriculture (USDA) decided to again permit cultivation of Roundup Ready® sugarbeet – which are herbicide-tolerant varieties – without conditions and with immediate effect. We therefore expect no further re- strictions in our North American business. We plan to slightly expand the volume of our seed potato business. This is subject to the proviso that potato prices will recover this year, which the market data currently in- dicates to be the case. For the Sugarbeet Segment as a whole, we expect net sales at the level of the previous year, with revenue for sugarbeet falling slightly and that for seed potatoes rising. The segment’s income will be some 15% down year on year following cost increases in product devel- opment, distribution and production and the fact that there will be no special effects. Hybrid rye sales volumes are crucial to how the Cereals Seg- ment develops, since they contribute approximately 50% to its net sales. On the basis of good prices for cereals for con- sumption, we assume that our hybrid rye business will grow in the 2012 fall sowing season, particularly in Poland. Culti- vation areas for wheat, barley and rapeseed should remain stable or increase slightly this year. We expect the segment’s income to be slightly weaker on the back of a slight increase in net sales and higher costs for breeding and distribution. The results of a survey of KWS’ employees confirm that this creates a positive climate at the company and satisfied em- ployees: A Company Climate Monitor was again conducted in the spring of 2012. It asks all colleagues in Germany about their current level of satisfaction at the company and their personal outlook at KWS and has been carried out every two years since 2006. The very good result of the last survey was even surpassed slightly this time around. There was again a high and constant participation rate of 72%, with 82% stating that they are satisfied with their cur- rent situation at KWS and 78% saying that they optimistic about their prospects at KWS. That is a very good showing, especially given the significant reshaping measures of the past two years. In addition, cross-unit areas were identified in which further work can improve personnel leadership. Growing internationality and complexity The internationally and regionally operating Service Centers were established with the goal of offering extensive and ex- pert service for the segments in all areas of administration. At the same time, internationalization of the regional centers has created new challenges for KWS: Closer networking, working in international teams and the cross-border use of communications technology and media are now common- place in many areas of KWS’ work. The Human Resources (HR) department has established a personnel development environment to offer suitable measures for the KWS Group at the local level and internationally. Trainee Program, Breeders Academy and dual course of study Our proven Trainee Program was optimized further and expanded. The KWS Breeders Academy is running suc- cessfully and arouses great interest among university graduates. Dual courses of study are firm components 38 Management Report I Outlook I Employees I 39 Trained at KWS – that not only means looking happily upward, but also at good career prospects. of our recruitment and development activities. In the mean- time, there is now a practical partnership with Anhalt Uni- versity of Applied Sciences in the field of biotechnology/plant biotechnology, with Dresden vocational Training Academy in the Agricultural Management course of studies, and with the Department of Computer Science at the Business University of Applied Sciences in Hanover. Interns KWS has offered internships in research and development since 2011, in particular to students of biology, biotech- nology, biochemistry or related disciplines. Young people studying for their bachelor’s or master’s degree are thus given the opportunity to work at KWS alongside their uni- versity education. The tasks vary greatly, depending on the project and the needs and interests of the students – from creation of dossiers to work in the field of cell biology. The students thus have the chance to gain practical experience in the industry during their study (at reasonable pay) and so perhaps forge initial contacts with their future employer. Training KWS trained 91 (89) young people in seven vocations in Germany in fiscal 2011/2012. The high quality of training is ensured by around 120 instructors at KWS. 36 young Crossing plants is and will always be manual work demanding the very greatest care. colleagues successfully completed their training at KWS in the year under review. 21 of the 25 current business administration trainees have decided to gain extra qualification as a “European business administrator,” which prepares them specifically for work- ing in an international company. Through internships at KWS subsidiaries, they can also gather valuable interna- tional experience. Germany Scholarships Since the 2011 Winter Semester, KWS has awarded five Germany Scholarships at the University of Göttingen. This assistance was extended for the 2011/2012 Summer Se- mester due to the positive experience. This national schol- arship program was set up to support talented and high- performing students at universities in Germany, regardless of their or their family’s income. Beneficiaries obtain a scholarship of €300 a month, of which €150 is funded by the government and €150 by private donors. KWS made the conscious decision to cooperate with the University of Göttingen so as to specifically encourage young talents in the field of agricultural sciences in KWS’ region. Younior Professional Program The YOUnior Professional Program, which aims to develop junior staffers in an interdisciplinary way, also continues to run at the international level. In accordance with the spec- ifications of top management, the participants formulate con- cepts on the internal positioning of a unit and on the sub- ject of the “Workplace of the Future.” The project’s results have been taken up by managers, discussed and put on the agenda for implementation of further measures. Developing HR issues in dialogue Establishment of HR functions at the Service Centers gives us proximity to our internal customers all over the world. As a result, local needs can be ascertained better and translat- ed into tailored services. Networking between international HR managers was enabled and intensified with the creation of an HR Circle. HR managers from around the world meet in this body to ensure a common strategy, discuss challeng- es in HR work, harmonize processes and share notes on exemplary projects. Further regular discussion forums with managers were created to jointly promote innovations in the field of human resources and drive their implementation. That ensures that HR measures are aligned with needs and precisely fit those needs. Employees in numbers The KWS Group employed 3,851 (3,560) people worldwide in fiscal 2011/2012. Personnel expenses at the KWS Group rose by 10.6% to €182.5 (165.0) million. Average workforce growth over the last 5 years (by regions) 2007/08 2011/12 Ø Growth Germany 1,260 1,589 6% p.a. Europe (excluding Germany) America Rest of the world 670 872 54 1,061 1,106 95 Total 2,856 3,851 12% p.a. 6% p.a. 15% p.a. 8% p.a. Committed, open and listening – we go together with KWS. KWS Group employees by functions Administration 14% Production 19% Research & development 41% Sales & marketing 26% 40 Management Report I Employees I 41 ›› We make sure that progress in yield really makes it to the field. We control our seed processing operations with the help of 700 parameters and sort out rigorously: At the end, just about a fifth of the original quantity of seed is left over – and almost all of it germinates! Helmut Böttcher, sugarbeet production – seed processing, KWS SAAT AG ‹‹ Risks for future development KWS’ strategic objective is to strengthen and build on its leading market position as an earnings-oriented seed com- pany. To achieve that, we have to systematically identify po- tential risks for the company as a whole as well as for its in- dividual parts, assess their extent and, if necessary, initiate measures to eliminate them. To enable systematic handling of these risks, we have set up an internal control system and an extensive risk management system. Identifying business opportunities and pursuing them In principle, we look at risk and opportunity management separately. A separate reporting system documents and supports monitoring of the risks. By contrast, the recording and communication of opportunities are integral compo- nents of the established controlling system between the subsidiaries, associated companies and company’s man- agement. Management of the segments is responsible for identifying, analyzing and implementing operational oppor- tunities. Targeted measures are formulated together with the Executive Board so that strengths can be leveraged and strategic growth potentials tapped. As part of this, we use extensive strategic planning covering a 10-year time frame. Internal control and risk management system with re- gard to the accounting process The internal accounting control and risk management sys- tem for the financial statements of KWS SAAT AG and the KWS Group comprises all the measures, structures and processes designed to make sure that all business events and transactions are included in accounting promptly, consistently and correctly. It ensures compliance with the statutory standards, accounting regulations and internal accounting control policies that are binding on all consoli- dated companies. The system also consists of principles, procedures and controls to reveal irregularities. There are also policies for accounting and reporting, a standardized IT system and a uniform chart of accounts. Among other things, we regularly examine the complete- ness of financial reporting, the Group’s uniform account- ing, measurement and account allocation stipulations, the authorization and access regulations for IT systems used in accounting, and proper, complete elimination of intra- Group transactions as part of consolidation. The effective- ness of the controls is assessed by means of regular tests using random samples. They form the basis for assessing whether our controls are adequate and effective. The results are documented and communicated internally. Identified weaknesses are eliminated promptly. The Executive Board and the Audit Committee of the Supervisory Board are in- formed regularly of the risk situation, the results of the con- trols and the effectiveness of the risk management system and all its control functions. The risk management system means advantages for corporate controlling An approach based on our corporate culture is also chosen in risk management. At KWS, such an approach is founded on trust in its employees and on the long experience that shows that they act responsibly toward themselves, their colleagues and the company as a whole. The culture of trust practiced by our employees is underpinned by rules of con- duct, training and control measures, enabling our employ- ees to assess risks on their own. The Corporate Finance – Treasury and Risk Management department is in charge of central risk management at the KWS Group and is sup- ported by the Corporate Law & Compliance, Corporate Re- sponsibility Affairs and Corporate Controlling departments: Structure of risk management at the KWS Group Corporate Finance: Corporate Controlling: Corporate Responsibility Affairs: Corporate law & Compliance: • Risk control matrix • Early detection of risks • Rules & Guidelines • Compliance training • Planning/budget • Management system • Policies • Current expectation • Internal audits • Data protection • Minimum requirements • Interest and currency management • Insurance • External audits 44 The risk management system is based on strategic plan- ning and investment controlling, continuous operational controlling and the quality and process monitoring systems. External auditing by experienced auditors is conducted at KWS and is a key component of risk management in ensuring that internal controls work. The internal control system also includes documentation and central coordi- nation of the individual risks and associated controls. Several audits are held each year, covering processes in the organizational units. The Executive Board is respon- sible for the risk management system, which meets legal requirements by ensuring that all significant risks are sys- tematically identified every year, examined, assessed as to the likelihood of their occurrence and potential impact, documented, controlled and monitored. The risk management process at KWS The objective of the risk management process is to identify, analyze, assess and efficiently monitor significant risks. This process is intended to ensure constant control and thus to support a decision-making process based on information. More than 100 key risks and ways of controlling them are described in the system implemented at KWS. They are as- sessed with their “individual likelihood of occurrence” and “potential level of damage.” Their significance is evaluated on the basis of their effect on operating income (EBIT) or spe- cific qualitative indicators. The individual risks or process sections are assigned to employees who conduct controls and employees responsible for controls. In addition, manual and automated controls are set up for the identified risks. The employees who conduct controls and are responsible for them use these workflows to report to the risk man- ager on the controls and their results. If individual points in the rules and regulations are not complied with, this is registered and the situation is documented. Strategic risks We press ahead constantly with the Group’s strategic fur- ther development. That comprises continuous optimization of efficiency, strengthening our core areas, product portfolio management and investment in research and development. The success of the related decisions is subject to a risk as regards forecasting future (market) developments and the assumption that the envisaged measures can be achieved. For example, entry into or withdrawal from a business segment might be based on profit and growth expectations that turn out to be unrealistic. We counter that risk by pre- paring the information of relevance to decision-making in a careful and structured manner. Significant individual risks KWS is subject to the usual economic and political risks in the countries in which it and its subsidiaries operate. In ad- dition, the risks described below may lastingly impair KWS’ net sales, financial position and performance. They are re- ported on regularly in a Risk Committee. overview of significant risks Risk Examples Market risks Production risks Procurement risks liquidity risks legal risks Environmental risks Personnel risks • Political risks • Sales volumes and prices • Macroeconomic risks • Currency risks • Risk of changes in interest rates • Weather-related risks • Outage of production systems • Quality risks • Investment risks • Dependence on suppliers • Diversification • Access to technologies • Cash/cash flow • Credit lines (with banks) • Receivables management • Antitrust risks • Mergers & takeovers • Corruption • Patents and licenses • Pollution of the air, soil and water by dusts, waste water and dangerous waste • Transport of hazardous goods • Genetic contamination • Recruitment/development • Work safety • Working time/old-age pensions IT risks • IT security • Authorization concept Management Report I Risks I 45 Market risks In the strongly regulated agricultural industry, political risks have a significant impact on our business development. The lack of statutory regulations may also represent a risk. One unavoidable risk for our corn business is still the possibility of the adventitious presence of genetically modified organ- isms (GMOs) in conventional seed. In the absence of a standardized legal threshold value, a number of European countries practice a policy of zero tolerance. That means that the sale of seed can be stopped and already sown areas ordered to be plowed up – even on the basis of un- verifiable measurement results. There is no tolerance limit, and second examinations are not permitted. Thanks to its extensive quality assurance system, only one suspicious seed sample from KWS was identified in international offi- cial tests in fiscal 2011/2012. Production 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 stemming from bad weather by distributing seed multiplication over various locations in Europe and North America. Contra-seasonal multiplication is carried out in the winter half-year in Chile and Argentina if there are bottlenecks in seed availability. KWS counters the risks of outages of production facilities with regular maintenance and Group-wide business inter- ruption insurance. In addition, our products are subjected to regular and extensive quality checks on the fields used for multiplication and during processing so as to reduce quali- ty-related risks. In this way, KWS ensures the high quality of its products through stringent internal quality standards and monitoring. A further risk lies in the uncertain regulatory framework for growing energy plants. False allocation of funding, including that as a part of government market incentive programs, and speculation on the agricultural commodity markets have meant that this sector of agricultural production as a whole is currently being called into question. Criticism of the production of energy from plants peaked for the first time in 2008. At that time, the cultivation of plants for energy was also blamed for the in some cases significant increase in food prices, before there was a sudden drop in the prices of agricultural raw materials as of July 2008 in the wake of the incipient economic and financial crisis. What is clearly needed here is a careful analysis of what form of cultiva- tion of energy plants represents an economically sensible and sustainable alternative form of producing energy. This must take into account increases in efficiency in energy plant cultivation and the fact that the prices for fossil fuels will tend to rise. The medium-term sales risk depends on product perfor- mance and the competitive situation. KWS addresses this challenge with systematic analyses of the market and the competition and by constantly developing higher-quality seed for innovative, high-yielding plants. The risk of interest rate changes and currency risks are addressed through the usual standardized hedging instru- ments, which in turn do not have an incalculable influence on KWS’ earnings and assets situation. We refer to the notes to the consolidated financial statements on page 72f for information on the related sensitivity analyses. Procurement risks Procurement risks are minimized by international diversifica- tion of seed production locations and sufficient stockpiling. Moreover, supply risks as a result of sources no longer being able to deliver are reduced by means of continuous classifi- cation and observation of risks. In addition, the entire area of purchasing is currently being improved by the restructuring and creation of the Corporate Procurement department so that supplies are ensured and further risks reduced. liquidity risks KWS addresses liquidity risks with professional cash man- agement, sufficient long-term, syndicated credit lines – full use of which was not made in the year under review – and a high equity ratio, which currently stands at 55.2%. Our loan agreements include financial covenants, compliance with which has been ensured at all times to date. KWS uses ex- tensive trade credit insurance to minimize the risk of losing receivables in risky regions and business segments. To en- able this, KWS pursues an active receivables management policy so that impending payment defaults can be identified at an early stage. legal risks In order to rule out potential risks from any violations of the diverse tax, environmental and competition regulations and laws, we obligate all employees to abide by our compli- ance policies. The Code of Business Ethics states that all KWS employees must act in accordance with KWS’ cor- porate values and comply with the law, contracts and the company’s own rules. Plant breeding means minimizing risks and strengthening innovation. We live from continuous progress in the yields of our new varieties. Environmental risks The Integrated Management System and environmental policies, which employees are obligated to implement un- der our internal regulations, in conjunction with the require- ments defined by environmental protection law, form the foundation for all our strategic and operational measures in protecting the environment. The organization of processes and operation of plants and systems, including documen- tation, in the various areas of the company is regulated in the management system, which complies with the DIN EN ISO 9001:2008 (quality) and DIN EN ISO 14001:2004 (en- vironment) standards. The working order and effectiveness of this system is examined regularly by internal audits and reviews and confirmed by an external certifier. As a result, possible risks of pollution of the air, soil and water by dusts, waste water and hazardous waste are minimized. Personnel risks Our success is founded on the individual skills and knowl- edge of our employees. We encourage the workforce to ex- pand and transfer knowledge through attractive continuing education and development programs. We counter the risk of losing knowledge when people retire by means of inten- sive and subject-specific qualification. In addition to our spe- cific vocational training and trainee programs, we initiated the “Breeders Academy” with the aim of training young people specifically in the field of research and breeding. IT risks We address IT risks, such as unauthorized access to sensi- tive electronic company data and information as a result of hacking or computer viruses, with an IT security organiza- tion, IT security policies and the use of state-of-the-art fire- wall and antivirus programs. Due to the rapid pace of tech- nological development, there is a residual risk to IT security which cannot be completely controlled. other risks KWS counters the risk of a decline in cultivation areas for agricultural products with its efforts to win market share and grow sales in other markets or with new products. A wide- ranging product portfolio contributes to the commercially useful diversification of risks. overall statement on the risk situation The overall risk situation for KWS SAAT AG stems from the above-described risks. There was no significant change in the risk situation in fiscal 2011/2012 compared with the previ- ous year. The main risks for us are still related to products and the market. Overall, the KWS Group’s risk management sys- tems did not reveal any risks that jeopardized the company’s existence in the year under review. However, we cannot rule out the possibility that further factors of which we are not currently aware or which we do not at present assess as sig- nificant may impact our continued existence in the future. 46 Management Report I Risks I 47 Disclosures in accordance with Section 315 (4) HGB (German Commercial Code) Annual Financial Statements of the KWS Group 2011/2012 The Executive Board provides the following explanations of the information in accordance with Section 315 (4) HGB (German Commercial Code) in the Group Manage- ment Report: • The voting shares, including mutual allocations, of the shareholders stated below each exceed 10% and total 13.8%. 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 the right to cast one vote at the Annual Shareholders’ Meeting. 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 the 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 and companies of the families Büchting, Arend Oetker and Giesecke listed below each exceed 10% and total 56.1%. Dr. Dr. h.c. mult. Andreas J. Büchting, Germany Christiane Stratmann, Germany Dorothea Schuppert, Germany Michael C.-E. Büchting, Germany Annette Büchting, Germany Stephan O. Büchting-Hansing, Germany Elke Giesecke, Germany Christa Nagel, Germany Bodo Sohnemann, Germany Matthias Sohnemann, Germany Malte Sohnemann, Germany Arne Sohnemann, Germany AKB Stiftung, Hanover Zukunftsstiftung Jugend, Umwelt und Kultur, Einbeck Büchting Beteiligungsgesellschaft mbH, Hanover Dr. Arend Oetker, Germany Kommanditgesellschaft Dr. Arend Oetker vermögens- verwaltungsgesellschaft mbH & Co., Berlin 48 Hans-Joachim Tessner, Germany Tessner Beteiligungs GmbH, Goslar Tessner Holding KG, Goslar 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 interest 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 ap- pointed and removed as provided for in Section 84 AktG; analogously to Section 84 AktG; the company’s Articles of Association also stipulate that members of the Executive Board are appointed by the Supervisory Board. In compli- ance with Section 18 of the Articles of Association of KWS SAAT AG, changes to the Articles of Association require a resolution to be adopted by the Annual Shareholders’ Meeting by a simple majority of the votes cast, unless oblig- atory statutory regulations specify otherwise. The power to make amendments to the Articles of Association that only af- fect the wording (Section 179 (1) Sentence 2 AktG), has been conferred on the Supervisory Board in accordance with Section 22 of the Articles of Association of KWS SAAT AG. The Executive Board is not now authorized to issue or buy back shares. Significant agreements subject to the condition of a change in control pursuant to a takeover bid have not been conclud- ed. The compensation agreements between the company and members of the Executive Board and governing the case of a change in control stipulate that any such compen- sation will be limited to the applicable maximum amounts specified by the German Corporate Governance Code. Einbeck, October 1, 2012 KWS SAAT AG THE EXECUTIvE BOARD 50 51 52 54 56 57 59 62 84 Balance sheet Statement of comprehensive income Statement of changes in fixed assets Statement of changes in equity Cash flow statement Notes to the cash flow statement Segment reporting Notes Auditors’ Report Balance sheet of the KWS Group at June 30, 2012, figures in € thou- sands, unless other- wise specified ASSETS Intangible assets Property, plant and equipment Financial assets Noncurrent tax assets Deferred tax assets Noncurrent assets Inventories and biological assets Trade receivables Securities Cash and cash equivalents Current tax assets Other current assets 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 liabilities Other liabilities Current liabilities Note no. 06/30/2012 Previous year (2) (3) (4) (5) (6) (7) (8) (9) (10) (8) (8) 111,725 59,656 261,457 226,315 5,037 6,093 4,101 5,144 25,970 29,147 410,282 324,363 139,694 128,998 309,422 268,209 40,399 36,621 142,569 110,278 25,957 23,993 14,322 19,173 682,034 577,601 1,092,316 901,964 19,800 19,800 5,530 5,530 553,258 483,925 24,508 21,006 (11) 603,096 530,261 92,287 23,033 1,914 63,028 19,421 2,308 36,043 24,657 8,207 9,311 (12) 161,484 118,725 133,984 107,396 52,119 74,073 24,053 43,507 14,205 69,349 25,513 36,515 (13) 327,736 252,978 Liabilities 489,220 371,703 Total equity and liabilities 1,092,316 901,964 Statement of comprehensive income from July 1, 2011, through June 30, 2012; figures in € thousands, unless otherwise specified I. Income statement Net sales Cost of sale Gross profit on sale Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Interest and similar income Interest and other expenses Net income from equity investments Net financial income/expenses Results of ordinary activities Income taxes Net income for the year ll. Other comprehensive income Note no. 06/30/2012 Previous year (18) 986,296 855,375 521,343 433,365 464,953 422,010 (19) (20) 161,355 138,501 126,571 113,539 59,494 62,637 39,316 59,997 43,755 37,091 140,854 116,637 2,261 7,409 7 1,719 8,598 – 95 (21) – 5,141 – 6,974 135,713 109,663 41,317 36,741 94,396 72,922 (22) (24) Financial instruments Currency translation difference for economically independent foreign units Other comprehensive income after tax lll. Comprehensive income Comprehensive income Share of other minority interests Comprehensive income after shares of minority interests Net income for the year Shares of other minority interests Net income after shares of other minority interests Earnings per share (in €) 1 80 18,760 – 22,845 18,761 – 22,765 113,157 50,157 2,960 110,197 2,541 47,616 94,396 72,922 2,752 2,669 91,644 70,253 13,89 10,64 50 Annual Financial Statements I Balance sheet I Income statement I 51 Statement of changes in fixed assets of the KWS Group 2011/2012 and 2010/2011 Figures in € thousands, unless otherwise specified Currency translation Changes in the consol. group Additions Write-ups Disposals Transfers Gross values Currency translation Changes in the consol. group Additions Write-ups Disposals Transfers Amortization/depreciation Net book values Balance 07/01/2011 Balance 06/30/2012 Balance 06/30/2012 Previous year Balance 07/01/2011 Patents, industrial property rights and software Goodwill Intangible assets 52,747 29,623 82,370 292 27,445 2,341 1,452 1,744 25,830 53,275 2 2,343 Land and buildings 207,439 4,607 4,051 17,850 Technical equipment and machinery Operating and office equip- ment Payments on account 155,732 2,948 2,633 10,062 68,528 7,043 1,777 250 739 165 8,593 10,949 47,454 Property, plant and equipment 438,742 9,582 7,588 Balance 06/30/2012 11 0 11 82,622 56,907 139,529 214 0 214 15,984 6,730 22,714 166 60 226 1 0 1 5,076 0 5,076 616 4,140 237,471 63,431 1,660 –5 6,340 4,705 3,563 170,233 101,260 2,472 –119 10,113 5,939 1,893 93 –9,607 75,591 8,707 11,353 –11 492,002 47,736 1,400 0 0 –50 0 6,847 0 212,427 5,532 –174 23,300 0 0 0 0 0 0 0 0 214 0 214 562 1 0 1 0 21,014 6,790 61,608 50,117 27,804 111,725 36,763 22,893 59,656 70,864 166,607 144,008 4,363 10 109,373 60,860 54,472 5,614 0 10,539 –11 0 –1 50,308 0 25,283 8,707 20,792 7,043 230,545 261,457 226,315 Financial assets 4,268 –5 279 610 12 278 317 5,203 167 –1 0 0 0 0 Assets 525,380 11,321 61,142 50,407 12 11,845 317 636,734 235,308 5,757 –173 28,376 0 10,753 Balance 07/01/2010 Balance 06/30/2011 Balance 07/01/2011 Patents, industrial property rights and software Goodwill 40,373 –347 30,218 –1,704 9,204 1,097 4,723 12 Intangible assets 70,591 –2,051 10,301 4,735 Land and buildings 196,940 –5,703 8 9,117 1,175 0 1,175 –31 0 –31 52,747 29,623 82,370 16,472 4,503 20,975 –173 –63 –2,715 0 – 236 –2,715 1,140 0 1,140 351 7,428 207,439 59,439 –1,741 0 0 0 0 0 166 5,037 4,101 285,515 378,219 290,072 Balance 06/30/2011 Balance 06/30/2011 Previous year 15,984 6,730 22,714 36,763 22,893 59,656 23,901 25,715 49,616 Technical equipment and machinery Operating and office equip- ment Payments on account 146,517 –4,364 280 10,927 67,329 –2,453 12,169 –34 154 0 442 6,418 7,178 33,640 1,528 3,900 155,732 3,893 973 68,528 0 –12,270 7,043 5,772 31 438,742 Property, plant and equipment 422,955 –12,554 202,364 –6,493 132 21,631 Financial assets 5,054 0 32 112 Assets 498,600 –14,605 10,775 38,487 160 –770 4,268 67 0 0 100 7,107 –770 525,380 223,406 –6,729 –2,583 27,561 3,540 2,290 5,830 5,921 9,466 6,244 0 2 75 55 0 96,148 –3,008 46,777 –1,744 0 0 0 0 0 0 0 0 0 0 0 187 –3 63,431 144,008 137,501 1,424 3,596 0 5,207 0 6,347 3 0 0 0 0 0 101,260 54,472 50,369 47,736 0 20,792 7,043 20,552 12,169 212,427 226,315 220,591 167 4,101 4,987 235,308 290,072 275,194 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 52 Annual Financial Statements I Statement of changes in fixed assets I 53 Statement of changes in equity Figures in € thousands, unless otherwise specified Subscribed capital Capital reserve Accumulated group equity from earnings Adjustments from currency translation Revaluation reserve Other transactions Equity Minority interests Adjustments from currency translation Other transactions Equity Parent company Parent company Comprehensive other group income Minority interest Comprehensive other group income Group equity 19,800 5,530 445,617 2,575 63 594 474,179 19,132 –360 –4 18,768 492,947 –12,540 70,253 –22,717 70,253 –22,717 80 80 –12,540 70,253 –22,637 –549 246 2,669 47,616 2,669 –128 –128 –549 246 2,669 –128 2,541 –13,089 246 72,922 –22,765 50,157 19,800 5,530 503,330 –20,142 143 594 509,255 21,498 –488 –4 21,006 530,261 –15,180 –25,684 91,644 18,552 91,644 18,552 1 1 –15,180 –25,684 91,644 18,553 110,197 –476 1,018 2,752 2,752 208 208 –476 1,018 2,752 208 2,960 –15,656 –24,666 94,396 18,761 113,157 19,800 5,530 554,110 –1,590 144 594 578,588 24,792 –280 –4 24,508 603,096 Balance as at June 30, 2010 Dividends paid Changes in the consolidated group Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Balance as at June 30, 2011 Dividends paid Changes in the consolidated group Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Balance as at June 30, 2012 54 Annual Financial Statements I Statement of changes in equity I 55 Cash flow statement Figures in € thousands, unless otherwise specified Notes to the cash flow statement Figures in € thousands, unless otherwise specified; previous-year figures in parentheses Net income for the year 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 financing activities Increase/decrease (–) in trade payables and other liabilities not attributable to investing or financing activities Net cash from operating activities Proceeds from disposals of property, plant and equipment Payments (–) for capital expenditure on property, plant and equipment Proceeds from disposals of intangible assets Payments (–) for capital expenditure on intangible assets Proceeds from disposals of financial assets Payments (–) for capital expenditure on financial assets Payments (–) for purchase of shares in consolidated subsidiaries and other business units Net cash from investing activities Dividend payments (–) to shareholders parent and minority Cash proceeds from issuance of bonds and from short- or long-term borrowings Net cash from financing activities Net cash changes in cash and cash equivalents 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 Note 2011/12 Prev. year 94,396 28,364 1,471 –6,399 72,922 27,561 1,776 1,867 117,832 104,126 22,776 –528 –213 –293 –34,588 –16,649 –1,331 14,242 (A) 104,161 101,213 1,343 859 –46,213 –33,661 0 35 –2,343 –4,735 278 –610 931 –113 –9,033 –15,670 (B) –56,578 –52,354 –15,656 –13,089 –3,420 2,852 (C) –19,076 –10,237 28,507 38,622 7,562 –5,393 146,899 113,670 (D) 182,968 146,899 The cash flow 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 financing 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 flows from operating activities The cash proceeds from operating activities are substan- tially determined by cash earnings. They were €117,832 thousand, €13,706 thousand higher than the previous year. The proportion of cash earnings included in sales was 11.9% (12.2%). Higher receivables and inventories and the increase in current provisions resulted in cash outflows of €13,671 thousand (€2,913 thousand). The cash proceeds from operating activities also include interest income of €2,158 thousand (€1,686 thousand) and dividend income of €7 thousand (€5 thousand) as well as interest expense of €3,398 thousand (€4,960 thousand). €0 thousand (€769 thousand) was paid out for the external financing of pension commitments. Income tax payments amounted to €33,817 thousand (€35,057 thousand). (B) Cash flows from investing activities A net total of €56,578 thousand (€52,354 thousand) was re- quired to finance investing activities. An amount of €48,556 thousand (€38,396 thousand) was paid for intangible and tan- gible assets and an amount of €610 thousand (€113 thousand) for financial assets. There were total cash receipts of €1,621 thousand (€1,825 thousand) for disposals of assets. €9,033 thousand (15,670 thousand) was paid to acquire shares in con- solidated companies. (C) Cash flows from financing activities Financing activities resulted in cash payments of €19,076 thousand (€10,237 thousand). The dividend payments to par- ent shareholders and other shareholders related to the divi- dends of €15,180 thousand (€12,540 thousand) paid to the shareholders of KWS SAAT AG, as well as profit distributions paid to other shareholders at fully consolidated subsidiaries of €476 thousand (€549 thousand). In addition, borrowings of €3,420 thousand were paid, compared with the € –2,852 raised in the previous year. (D) Supplementary information on the cash flow statement As in previous years, cash and cash equivalents are com- posed of cash (on hand and balances with banks) and cur- rent available-for-sale securities. Cash and cash equivalents include €55,452 thousand (€36,541 thousand) from par- tially consolidated companies. Disclosures on the acquisition and sale of companies and other business units Total for all purchase prices Total for all sales prices Total for purchase price components that are cash and cash equivalents Total for sales price components that are cash and cash equivalents Total cash and cash equivalents acquired with the companies Total cash and cash equivalents sold with the companies 2011/12 Previous year 32,002 16,500 0 0 32,002 16,500 0 45 0 0 830 0 56 Annual Financial Statements I Cash flow statement I Notes to the cash flow statement I 57 Amounts of other assets and liabilities acquired or sold with the companies Fixed assets Current assets incl. prepaid expenses (excl. cash and cash equivalents) Provisions Liabilities incl. deferred income 2011/12 Previous year Acquired 35,498 16,150 5,218 38,816 Sold Acquired Sold 0 0 0 0 12,214 10,120 42 10,906 0 0 0 0 All the shares in the Brazilian breeding companies DELTA PESqUISA E SEMENTES LDTA., Cambé, and SEMILIA GENETICA E MELHORAMENTO LDTA., Curitiba, were ac- quired effective June 1, 2012, and a 50% stake in the pro- duction and distribution company RIBER KWS S.A., Patos de Minas, effective June 30, 2012. These breeding and production companies expand our product portfolio and enable us to enter the Brazilian corn market. Apart from acquired goodwill of €25,801 thousand, particularly the customer base, brand names and other in- tangible assets also had to be recognized. Intangible assets Property, plant and equipment Financial assets Inventories Trade receivables Other assets Total assets Other provisions Financial borrowings Trade payables Deferred taxes Total liabilities 2011/12 27,436 7,873 188 4,451 9,254 2,491 51,693 1,950 6,800 25,755 9,529 44,034 Because of the seasonal course of our business, there were no significant sales in the year under review after the time of acquisition. The acquired receivables were carried at their fair value of €6,789 thousand. Minority interests in equity rose by €1,284 thousand as a result of the acquisition. The provisions include €320 thou- sand for obligations under an earn-out clause. Segment reporting Figures in € thousands, unless otherwise specified; previous-year figures in parentheses In accordance with its internal reporting system, the KWS Group is primarily organized according to the follow- ing business segments: • Sugarbeet • Corn • Cereals • Corporate A core competency for the KWS Group’s entire product range, plant breeding, including the related biotechnology research, is largely concentrated at the parent company KWS SAAT AG in Einbeck. All breeding material, as well as the relevant information and expertise about how to use it, is owned by KWS SAAT AG with respect to sugar- beet and corn and by KWS LOCHOW GMBH with respect to cereals. Since the beginning of this fiscal year, product- related R&D costs have been carried directly in the prod- uct segments Sugarbeet, Corn and Cereals. Centrally controlled, Group-wide corporate functions are grouped in the Corporate Segment. The previous year’s figures have been adjusted accordingly, with the result that there is higher income for the previous year of €23,743 thou- sand at the Sugarbeet product segment, €1,636 thou- sand at Corn and €128 thousand at Cereals, while €25,507 thousand was charged to the Corporate Seg- ment. Because of their minor importance within the KWS Group, the distribution and production of oil and field seed are reported in the Cereals and Corn Segments, in keeping with the legal entities involved. Description of segments Sugarbeet The results of the multiplication, processing and distri- bution activities for sugarbeet seed, as well as our seed potato business, are reported under the Sugarbeet Seg- ment. Under the leadership of KWS SAAT AG, 18 (20) foreign subsidiaries and affiliated companies and two (one) subsidiaries in Germany are active in this segment. Corn KWS MAIS GMBH is the lead company for the Corn Segment. In addition to KWS MAIS GMBH, business activities are conducted by one German company (as in the previous year) and 16 (13) 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 field seed. Cereals The lead company of this segment, which essentially deals with the production and distribution of hybrid rye, wheat and barley, as well as oil and field seed, is KWS LOCHOW GMBH, an 81% – owned subsidiary of KWS SAAT AG, with its eight (eight) foreign subsidiaries and affiliated companies in France, Great Britain, the U.S. and Poland. Corporate Apart from revenue from our farms and services for third parties, net sales from strategic projects, such as our corn activities in China, are reported in this segment. The seg- ment also assumes the costs of all central functions and expenses for long-term research projects that have not yet reached market maturity. It also includes all management services of KWS SAAT AG, such as holding company and administrative func- tions, that are not directly charged to the product seg- ments or indirectly allocated to them by means of an ap- propriate cost formula. 58 Annual Financial Statements I Notes to the cash flow statement I Segment reporting I 59 Segment information Segment sales contains both sales from third parties (ex- ternal sales) and sales between the segments (intersegment sales). The prices for intersegment sales are determined on an arm’s-length basis. Uniform royalty rates per segment for breeding genetics are used as the basis. Technology revenue from genetically modified properties (“tech fees”) are paid as a per-unit royalty on the basis of the number of units sold, due to their growing competitive importance. Sugarbeet Corn Cereals Corporate KWS Group 2011/12 Previous year 2011/12 Previous year 2011/12 Previous year Segment sales Internal sales External sales 313,692 293,565 571,765 477,609 95,095 15,998 79,537 18,546 264 290 1,840 7,860 996,550 869,257 10,254 0 49 1,775 12,058 13,882 313,428 571,475 93,255 8,138 293,565 477,560 77,762 6,488 986,296 855,375 The Corporate Segment generates 49.1% (65.0%) of its sales from the other segments. The sales of this segment repre- sents 0.8% (0.8%) of the Group’s external sales. External sales by region The Corn Segment is the largest contributor of external sales, accounting for 57.9% (55.8%) of external sales, followed by Sugarbeet with 31.8% (34.3%) and Cereals with 9.5% (9.1%). 62.8% (64.8%) of total sales are recorded in Europe (including Germany). Germany Europe (excluding Germany) 390,720 343,376 Americas Rest of world KWS Group 325,633 265,064 41,615 36,075 986,296 855,375 2011/12 Previous year 228,328 210,860 Sugarbeet Corn Cereals Corporate Total segments 2011/12 Previous year 2011/12 Previous year 2011/12 Previous year Segment earnings Depreciation and amortization Other noncash items 79,891 77,764 18,941 –35,742 140,854 65,882 63,639 14,465 –27,349 116,637 9,345 8,449 3,489 7,093 9,334 8,441 3,489 6,197 –7,323 –10,637 650 3,713 2,646 –11,743 –372 3,925 28,376 27,461 –13,597 –5,544 The operating income of each segment is reported as the segment result. The segment results are presented on a consolidated basis and include all directly attributable income and expenses. Items that are not directly attributable are al- located to the segments by means of an appropriate formula. Depreciation and amortization charges of €28,376 thou- sand (€27,461 thousand) allocated to the segments relate exclusively to intangible assets and property, plant and equipment. No goodwill had to be amortized in the seg- ments this fiscal year. Sugarbeet Corn Cereals Corporate Total segments Others KWS Group 2011/12 Previous year 2011/12 Previous year Operating assets Operating liabilities 242,404 426,729 60,796 92,241 822,170 270,146 1,092,316 217,879 313,596 59,210 93,635 684,320 217,644 901,964 54,437 157,527 14,341 74,278 300,583 188,637 489,220 59,882 126,721 15,675 35,751 238,029 133,674 371,703 The other noncash items recognized in the income state- ment relate to noncash changes in the allowances on in- ventories and receivables, and in provisions. Investments in long-term assets by segment The operating assets of the segments are composed of in- tangible assets, property, plant and equipment, inventories and all receivables, other assets, and prepaid expenses that can be charged directly to the segments or indirectly allo- cated to them by means of an appropriate formula. Sugarbeet Corn Cereals Corporate KWS Group 2011/12 20,327 77,379 6,987 5,967 110,660 Previous year 17,755 12,522 7,991 10,850 49,118 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 in- crease 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 cannot be charged directly to the segments or indirectly allocated to them by means of an appropriate formula. Borrowings are added to operating liabilities only when they exceed the available cash. Assets or liabilities that have not been allo- cated to the segments are reported as “Others.” Capital expenditure on assets was mainly attributable to the Corn Segment, where it amounted to €77,379 thousand (€12,522 thousand), and the Sugarbeet Segment, where it amounted to €20,327 thousand (€17,755 thousand). 68% (14%) of the capital spending was made in North and South America and 19% (46%) in Europe (excluding Germany). Investments in long-term assets by region 2011/12 14,793 20,553 74,978 336 Previous year 19,579 22,609 6,796 134 110,660 49,118 Germany Europe (excluding Germany) North and South America Rest of world KWS Group Operating assets by region Germany 2011/12 Previous year 233,428 324,993 Europe (excluding Germany) 270,374 208,748 North and South America 297,765 185,240 Rest of world KWS Group 20,602 15,747 822,169 734,728 60 Annual Financial Statements I Segment reporting I 61 Notes for the KWS Group 2011/2012 Figures in € thousands, unless otherwise specified; previous-year figures in parentheses The KWS Group (KWS Konzern) is a consolidated group as defined 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 reg- ulations to be applied pursuant to section 315 a (1) of the HGB (German Commercial Code). The consolidated finan- cial statements discharge the obligations of KWS LOCHOW GMBH, Bergen, and KWS MAIS GMBH, Einbeck, to produce their own financial statements. The following standards and interpretations have already been published, but have not yet been applied: Amendments to IAS 1, 12, 19, 24, 27, 28, 32, 34, IFRS 1, 7, 9, 10, 11, 12, 13, and the Improve- ment Project 2009–2011. To the extent that these relate to supplementary disclosure obligations, there will be no effects on the balance sheet or statement of comprehen- sive income. The possible effects of the other changes are currently being examined. 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 financial statements of the KWS Group include the single-entity financial 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 financial position and performance of the Group are not included. Consolidation methods The single-entity financial statements of the individual sub- sidiaries and joint ventures included in the consolidated financial statements were uniformly prepared on the basis of the accounting and measurement methods applied at KWS SAAT AG; they were audited by independent auditors. For fully or proportionately consolidated units acquired be- fore July 1, 2003, the Group exercised the option allowed by IFRS 1 to maintain the consolidation procedures chosen to date. The goodwill reported in the HGB financial 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 consoli- dation follows the purchase method 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 first-time consolidation is recognized un- der intangible assets. According to IAS 36, goodwill is not amortized, but tested for impairment at least once a year (impairment-only approach). Investments in non-consolidat- ed companies are carried at cost. 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 as- sociated companies measured at equity only if such rec- ognition is considered material for the fair presentation of the financial 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 profits not realized at Group level are eliminated from in- tra-Group transactions. Sales, income and expenses are netted between consolidated companies, and intra-Group distributions of profit 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 aggre- gated with the deferred taxes recognized in the separate financial statements. Minority interests are recognized in the amount of the im- puted percentage of equity in the consolidated companies. lives are recognized according to IAS 36. Goodwill with an indefinite useful life is not amortized, but tested for impairment at least once a year. The procedure for the impairment test is explained in the notes to the balance sheet. Intangible assets acquired as part of business combinations are carried separately from goodwill if they are separable according to the definition in IAS 38 or result from a contractual or legal right, and fair value can be reliably measured. Straight-line amortization of these separated intangible assets is applied over their individual useful life. Property, plant and equipment Property, plant and equipment is measured at cost less straight-line depreciation. A loss is recognized for an impair- ment expected to be permanent. In addition to directly attri- butable costs, the cost of self-produced plant or equipment also includes a proportion of the overheads and depreci- ation/amortization. Depreciation of buildings is based on a useful life of up to 50 years. The useful lives of technical equipment and machinery range from five to 15 years, and for operating and office equipment from three to ten 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 fixed assets. Im- pairment losses on property, plant and equipment are rec- ognized according to IAS 36 whenever the recoverable amount of the assets is less than its carrying amount. The recoverable amount is the higher of the asset’s net realiz- able value and its value in use (value of future cash flows expected to be derived from the asset). In accordance with IAS 20, government grants are deducted from the costs of the asset. Any deferred income is not recognized. Currency translation Under IAS 21, the financial statements of the consolidated foreign subsidiaries and joint ventures that conduct their business as financially, economically, and organizationally independent entities are translated into euros using the func- tional 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 aver- age rates to the net profit for the period in the income statement is taken directly to equity. Exchange differences resulting from loans to foreign subsidiaries and joint ven- tures are reported in the other result and are not recognized in profit or loss. Classification of the statement of comprehensive income The costs for the functions include all directly attributable costs, including other taxes. Research and development expenses are reported separately for reasons of transpar- ency. Research grants are not deducted from the costs to which they relate, but reported gross under other oper- ating income. Accounting policies Consistency of accounting policies The accounting policies are largely unchanged from the previ- ous 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 twenty years. Impairment losses on intangible assets with finite useful 62 Annual Financial Statements I Notes I 63 Financial instruments Financial instruments are in particular financial assets and financial liabilities. The financial assets consist pri- marily of bank balances and cash on hand, trade recei- vables, other receivables, and securities. The credit risk mainly comprises trade receivables. The amount reco- gnized in the balance sheet is net of allowances for re- ceivables expected to be uncollectible, estimated on the basis of historical patterns and the current economic environment. The credit risk on cash and derivative financial instruments is limited because they are kept with banks that have been given a good credit rating by international rating agencies. There is no significant con- centration 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 respective carrying amount. Comments on the risk management system can be found in the Management Report. Investments are measured at cost. Assets available for sale are carried at market value if that 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. Borrowings are carried at amortized cost. Derivative instruments are carried at market values in ac- cordance with IAS 39 and may have a positive or negative value. This relates essentially to common derivative financial instruments that are used to hedge interest rate and foreign currency risks. In particular, the derivative financial instru- ments are measured using recognized mathematical mod- els, such as present value or Black-Scholes, to calculate option values, taking their volatility, remaining maturity, and capital market interest rates into account. The fair value of financial instruments is determined on the basis of the market information available on the balance sheet date and in accordance with the recognized mea- surement methods and must be assigned to a level in the fair value hierarchy. Financial instruments in level 1 are measured using quoted pri- ces in active markets for identical assets or liabilities. In level 2, they are measured by directly observable market inputs or derived indirectly on the basis of prices for similar instruments. Finally, input factors not based on observable market data are used to calculate the value of level 3 financial instruments. Subsequent measurement of the financial instruments de- pends on their classification in one of the following catego- ries defined in IAS 39: The other noncurrent financial assets are essentially avail- able 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, fixed-income securities and cash is assumed as the fair value due to their short term and the fixed-interest structure of the investments. The financial liabilities comprise in particular trade payables, borrowings and other liabilities. The fair value of financial liabilities with a long-term fixed in- terest rate is determined as present values of the payments related to the liabilities, using a yield curve applicable on the balance sheet date. Loans and receivables This category mainly comprises trade receivables, other receivables, loans and cash, including fixed-income short- term securities. Loans are measured at cost. Loans that carry no interest or only low interest are measured at their present value. Discernible risks are taken into account by recognition of an impairment loss. After their initial recogni- tion, the other financial assets in this category are measured at amortized cost using the effective interest method, minus impairments. Receivables that carry no interest or only low interest and with a term of more than twelve months are discounted. 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 category. Derivate financial instruments with a positive market value are also categorized as held for trading, unless they are designated hedging instruments in accordance with IAS 39. They are measured at fair value. Changes in value are rec- ognized in income. Securities are derecognized after being sold on the settlement date. Available-for-sale financial assets This category covers all financial assets that have not been assigned to one of the above categories. In principle, secu- rities are classed as available for sale unless a different clas- sification is required due to the fact that they have an explicit purpose. Equity instruments, such as shares in (unconsoli- dated) affiliated companies and shares held in listed compa- nies, are also included in this category. In principle, financial instruments in this category are measured at their fair value in subsequent 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 recognized as profit or loss until they are disposed of. If there is objective evidence of permanent impairment on the balance sheet date, the in- struments are written down to the lower value. Any subse- quent decreases in the impairment loss are recognized di- rectly in equity. Financial liabilities measured at amortized cost All financial liabilities, with the exception of derivative finan- cial 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 financial instruments that have a negative market value and are categorized in prin- ciple as held for trading. They are measured at fair value. Changes in value are recognized in income. Derivatives that are designated hedging instruments in accordance with IAS 39 are excluded from this provision. Securities are generally classified as available for sale, which is why changes in their fair values that require reporting are taken directly to equity. If securities are carried at their fair value and have to be recognized in income, changes to the fair values are direct included in the net income for the period. 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 attribut- able 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 pro- ceeds, less costs to sell. The measurement procedure used is based on standard industry value tables. 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 benefits Under IAS 19, obligations from direct pension commitments are measured using actuarial principles under the accrued benefit valuation method. Gains or losses from unplanned changes in accrued benefits and from changes in actuarial assumptions are disregarded if the change moves within a 10% corridor of the accrued benefits. Only if the gains or losses exceed this threshold will they 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. 64 Annual Financial Statements I Notes I 65 Contingent liabilities The contingent liabilities result from debt obligations where outflow of the resource is not probable or from obligations for loan amounts drawn down by third parties as of the balance sheet date. Borrowing costs In accordance with IAS 23, borrowing costs are capitalized if they can be classified as qualifying assets. Discretionary decisions and estimates The measurement approaches and amounts to be car- ried in these IFRS financial statements are partly based on estimates and specifically defined specifications. This relates in particular to: • Determination of the useful life of the depreciable asset • Definition of measurement assumptions and future results in connection with impairment tests, above all for goodwill that is carried • Determination of the net selling price for inventories • Definition of the parameters required for measuring pension provisions • Selection of parameters for the model-based measure- ment of derivatives • Determination whether tax losses carried forward can be used • Determination of the fair value of intangible assets, tan- gible assets and liabilities acquired as part of a business combination and determination of the service lives of the purchased intangible assets and tangible assets • Measurement of other provisions Consolidated group and changes in the consolidated group Number of companies including KWS SAAT AG Domestic Foreign Total Domestic Foreign Total 06/30/2012 Previous year Consolidated Consolidated at quota Total 13 0 13 43 7 50 56 7 63 12 0 12 41 7 48 53 7 60 The companies are listed under item number (31). BETASEED GMBH, Frankfurt, was established effective October 1, 2011. In addition, the newly founded KWS SEMENTES BRASIL PARTICIPACOES LDTA., São Paulo/ Brazil, and KWS BRASIL PARTICIPACOES LDTA., São Paulo/ Brazil, acquired all the shares in DELTA PESqUISA E SEMENTES LDTA., Cambé/Brazil, and SEMILIA GENETICA E MELHORAMENTO LDTA., Curitiba/Brazil, effective June 1, 2012. A 50% stake in the likewise fully consolidated RIBER KWS S.A., Patos de Minas/Brazil, was also acquired effec- tive June 30, 2012. A total of 56 companies were fully consolidated and seven proportionately consolidated in the year under review. The financial position and results of operations of the seven (seven) proportionately consolidated companies are as follows: 2011/12 Previous year Proportionately consolidated companies 36,997 31,812 139,434 109,417 176,431 141,229 99,557 78,066 824 881 76,050 62,282 Noncurrent assets Current assets Total assets Equity Noncurrent liabilities Current liabilities Total equity and liabilities 176,431 141,229 Total income Total expenses 238,494 195,689 217,857 176,930 Net profit for the year 20,637 18,759 Notes to the Balance sheet Figures in € thousands, unless otherwise specified; previous-year figures in parentheses (1) Assets The statement of changes in fixed assets contains a break- down of assets summarized in the balance sheet and shows how they changed in 2011/2012. Capital expenditure on assets was €111,549 thousand (€49,262 thousand), of which €61,142 thousand resulted largely from first-time con- solidation of the Brazilian corn operations. The Management Report describes the significant additions to assets. Depre- ciation and amortization amounted to €28,376 thousand (€27,561 thousand). (2) Intangible assets This item includes purchased varieties, rights to varieties and distribution rights, software licenses for electronic data processing, and goodwill. Additions amounting to €55,618 thousand (€15,036 thousand), of which €53,275 thousand (€10,301 thousand) resulted from the changes in the consoli- dated group, comprise the acquisition of software licenses and patents, as well as goodwill to be recognized. Amortization of intangible assets amounted to €5,076 thousand (€5,830 thousand); this charge is included in the relevant functional costs and the other operating expenses, depending on the operational use of the intangible assets. realizable value and its value in use (value of future cash flows expected to be derived from the entity). In principle, the impair- ment test uses the expected future cash flows 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 assumptions on which corporate planning is based include assumptions about price trends for seed, in addition to the development of market shares and the regulatory framework. Company- internal projections take the assumptions of industry-specific market analyses and company-related growth perspectives into account. A standard discount rate of 5.4% (6.4%) has been assumed 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 inflation rate. Tests provided evidence that the goodwill recognized in the consolidated balance sheet and determined for the cash-gen- erating units is not impaired. The goodwill recognized as an asset relates mainly to the Bra- zilian companies RIBER KWS S.A. – €21,686 thousand (€0 thousand), SEMILIA GENETICA E MELHORAMENTO LDTA. – €2,471 thousand (€0 thousand), and DELTA PESqUISA E SEMENTES LDTA. – €1,644 thousand (€0 thousand), and to AGRELIANT GENETICS LLC. – €17,973 thousand (€16,619 thousand) – in the Corn Segment, the company KWS UK LTD. – €1,693 thousand (€1,693 thousand) – in the Cereals Segment, and KWS POTATO B.V. – €2,150 thousand (€2,150 thousand) – in the Sugarbeet 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 defined in line with internal reporting guidelines. At the KWS Group, these are generally the legal entities, with the exception of our potato unit, which as a whole is the cash-generating unit. 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 re- coverable amount of an entity is less than its carrying amount. The recoverable amount is the higher of the entity’s net (3) Property, plant and equipment Capital expenditure amounted to €55,042 thousand (€34,082 thousand) and depreciation amounted to €23,300 thousand (€21,631 thousand). €7,588 thousand (€442 thousand) of the capital expenditure on property, plant and equipment result from the changes in the consolidated group. The Manage- ment Report describes the significant capital expenditure. (4) Financial assets Investments in non-consolidated subsidiaries and shares in cooperatives and GmbHs that are of minor significance, with an amortized cost totaling €948 thousand (€768 thousand), are reported in this account since a market value cannot be reliably determined. Listed shares are carried at market value of €162 thousand (€144 thousand). This account also includ- es interest-bearing homebuilding loans to employees and other interest-bearing loans totaling €172 thousand (€396 thousand). In addition, the balance of €3,099 thousand (€2,794 thousand) after netting off reinsurance claims and the corresponding benefit obligations is carried. Amortization of financial assets amounted to €0 thousand (€100 thou- sand) and relates to the category “available for sale.” 66 Annual Financial Statements I Notes to the balance sheet I 67 (5) Noncurrent tax assets This relates to the present value of the corporate income tax credit balance, which was last determined at December 31, 2006, and has been paid in ten equal annual amounts since September 30, 2008. This credit balance was in- creased by €1,955 thousand pursuant to an external tax audit for the years 2001 to 2005 and accordingly carried as tax proceeds relating to previous periods. (6) Deferred tax assets Under IAS 12, deferred tax assets are calculated as the dif- ference between the IFRS balance sheet amount and the tax base and on the basis of loss carryforwards. They are re- ported on a gross basis and total €25,970 thousand (€29,147 thousand), of which €3,197 thousand (€2,287 thousand) will be carried forward for the future use of tax losses. (7) Inventories and biological assets Raw materials and consumables Work in process Immature biological assets Finished goods 06/30/2012 Previous year 16,761 37,043 14,313 71,577 15,091 33,223 10,293 70,391 139,694 128,998 Inventories increased by €10,696 thousand, or 8.3%, net of writedowns totaling €51,336 thousand (€55,204 thousand). Immature biological assets relate to living plants in the pro- cess of growing (before harvest). The field inventories of the previous year have been harvested in full and the fields have been newly tilled in the year under review. Public subsidies of €1,749 thousand (€1,575 thousand), for which all the requirements were met at the balance sheet date, were granted for the total area under cultivation of 4,410 (4,456) ha and were recognized in income. Future subsidies depend on the further development of European agricultural policy. (8) Current receivables Trade receivables Current tax assets Other current assets 06/30/2012 Previous year 309,422 268,209 25,957 23,993 14,322 19,173 359,372 301,704 Trade receivables amounted to €309,422 thousand, an in- crease of 15.4% over the figure of €268,209 thousand for the previous year; this amount includes €2,137 thousand (€1,294 thousand) in receivables from related parties. Written-down and overdue receivables 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 1 – 90 days 91 – 180 days 181 – 360 days > 360 days 276,231 17,686 5,678 2,584 1,135 18,908 2 0 0 0 295,139 17,688 5,678 2,584 1,135 234,532 18,669 5,745 2,824 3,095 15,392 10 0 0 0 249,924 18,679 5,745 2,824 3,095 3,890 343 4,233 1,868 343 2,211 Carrying amount 309,422 19,254 328,676 268,209 15,747 283,956 06/30/2012 Trade receivables Other receivables Previous year Trade receivables Other receivables 68 The item “Other current assets” includes prepaid expenses total-ing 4,739 thousand (€3,426 thousand) in addition to other receivables of €19,254 thousand (€15,747 thousand). The already overdue trade receivables that have been partly written down amount to €2,219 thousand (€1,478 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. The following allowances have mainly been made for possi- ble risks of non-payment of trade receivables: 07/01 Addition Disposal Reversal 06/30 2011/12 33,017 12,780 4,204 12,495 29,098 2010/11 30,004 8,721 2,456 3,252 33,017 Equity (including minority interest) increased by €72,835 thousand, from €530,261 thousand to €603,096 thousand. For details, see the statement of changes in equity. (12) Noncurrent liabilities The trade payables are due for payment in between one and five years and the due dates for the other long-term liabilities extend through 2017. Long-term provisions 92,287 63,028 06/30/2012 Previous year Long-term financial borrowings Trade payables Deferred tax liabilities Other long-term liabilities 23,033 1,914 36,043 8,207 19,421 2,308 24,657 9,311 161,484 118,725 The receivables include an amount of €79 thousand (€1,374 thousand) due after more than one year. (9) Securities Securities amounting to €40,399 thousand (€36,621 thou- sand) relate primarily to short-term liabilities securities and fund shares. (10) Cash and cash equivalents Cash of €142,569 thousand (€110,278 thousand) consists of balances with banks and cash on hand. The cash flow statement explains the change in this item compared with the previous year, together with the change in securities. (11) Equity The fully paid-up subscribed capital of KWS SAAT AG is still €19,800,000.00. The no-par bearer shares are certificated by a global certificate for 6,600,000 shares. The company does not hold any shares of its own. The pension provisions are based on defined benefit obli- gations, determined by years of service and pensionable compensation. They are measured using the accrued ben- efit method under IAS 19, on the basis of assumptions about future development. The assumptions in detail are that wages and salaries will increase by 3.00% (3.00%) an- nually and pensions by 2.00% (2.00%) annually. The discount rate was 5.10%, compared with 5.13% the year before. No income or expenses were recognized as a result of changes in retirement obligations or benefits payable or from the adjustment to assumptions. For benefit obligations toward three former members of the Executive Board and backed by a guarantee by an insurance company, the plan- ned assets of €8,599 thousand (€7,570 thousand) corre- spond to the present value of the obligation. In accordance with IAS 19, the pension provisions are netted off against the corresponding assets. Pension funds were invested in to cover foreign pension commitments. Long-term provisions 07/01/2011 Changes in the consol. group, currency Addition Consumption Reversal 06/30/2012 Pension provisions Other provisions 57,049 5,979 63,028 –3,234 1,867 –1,367 4,266 29,523 33,789 869 2,288 3,157 0 6 6 57,212 35,075 92,287 Annual Financial Statements I Notes to the balance sheet I 69 The accrued benefit is reconciled to the provisions reported in the consolidated financial statements as follows: The table below shows a breakdown of the pension costs for the defined benefit obligations: Accrued benefit entitlements at beginning of fiscal year Cost of additional benefit entitlements Interest expenses on benefit entitlements acquired in previous years Changes in consolidated group and currency Changes in actuarial gains/losses Other changes not recognized in profit or loss Pension payments Accrued benefit entitlements at end of fiscal year Present value of planned assets Planned assets carried as assets Actuarial gains/losses not included Pension provisions at the end of the fiscal year The planned assets changed as follows during the fiscal year: Present value of planned assets at the start of the fiscal year Expected gains from planned assets Changes in actuarial gains / losses Payments from external social security bodies Currency difference from foreign planned assets Present value of planned assets at the end of the fiscal year 2011/12 Previous year 80,069 83,740 916 4,842 718 15,571 1 4,826 97,291 1,371 4,435 –1,813 –3,286 344 4,722 80,069 –18,031 –16,286 3,099 –25,147 57,212 2,794 –9,528 57,049 2011/12 Previous year 16,286 16,721 1,162 214 –943 1,312 18,031 948 815 –869 –1,329 16,286 The pension obligations and planned assets have changed over time as follows: Accrued benefit entitlements on 06/30 Planned assets on 06/30 Shortage (+) / surplus (–) Empirical gains (+) / losses (–) from pension commitments Empirical gains (+) / losses (–) from planned assets 06/30/2012 06/30/2011 06/30/2010 06/30/2009 06/30/2008 97,291 18,031 79,260 80,069 16,286 63,783 2,538 91 –832 –229 83,740 16,721 67,019 990 161 71,100 12,948 58,152 68,372 13,577 54,795 201 1,042 –1,551 –1,028 Costs for additional benefit entitlements Interest expense Repayment of actuarial losses Anticipated income from the planned assets Pension costs 2011/12 Previous year 916 4,842 197 –1,161 4,794 1,371 4,435 461 –948 5,319 The pension costs are included in the functional costs with the exception of the interest expense and the anticipated income from planned assets which are reported under the net financial income/expenses. As part of the company old-age pension program for KWS SAAT AG and German subsidiaries, subsequent benefits will be provided by a provident fund backed by a guaran- tee and based on a defined contribution plan. The costs for contribution to this pension plan were €977 thousand (€769 thousand). value of the obligation of €3,514 thousand (€4,165 thou- sand) (defined contribution plan). The long-term financial borrowings include loans from banks amounting to €21,228 thousand (€19,421 thousand). They have remaining maturities through 2017. The return and income from the planned assets depend on the reinsurance policy, which yields guaranteed interest of 2.25%. For the next year, income totaling €506 thousand (€516 thousand) is expected. In addition, the benefit obligation from salary conversion was backed by a guarantee that exactly matches the present 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 €36,043 thousand (€24,657 thousand), The composition of the deferred tax liabilities is explained in more detail un- der (22) Income taxes. (13) Current liabilities Short-term provisions Current liabilities to banks Current liabilities to affiliates Other current financial liabilities Short-term borrowings Trade payables to affiliates Other trade payables Trade payables Tax liabilities Other liabilities 06/30/2012 Previous year 133,984 107,396 22,771 271 29,077 52,119 0 74,073 74,073 13,673 275 257 14,205 8 69,341 69,349 24,053 25,513 43,507 36,515 327,736 252,978 70 Annual Financial Statements I Notes to the balance sheet I 71 Short-term provisions 07/01/2011 Changes in the consol. group, currency Addition Consumption Reversal 06/30/2012 Obligations from sales transaction Obligations from purchase transaction Other obligations 79,119 11,783 95,232 82,012 5,075 99,047 8,580 19,697 107,396 135 1,465 11,615 17,038 3,061 16,113 4,048 371 13,221 21,716 13,383 123,885 101,186 9,494 133,984 The tax liabilities of €24,053 thousand (€25,513 thousand) include amounts for the year under review and the period not yet concluded by the external tax audit. (14) Derivative financial instruments Nominal volume Carrying amounts Market values 06/30/2012 Currency hedges Interest-rate hedges Commodity hedges 42,214 42,200 10,793 95,207 493 36 0 529 493 Currency hedges Interest-rate hedges Commodity hedges 36 0 529 Nominal volume Carrying amounts Market values 06/30/2011 54,593 42,800 7,233 104,626 60 85 0 145 60 85 0 145 Of the currency hedges, €112 thousand have remaining maturities of more than one year. Of the interest-rate derivatives, hedges with a nominal volume of €21,200 thousand will mature within one to five years and hedges with a nominal value of €15,000 thousand will mature in more than five years. The commodity hedges have remaining maturities of less than one year. (15) Financial instruments The table below presents the net gains/losses carried in the income statement for financial instruments in each measurement category. Available-for-sale financial assets Financial assets at fair value Loans and receivables Financial liabilities measured at amortized cost Financial liabilities at fair value 2011/12 102 68 1,190 –7,189 –4,608 Previous year –69 –17 –4,311 –4,546 4,352 The net income from financial assets includes income and expenses from the measurement of financial assets. The net gain/loss from loans and receivables mainly includes effects from changes in the allowances for impairment. The net gains/losses from financial assets at fair value and financial liabilities at fair value mainly include changes in the market value of derivative financial instruments. The net losses from financial liabilities measured at amor- tized cost mainly consist of interest expense. Interest income from financial assets that are not mea- sured at fair value and recognized in the income state- ment was €2,096 thousand (€1,719 thousand). Interest expenses for financial borrowings were €7,189 thousand (€4,546 thousand). In order to assess the risk of exchange rate changes, the sensitivity of a currency to fluctuations was determined. Af- ter the euro, the US dollar is the most important currency in the KWS Group. All other currencies are of minor importance. The average exchange rate in the fiscal year was 1.34 USD/€. If the US dollar depreciated by 10%, the financial instruments would lose 7.5% in value. If the US dollar appreciated by 10%, the financial instruments would gain 7.5% in value. The net income for the year and equity would change accordingly. In order to assess the risk of interest rate changes, the sen- sitivity of interest rates to fluctuations was determined. The average rate of interest in the fiscal year was 0.93%. A 1% increase in the rate of interest would reduce the interest result by €0.4 million; equity would change by € –0.3 mil- lion. A reduction in the rate of interest to 0 percentage points would add a further €0.6 million to the interest result. Equity would increase by €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 pri- ces, the sensitivity of commodity prices to fluctuations was determined. A 10% increase in commodity prices would in- crease the cost of sales by around €1.1 million; a decrease would reduce it by around €1.1 million. In the Management Report possible risks resulting from agree- ments regarding financial dependencies are addressed. The carrying amounts and fair values of the financial instruments are as follows: 06/30/2012 Financial assets Financial assets Trade receivables Securities Cash and cash equivalents Other current assets - Other which derivative financial instruments Loans and receivables Financial assets at fair value Available-for- sale financial assets Total carrying amount Financial instruments Fair Values Carrying amounts 1,938 309,422 40,399 142,569 23,993 (1,152) 0 309,422 40,399 142,569 22,841 (0) 0 0 0 0 1,152 (1,152) 1,152 1,938 1,938 0 0 0 0 309,422 40,399 142,569 23,993 (0) (1,152) 1,938 518,321 Total 518,321 515,231 06/30/2012 Financial liabilities Long-term borrowings Long-term trade payables Other noncurrent liabilities Short-term borrowings Short-term trade payables Other noncurrent liabilities - Other which derivative financial instruments Financial liabilities measured at amortized cost Financial liabilities at fair value Total carrying amount Financial instruments Fair Values Carrying amounts 23,033 1,914 8,207 52,119 74,073 43,507 (623) 23,033 1,914 8,207 52,119 74,073 42,884 (0) 0 0 0 0 0 623 (623) 23,033 1,914 8,207 52,119 74,073 43,507 (623) Total 202,853 202,230 623 202,853 72 Annual Financial Statements I Notes to the balance sheet I 73 Previous year Financial assets Financial assets Trade receivables Securities Cash and cash equivalents Other current assets - Other which derivative financial instruments Loans and receivables Financial assets at fair value Available-for- sale financial assets Total carrying amount Financial instruments Fair Values Carrying amounts 1,308 268,209 36,621 110,278 19,173 (1,265) 0 268,209 36,621 110,278 17,908 (0) 0 0 0 0 1,265 (1,265) 1,265 1,308 1,308 0 0 0 0 268,209 36,621 110,278 19,173 (0) (1,265) 1,308 435,589 Total 435,589 433,016 Securities classified within level 1 of the fair value hierarchy totaled €40,399 thousand at June 30, 2012. Financial as- sets held for trading (€1,152 thousand) and financial liabili- ties held for trading (€623 thousand) are categorized in level 2. There are no financial instruments in level 3. (16) Contingent liabilities As in the previous year, there are no contingent liabilities to report apart from the employer’s statutory secondary liability for direct pension commitments. (17) Other financial obligations There was a €8,283 thousand (€7,042 thousand) obligation from uncompleted capital expenditure projects. Obligations under rental agreements and leases 06/30/2012 Previous year Due within one year Due between 1 and 5 years Due after 5 years 9,329 12,849 3,628 8,456 7,913 2,446 25,806 18,815 The leases relate primarily to full-service agreements for IT equipment and fleet vehicles, which also include services, for which a total of €2,858 thousand (€2,737 thousand) was paid in the year under review. The main leasehold obligations relate to land under cultivation. Previous year Financial liabilities Long-term borrowings Long-term trade payables Other noncurrent liabilities Short-term borrowings Short-term trade payables Other noncurrent liabilities - Other which derivative financial instruments Financial liabilities measured at amortized cost Financial liabilities at fair value Total carrying amount Financial instruments Fair Values Carrying amounts 19,421 2,308 9,311 14,205 69,349 36,515 (1,120) 19,421 2,308 9,311 14,205 69,349 35,395 (0) 0 0 0 0 0 1,120 19,421 2,308 9,311 14,205 69,349 36,515 (1,120) (1,120) Total 151,109 149,989 1,120 151,109 None of the reported financial instruments will be held to maturity. 74 Annual Financial Statements I Notes to the balance sheet I 75 Notes to the income statement Figures in € thousands, unless otherwise specified; previous-year figures in parentheses Income statement for the period July 1, 2011 through June 30, 2012 Net sales Cost of sales Gross profit on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Net financial income / expenses Result of ordinary activities Income taxes Net income for the year Shares of minority interest Net income after minority interest (18) Net sales By product category Certified seed sales Royalties income Basic seed sales Services fee income Other sales By region Germany Europe America Rest of world i millions % of sales i millions % of sales 2011/12 Previous year 986.3 521.3 465.0 161.4 126.6 59.5 62.6 39.2 140.9 –5.2 135.7 41.3 94.4 2.8 91.6 100.0 52.9 47.1 16.4 12.8 6.0 6.4 4.0 14.3 –0.5 13.8 4.2 9.6 0.3 9.3 855.4 433.4 422.0 138.5 113.5 60.0 43.7 37.1 116.6 –7.0 109.6 36.7 72.9 2.6 70.3 100.0 50.7 49.3 16.2 13.3 7.0 5.1 4.3 13.6 –0.8 12.8 4.3 8.5 0.3 8.2 2011/12 Previous year 908,990 785,154 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. 41,217 13,247 4,935 17,907 38,198 13,225 4,404 14,394 986,296 855,375 228,328 210,860 390,720 343,375 325,633 265,064 41,615 36,076 986,296 855,375 The cost of sales increased by €87,978 thousand to €521,343 thousand, or 52.9% (50.7%) of sales. The total cost of goods sold was €301,209 thousand (€232,605 thousand). Allowances on inventories totaling €3,867 thousand less (previous year: €8,048 less) were required. The Sugar- beet Segment’s allowances were lower by €7,973 thou- sand (€968 thousand), while additional allowances totaling €2,666 thousand (previous year: reduction by 6,315 thou- sand) in the Corn Segment, €368 thousand (previous year: reduction by 810 thousand) in the Cereals Segment and €1,072 thousand (€45 thousand) in the Corporate Segment were required. The €22,854 thousand increase in selling expenses to €161,355 thousand is attributable to intensified market cultivation and diversification of sales channels. This is 16.4% of sales, up from 16.2% the year before. For further details of sales, see segment reporting. In the year under review, allowances for receivables of €6,722 thousand (€5,742 thousand) were recognized as an expense at the Corn Segment, €5,647 thousand (€2,816 thousand) at the Sugarbeet Segment, €411 thousand (€139 thousand) at the Cereals Segment and €0 thousand (€24 thousand) at the Corporate Segment. (21) Net financial income/expenses Interest income Interest expenses Income from securities Income from other financial assets Interest expenses from pension provisions Interest expense for other long-term provisions Interest expense for finance leasing 2011/12 2,165 3,398 1 95 Previous year 1,693 4,960 0 26 3,681 3,487 173 157 135 16 Net interest expense –5,148 –6,879 Net income from participations Write-downs of financial assets Net income from equity investments 7 0 7 5 100 –95 The net financial result increased by a total of €1,833 thousand to € –5,141 thousand. Net interest expense was € –5,148 thousand (€ –6,879 thousand), while net income from equity investments increased by €102 thousand to €7 thousand. The interest effects from pension provi- sions comprise interest expenses (compounding) and the planned income. 380 234 Net financial income/expenses –5.141 –6.974 Research and development is recognized as an ex- pense in the year it is incurred; in the year under review, this amounted to €126,571 thousand (€113,539 thou- sand the year before). Development costs for new varie- ties are not recognized as an asset because evidence of future economic benefit can only be provided after the variety has been officially certified. General and administrative expenses fell by €503 thou- sand to €59,494 thousand, representing 6.0% of sales, af- ter 7.0% the year before. (19) Other operating income Income from sales of fixed assets 576 494 2011/12 Previous year Income from the reversal of provisions Exchange rate gains and gains from currency and interest rate hedges Income from reversal of allowances on receivables Grants Income relating to previous periods Income from loss compensation received Miscellaneous other operating income 9,489 10,103 15,560 6,228 12,495 5,201 3,252 5,278 5,841 3,286 13,095 62,637 14,880 43,755 The increase in other operating income is mainly attribut- able to income from currency and interest rate hedges and income from reversal of accounts receivable for which al- lowances had been formed. (20) Other operating expenses Legal form expenses Allowances on receivables Counterparty default Exchange rate losses and losses on currency and interest rate hedges 2011/12 1,112 12,780 87 Previous year 981 8,721 908 13,021 10,950 Losses from sales of fixed assets 48 Expenses relating to previous periods Expense from remeasurement of intangible assets Other expenses 1,539 0 10,729 39,316 201 277 5,862 9,191 37,091 76 Annual Financial Statements I Notes to the income statement I 77 (22) Income taxes Income tax expense is computed as follows: Income taxes, Germany Income taxes, other countries Current expenses from income taxes Thereof from previous years Deferred taxes, Germany Deferred taxes, other countries Deferred tax income/expense Reported income tax expense 2011/12 17,010 16,248 Previous year 17,875 20,811 33,258 38,686 (631) –1,387 9,446 8,059 (–557) –426 –1,519 –1,945 41,317 36,741 Adjusted for tax relating to previous periods, KWS pays tax in Germany at a rate of 29.1%. Corporate income tax of 15.0% (15.0%) and solidarity tax of 5.5% (5.5%) are applied uniformly to distributed and retained profits. In addition, municipal trade income tax is payable on profits generated in Germany. Trade income tax is applied at a weighted average rate of 13.3% (13.3%), resulting in a to- tal tax rate of 29.1% (29.1%). The “Law on Tax Measures Accompanying Introduction of the Societas Europaea and Amending Further Tax Regu- lations” (SEStEG), which was passed at the end of 2006, means that the corporate income tax credit balance at December 31, 2006, can be realized. It will be paid out in ten equal annual amounts from 2008 to 2017. The Ger- man Group companies carried these claims as assets at their present value totaling €7,311 thousand (€5,866 thousand) at June 30, 2012. €905 thousand (€901 thou- sand) was recovered in the year under review and recog- nized directly in equity. Under German tax law, both German and foreign dividends are 95% tax exempt. The profits 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% (29.1%). For foreign Group companies, deferred tax was calculated using the tax rates applicable in the country in which they are based. In the year under review, deferred taxes of € –6,503 thou- sand (€  –4,873 thousand), mainly resulting from currency translation, were directly credited to equity, without recog- nition in profit or loss. €9,529 thousand of the deferred tax liabilities relate to our Brazilian operations. Tax loss carry- forwards of €1,026 thousand (€1,185 thousand) were re- garded as not being able to be utilized, with the result that no deferred tax assets were able to be recognized as an asset for them. The anticipated taxable profits 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 Ger- man tax rate to the profit before tax of the entire Group: 2011/12 Previous year Earnings before income taxes 135,713 109,662 Expected income tax expense*) 39,492 31,912 Difference in income tax liability outside Germany 693 2,764 (23) Personnel costs/employees Wages and salaries Social security contributions, expenses for pension plans and benefits 2011/12 Previous year 145,644 131,193 36,844 33,780 182,488 164,973 Personnel costs went up by €17,515 thousand to €182,488 thousand, an increase of 10.6%. The number of employ- ees (including trainees and interns) increased by 291 (or 8.2%) to 3,851. Compensation increased by 11.0% to €145,644 thou- sand. Social security contributions, expenses for pen- sion plans and benefits were €3,064 thousand higher than in the previous year. An amount of €11,161 thousand (€10,094 thousand) was recognized as an expense for defined contribution plans, including state pension insur- ance, in the year under review. Previous Previous 2011/12 year Change 2011/12 year Change Deferred tax assets Deferred tax liabilities Tax portion for: Tax-free income Expenses not deductible for tax purposes Temporary differences and losses for which no deferred taxes have been recognized 16,211 7,532 8,679 Tax credits –116 –229 Rest of Europe (without Germany) Employees* Germany America Rest of world Total * Annual average 2011/12 Previous year 1,589 1,061 1,106 95 3,851 1,481 982 1,020 77 3,560 5 148 167 9,618 3,983 3,916 4,432 3,197 504 3 114 2 34 3,767 –3,600 9,607 5,774 1,124 5,787 2,287 684 11 –1,791 2,792 –1,355 910 –180 13,973 13,089 972 177 3,366 1,300 38 0 6 0 231 2,543 1,181 77 0 4 884 972 –54 823 119 –39 0 2 25,970 29,147 –3,177 36,043 24,657 11,386 1,218 2,851 –44 –703 631 146 41,317 30.4 % –19 –255 –557 274 36,741 33.5 % Taxes relating to previous years Other tax effects Reported income tax expense Effective tax rate * Tax rate in Germany: 29.1% (29.1)% Other taxes, primarily real estate tax, are allocated to the relevant functions. Of the above number, 668 (634) employees are included according to the percentage of equity held in the compa- nies that employ them. 1,339 (1,269) employees are em- ployed by now seven proportionately consolidated inve- stees. If these persons are included in full, the workforce total is 4,522 (4,195). The reported number of employees is greatly influenced by seasonal labor. Deferred taxes result from the following: Intangible assets Property, plant and equipment Financial assets Inventories Current assets Noncurrent liabilities Current liabilities Tax loss carryforward Other consolidation transactions Deferred taxes recognized 78 Annual Financial Statements I Notes to the income statement I 79 (24) Net income for the year Net income for the year increased by €21,474 thousand to €94,396 thousand, representing a return on sales of 9.6%, up from 8.5% in the previous year. The net profit for the pe- riod after minority interest is €91,644 thousand, and €13.89 (€10.64) for each of the 6,600,000 shares on issue. The long-term capitalization of KWS takes the interests of share- holders, employees and other stakeholders into account, in accordance with the corporate strategy. The dividend dis- tributed is therefore geared to the earnings strength of the KWS Group in order to ensure adequate internal financing of further business expansion in the long term. The equity ratio is currently 55.2%, following 58.8% in the previous year. (25) 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 fixed com- pensation and variable compensation. The total compen- sation for members of the Supervisory Board therefore amounts to €509 thousand (€438 thousand), excluding value-added tax. €231 thousand (€160 thousand) of the total compensation is performance-related. In fiscal year 2011/2012, total Executive Board compen- sation amounted to €3,054 thousand (€2,963 thousand). Variable compensation of €2,058 thousand (€1,969 thou- sand), calculated on the basis of the net profit for the period of the KWS Group, includes compensation of €38 thou- sand (€29 thousand) for duties performed in subsidiaries. The fixed compensation includes not only the agreed sal- aries, but also non-monetary compensation granted by KWS SAAT AG. Compensation of former members of the Executive Board and their surviving dependents amounted to €1,052 thou- sand (€1,055 thousand). Pension provisions recognized for this group of persons amounted to €1,394 thousand (€1,726 thousand) as of June 30, 2012. (26) Shareholdings of members of the Supervisory Board and Executive Board (as of August 31, 2012) Dr. Arend Oetker indirectly holds a total of 1,650,010 shares and Dr. Dr. h.c. mult. Andreas J. Büchting 108,030 shares in KWS SAAT AG. All together, the members of the Super- visory Board hold 1,758,095 shares in KWS SAAT AG. All together, the members of the Executive Board hold 10,677 shares in KWS SAAT AG. (27) Audit of the annual financial statements On December 14, 2011, the Annual Shareholders’ Meeting of KWS SAAT AG elected the accounting firm Deloitte & Touche GmbH, Hanover, to be the Group’s auditors for fis- cal year 2011/2012. Fee paid to the external auditors under section 314 sentence 1 no. 9 of the HGB 2011/12 a) Audit of the consolidated financial statements b) Other certification services c) Tax consulting d) Other services Total fee paid 678 18 0 9 705 For fiscal year 2012/2013, fees for consulting services (ex- cluding auditing) of up to €50 thousand are expected. (28) Declaration of compliance with the German Cor- porate 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 Cor- poration Act) and made it accessible to its shareholders on the company’s home page at www.kws.com. (29) Related party disclosures As part of its operations, KWS procures goods and ser- vices worldwide from a large number of business part- ners, including companies in which KWS has an interest. Business dealings with these companies are always con- ducted on an arm’s length basis; from the KWS Group’s perspective, these dealings have not been material. As part of Group financing, short- and medium-term 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 allo- cations, they respectively hold a total of more than 50% of the voting rights. No other related parties have been identified for whom there is a special reporting require- ment under IAS 24. (30) Supervisory and Executive Board of KWS SAAT AG SUPERVISORY BOARD Dr. Dr. h.c. mult. Andreas J. Büchting Einbeck Agricultural Biologist Chairman of the Supervisory Board Membership of comparable German and foreign oversight boards: • Member of the Board of Directors of Ball Horticultural Company, West Chicago, Illinois (U.S.) Dr. Arend Oetker Berlin Businessman Managing Partner of Kommanditgesellschaft Dr. Arend Oetker Vermögensverwaltungsgesellschaft mbH & Co, Berlin Deputy Chairman of the Supervisory Board Membership of other legally mandated Supervisory Boards: • Schwartauer Werke GmbH & Co. KGaA, Bad Schwartau (Chairman) • Cognos AG, Hamburg (Chairman) Membership of comparable German and foreign oversight boards: • Hero AG, Lenzburg (President) • E. Gundlach GmbH & Co. KG, Bielefeld • Leipziger Messe GmbH, Leipzig • Berliner Philharmonie GmbH, Berlin (Chairman) Hubertus von Baumbach Ingelheim am Rhein Businessman Member of Management of Boehringer Ingelheim GmbH, Ingelheim am Rhein Jürgen Bolduan Einbeck Seed Breeding Employee Chairman of the Central Works Committee of KWS SAAT AG Cathrina Claas-Mühlhäuser Frankfurt am Main Businesswoman Chairwoman of the Supervisory Board of CLAAS KGaA mbH, Harsewinkel Membership of other legally mandated Supervisory Boards: • CLAAS KGaA mbH, Harsewinkel (Chairwoman) Membership of comparable German and foreign oversight boards: • CLAAS KGaA mbH, Harsewinkel (Deputy Chairwoman of the Shareholders’ Committee) Dr. Dietmar Stahl Einbeck Biochemist Employee Representative EXECUTIVE BOARD Philip von dem Bussche Einbeck CEO Corporate Affairs, Sugarbeet, Human Resources Dr. Christoph Amberger Northeim Corn, Cereals, Marketing Dr. Léon Broers Einbeck, D / Heythuysen, NL Research and Breeding, Energy Plants Dr. Hagen Duenbostel Einbeck Finance, Controlling, Legal, Information Technology Membership of legally mandated Supervisory Boards: • Sievert AG, Osnabrück (until July 4, 2012) Membership of comparable German and foreign oversight boards: • Hero AG, Lenzburg (member of the Board of Administration, since January 1, 2012) 80 Annual Financial Statements I Notes I 81 (31) Significant subsidiaries and affiliated companies The following list of shareholdings of KWS SAAT AG is published in the Federal Gazette: Subsidiaries and associated companies, which were included in the consolidated group1) Sugarbeet Corn Cereals Corporate 100% BETASEED INC.2) 100% KWS MAIS GMBH 81% KWS LOCHOW GMBH 100% KWS LANDWIRTSCHAFT Shakopee, MN/U.S. Einbeck 100% KWS FRANCE S.A.R.L. 100% KWS BENELUX B.V.5) Roye/France 100% DELITZSCH PFLANZENZUCHT GMBH10) Einbeck 100% O.O.O. KWS RUS12) Lipezk/Russia 100% O.O.O. KWS R&D RUS11) Lipezk/Russia 100% KWS ITALIA S.P.A. Forli/Italy 100% KWS POLSKA SP.Z O.O. Poznan/Poland 100% KWS SCANDINAVIA A/S10) Guldborgsund/Denmark 100% KWS SEMILLAS IBERICA S.L.10) Zaratán/Spain Amsterdam/Netherlands 100% KWS SEMENA S.R.O.5) Bratislava/Slovakia 100% KWS MAIS FRANCE S.A.R.L.5) Sarreguemines/France 100% KWS AUSTRIA SAAT GMBH5) Vienna/Austria 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) Sofia/Bulgaria 100% AGROMAIS GMBH5) Everswinkel 100% SEMILLAS KWS CHILE LTDA. 100% KWS MAGYARORSZÁG KFT.5) Rancagua/Chile 100% KWS SEME YU D.O.O. New Belgrade/Serbia 100% KWS SUISSE SA Basle/Switzerland 100% ACH SEEDS INC.4) Eden Prairie, MN/U.S. 100% BETASEED FRANCE S.A.R.L.18) Sarreguemines/France 100% BETASEED LTD.4) Rothwell/UK 100% KWS UKRAINE T.O.W.12) Kiev/Ukraine 100% KWS TÜRK TARIM TICARET A.S.10) Eskisehir/Turkey 100% BETASEED GMBH Frankfurt 100% KWS POTATO B.V.17) Emmeloord/Netherlands 83% DYNAGRI S.A.R.L.16) Casablanca/Morocco Györ/Hungary 100% KWS SEMINTE S.R.L.13) Bucharest/Romania 99% KWS ARGENTINA S.A.5) Balcarce/Argentina 51% RAZES HYBRIDES S.A.R.L.3) Alzonne/France 50% AGRELIANT GENETICS LLC.6)* Westfield, IN/U.S. 50% AGRELIANT GENETICS INC.* Chatham, Ontario/Canada 100% DELTA PESqUISA E SEMENTES LTDA.21) Cambé/Brazil 100% SEMILIA GENETICA E MELHORAMENTO LTDA.21) Curitiba/Brazil 50% RIBER KWS S.A.21) Patos de Minas/Brazil Bergen 100% KWS UK LTD.7) Thriplow/UK 100% KWS LOCHOW POLSKA SP.Z O.O.7) Kondratowice/Poland 100% KWS CEREALS USA LLC.7) Shakopee, MN/USA 49% SOCIETE DE MARTINVAL S.A.8) * Mons-en-Pévèle/France 100% SA MOMONT HENNETTE14) Mons-en-Pévèle/France 95% SARL LABOGERM14) Mons-en-Pévèle/France 100% SARL ADRIEN MOMONT14) Mons-en-Pévèle/France 100% SCA HAMET14) Mons-en-Pévèle/France GMBH** Einbeck 100% KWS INTERSAAT GMBH Einbeck 100% KWS SEEDS INC.9) Shakopee, MN/U.S. 100% GLH SEEDS INC.2) Shakopee, MN/U.S. 100% KWS SAATFINANZ GMBH Einbeck 100% RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH Einbeck 100% KWS KLOSTERGUT WIEBRECHTS HAUSEN GMBH Northeim-Wiebrechtshausen 100% EURO-HYBRID GESELLSCHAFT FÜR GETREIDEZÜCHTUNG MBH Einbeck 100% KWS SEMENTES BRASIL PARTICIPACOES LTDA.19) São Paulo/Brazil 100% KWS BRASIL PARTICIPACOES LTDA.20) São Paulo/Brazil 100% KWS R&D CHINA LTD.15) Hefei/China 100% KWS SERVICES DEUTSCHLAND GMBH Einbeck 100% KWS SERVICES EAST GMBH Vienna/Austria 100% KWS SERVICES NORTH B.V. Rotterdam/Netherlands 100% KWS SERVICES MEDITERRANEAN S.A.S. Roye/France * Proportional consolidation ** Profit transfer agreement 1) The percentages shown for each company relate to the share in that company held within the KWS Group 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 and KWS SAAT AG 10) Subsidiary of KWS INTERSAAT GMBH 11) Subsidiary of O.O.O. KWS RUS 12) Subsidiary of EURO-HYBRID GMBH and KWS SAATFINANZ GMBH 13) Subsidiary of KWS MAIS GMBH and KWS SAATFINANZ GMBH 14) Subsidiary of SOCIETE DE MARTINVAL S.A. 15) Subsidiary of EURO-HYBRID GMBH 16) Subsidiary of KWS POTATO B.V. 17) Subsidiary of RAGIS GMBH 18) Subsidiary of BETASEED GMBH 19) Subsidiary of KWS INTERSAAT GMBH and KWS SAATFINANZ GMBH 20) Subsidiary of KWS SEMENTES BRASIL PARTICIPACOES LTDA. and KWS INTERSAAT GMBH 21) Subsidiary of KWS BRASIL PARTICIPACOES LTDA. June 30, 2012 (32) Proposal for the appropriation of net retained profits KWS SAAT AG posted operating income of €11,870 thousand compared with €24,170 thousand for the pre- vious year. Allowing for net financial income/expenses of €13,952 thousand and income taxes totaling € –2,121 thousand, net income in accordance with the German commercial law regulations was €27,943 thousand (€15,900 thousand). Adding the net profit of €760 thou- sand brought forward from the previous year and the allocation to the revenue reserves of €10,000 thousand, a net retained profit of €18,703 thousand is available for distribution. A proposal will be made to the Annual Shareholders’ Meeting that an amount of €18,480 thousand of KWS SAAT AG’s net retained profit should be distributed as a dividend of €2.80 (€2.30) for each of the 6,600,000 shares. The balance of €223 thousand is to be carried forward to the new account. Declaration by legal representatives We declare to the best of our knowledge that the con- solidated financial statements give a true and fair view of the assets, financial position and earnings of the Group in compliance with the generally accepted standards of con- solidated accounting, and that an accurate picture of the course of business, including business results, and the Group’s situation is conveyed by the Group Management Report, and that it describes the main opportunities and risks of the Group’s anticipated development. Einbeck, October 1, 2012 KWS SAAT AG THE EXECUTIVE BOARD P. von dem Bussche Ch. Amberger L. Broers H. Duenbostel 82 Annual Financial Statements I Notes I 83 Auditors' Report We have audited the annual financial statements of the KWS Group – consisting of the Balance Sheet, the Statement of Comprehensive Income, the Notes, the Cash Flow State- ment, Segment Reporting and the Statement of Changes in Equity – and the Group Management Report for the fiscal year from July 1, 2011, to June 30, 2012, all of which were prepared by KWS SAAT AG, Einbeck. The preparation of the consolidated financial statements and the Group Man- agement Report according to the International Financial Reporting Standards (IFRS) as applicable in the EU, and in addition according to the commercial law regulations to be applied pursuant to Section 315a (1) of the HGB (Ger- man Commercial Code), is the responsibility of the Executive Board of the company. Our task is to give, on the basis of the audit we have conducted, an opinion on the consolidated financial statements and the Group Management Report. We conducted our audit of the annual financial statements in accordance with Section 317 HGB and the generally ac- cepted standards for the audit of financial statements pro- mulgated by the Institut der Wirtschaftsprüfer (German In- stitute of Certified 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, financial posi- tion and earnings conveyed by the consolidated financial statements, taking into account the applicable regulations on orderly accounting, and by the Group Management Re- port are detected with reasonable certainty. Knowledge of the business activities and the economic and legal oper- ating environment of the Group and evaluations of possible errors are taken into account. The effectiveness of the inter- nal accounting control system and the evidence supporting the disclosures in the consolidated financial 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 annu- al financial statements of the companies included in the consolidated financial statements, the definition of the companies consolidated, the accounting and consolida- tion principles used and any significant estimates made by the Executive Board, as well as the evaluation of the overall presentation of the consolidated financial statements and the Group Management Report. We believe that our audit provides a reasonable basis for our opinion. On the basis of our audit, we have no reservations to note. In our opinion pursuant to the findings gained during the audit, the consolidated financial 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, financial position and earnings of the Group, taking into account these regulations. The Group Management Report accords with the consolidated financial statements, conveys overall an accurate view of the Group’s position and accurately presents the opportunities and risks of fu- ture development. Hanover, October 1, 2012 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft (Kompenhans) Auditor (Bukowski) Auditor 84 Key figures of the KWS Group Figures in € millions. unless otherwise specified (IFRS) KWS is the independent seed company for farmers in the 21st century. Fiscal year Net sales 2011/12 2010/11 2009/10 2008/09 2007/08 986.3 855.4 754.1 717.2 599.1 Operating income (= EBIT) 140.9 116.6 as a % of net sales (= ROS) Net income as a % of net sales Operative cash flow Net cash from investing activities Equity Equity ratio in % 14.3 94.4 9.6 104.2 –56.6 13.6 72.9 8.5 101.2 –52.4 603.1 530.3 55.2 58.8 82.4 10.9 51.5 6.8 27.4 –55.4 492.9 57.5 Balance sheet total 1,092.3 902.0 857.4 756.0 Return on equity in % Return on assets in % 18.3 10.7 15.2 8.8 12.2 7.1 13.0 7.8 77.9 10.9 50.1 7.0 82.0 70.1 11.7 54.6 9.1 74.6 –59.4 –18.1 434.5 398.0 57.5 59.3 671.1 15.3 9.2 Fixed assets 378.2 290.1 275.2 231.9 197.1 Capital expenditure Depreciation Average number of employees Personnel costs Performance of KWS shares in € Dividend per share Earnings per share Operative cash flow per share Equity per share 111.5 28.4 3,851 182.5 2.80 13.89 15.79 91.38 49.3 27.6 58.4 22.0 3,560 3,492 165.0 147.2 2.30 10.64 15.33 80.35 1.90 7.51 4.15 74.68 61.1 23.3 3,215 135.0 1.80 6.98 12.42 65.83 30.4 17.0 2,856 119.0 1.70 7.74 11.30 60.31 We are committed to sustainable agriculture and the responsible use of natural resources. We concentrate on develop- ing top-quality seed for the diverse needs of farmers and society as a whole. We see ourselves as a reliable partner, specialist and expert adviser dedicated to the sustainable success of farmers. Financial calendar November 29, 2012 December 13, 2012 February 26, 2013 May 28, 2013 October 23, 2013 December 19, 2013 Key data of KWS SAAT AG Securities identification number ISIN Stock exchange identifier Transparency level Index Share class Number of shares Capital stock at June 30, 2012 Share price high June 29, 2012 (Xetra) Share price low August 22, 2011 (Xetra) Average number of shares traded – in Xetra – in floor trading in Frankfurt Report on the 1st quarter of 2012/2013 Annual Shareholders’ Meeting in Einbeck Report on the 2nd quarter of 2012/2013 Report on the 3rd quarter of 2012/2013 Publication of 2012/2013 financial statements Annual press conference in Frankfurt; Analyst conference in Frankfurt Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 6,600,000 €19,800,000 €205.00 €131.40 3,735 246 KWS Saat aG Grimsehlstrasse 31 • 37555 Einbeck/Germany • P.O. Box 1463 Phone +49 (0) 5561/311-0 • Fax +49 (0) 5561/311-322 www.kws.com • E-mail: info@kws.com 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. Photos/Illustrations: Eberhard Franke • Michael Löwa • Dominik Obertreis • Kevin Zhang • Corinna Lerch • Corbis Images • KWS Group archive t r o p e R 1 0 2 l 1 1 0 2 2 Annual Report 2011 I 2012 a u n n A l KWS Sa at a G 

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