KWS Group Annual Report 2013

Plain-text annual report

4 1 0 2 3 1 0 2 t r o p e R l a u n n A Annual Report 2013 2014 B KWS SA AT AG Key ﬁ gures of the KWS Group Content 2013/2014 2012/20131 2011/2012 2010/2011 2009/2010 in € millions Net sales 1,178.0 1,147.2 Operating income (= EBIT) 138.4 152.1 as a % of net sales (= ROS) Net Income as a % of net sales Operative cash ﬂ ow Net cash from investing activities Equity Equity ratio in % 11.8 80.3 6.8 61.0 –75.4 637.8 50.5 13.3 92.3 8.0 84.6 –88.9 649.7 53.3 986.3 140.9 14.3 94.4 9.6 97.9 –56.6 603.1 55.2 855.4 116.6 13.6 72.9 8.5 101.2 –52.4 530.3 58.8 754.1 82.4 10.9 51.5 6.8 27.4 –55.4 492.9 57.5 2 Foreword of the Executive Board 5 Report of the Supervisory Board 8 The KWS share 11 Spotlight topic 16 Sustainability 18 Corporate Governance 22 Management Report 32 Business performance Balance sheet total 1,262.8 1,218.7 1,092.3 902.0 857.4 33 Earnings, ﬁ nancial position and assets Return on equity in % Return on assets in % Fixed assets Capital expenditure Depreciation Average number of employees Personnel costs Performance of KWS shares in € Dividend per share Earnings per share Operative cash ﬂ ow per share Equity per share 1 adjusted pursuant to IAS 19 (2011) 12.8 7.3 15.8 9.0 424.5 396.8 82.6 45.8 4,847 225.8 3.00 11.69 9.24 96.64 65.2 38.4 4,443 209.9 3.00 13.47 12.82 98.44 18.3 10.7 378.2 111.5 28.4 3,851 182.5 2.80 13.89 15.79 91.38 15.2 8.8 12.2 7.1 290.1 275.2 49.3 27.6 3,560 165.0 2.30 10.64 15.33 80.35 58.4 22.0 3,492 147.2 1.90 7.51 4.15 74.68 34 Corn Segment 36 Sugarbeet Segment 38 Cereals Segment 40 Corporate Segment 41 Financial situation 44 Assets 45 Employees 50 Explanations regarding the Annual Financial Statements of KWS SAAT AG 50 Report on events after the balance sheet date 50 Opportunity and risk report 57 Forecast report 59 Other disclosures 63 Annual Financial Statements of the KWS Group 71 Notes 2 Foreword of the Executive Board Foreword of the Executive Board 3 To our shareholders Foreword of the Executive Board In the past ﬁ scal year we again systematically pursued our growth path. That included orienting ourselves to long-term goals, not short-term business cycles. Our activities are always grounded in basic research and breeding work to develop competitive varieties. By investing in state-of-the-art processing plants, we translate genetic potential into high-quality seed. Being close to farmers makes us their preferred supplier. Our employees put this strategy into action with their team- work, sense of personal responsibility and entrepreneurial freedom. This approach has enabled the KWS Group to become a leading international seed company. We were able to continue our growth and posted net sales of €1,178.0 million, a year-on-year increase of 2.7%. Although we narrowly missed our original target due to negative exchange rate developments in key markets, we were able to maintain our market posi- tion in important growth markets, such as the U.S. Our operating income (EBIT) was €138.4 million, below the ﬁ gure for the previous year as expected; exchange rate developments likewise impacted our earnings negative- ly. However, our EBIT margin of 11.8% means we are still above our long-term target of 10%. We thus posted satisfactory earnings in ﬁ scal 2013/2014 once more, following two exceptionally strong ﬁ scal years. We increased capital expenditure at the KWS Group by €17.4 million to a total of €82.6 million or 1.8 times the amount of depreciation. Among other things, we expanded our corn seed production capacities in France, Serbia and North America, modernized our sugarbeet seed production in the U.S. and created the distribution structures we need for future growth. More than 70% of our capital spending was outside Germany. Nevertheless, Germany remains a key foundation for our company’s further development. That is also reﬂ ected in the growth of our workforce: Of the 404 new jobs we created in 2013/2014, 87 are in Germany. Apart from continuous product innovation, our highly motivated employees are vital in ensuring the sustained development of our company. With KWS’ own blend of an intimate family atmosphere and its global orientation, we have now become an attractive employer. On behalf of the entire Executive Board, I would like to thank all our colleagues in more than 70 countries for the energy and commitment they show day in, day out to enable our company to stay successful. We again increased the budget for our diverse R&D activities signiﬁ cantly to €148.8 million in the year under review, or 12.6% of net sales, since our company’s further development is founded on and driven by in- novations in research and breeding. At the beginning of the current ﬁ scal year, we began operations at a further research location in the U.S., which will enable us to expand our expertise in global plant research while also strengthening our presence in one of our key markets. Next year we will be able to launch our own operations in China with our joint venture there: After many years of examination by the Chinese authorities, we received permission for this strategic partnership this spring. It will give us direct access to a further international growth market for corn seed. Expansion of our international presence is thus pro- ceeding alongside our efforts to secure and expand our core business. We expect the KWS Group to further grow its net sales in the current ﬁ scal year 2014/2015 by between 5% and 10%. The budgets for capital from left: Hagen Duenbostel Corn, Investor Relations Léon Broers Research and Breeding Eva Kienle Finance, Controlling, Global Services, IT, Legal Philip von dem Bussche (CEO) Corporate Development & Communications, Human Resources Peter Hofmann Sugarbeet, Cereals, Marketing 4 Foreword of the Executive Board Report of the Supervisory Board 5 spending and function costs are being increased to reﬂ ect our growth strategy, so we likewise expect a return on sales of 10%. At the same time we intend to continue our proven dividend policy. The proposal by the Exe cutive Board and the Supervisory Board on the appropriation of the proﬁ ts for ﬁ scal 2013/2014 envis- ages an unchanged dividend of €3.00 per share, or a dividend payout ratio of 24.7%. We would also like to take this opportunity to inform you that the Execu- tive Board and the Supervisory Board have decided to convert KWS SAAT AG into a European Stock Corpora- tion – called KWS SAAT SE – subject to the approval of the Annual Shareholders’ Meeting on December 18, 2014, thus underscoring KWS’ international ambitions both at home and abroad. I would like to make special mention of one new feature in this year’s Annual Report: For the ﬁ rst time, we are reporting on the sustainability of our business activities in a separate section. You can ﬁ nd more information in our detailed Sustainability Report, which is being published for the seventh time this year. working in a spirit of trust to make our company a suc- cess. And I expressly include our business partners, customers, shareholders and the Supervisory Board in these thanks. It was for me personally a great pleasure to be able to make a contribution to the successful devel- opment of this wonderful company. Dr. Hagen Duenbostel will take over as Chief Executive Ofﬁ cer as of January 1, 2015. Dr. Peter Hofmann joined the Executive Board on October 1, 2014. He is respon- sible for the product segments Sugarbeet and Cereals and for Corporate Marketing, in which capacity he is backed by more than 20 years of successful manage- ment work for the company. As a result, the change on KWS’ Executive Board reﬂ ects our spirit of tradition and progress, true to the motto “Seeding the Future – Since 1856.” With best regards from Einbeck on behalf of the entire Executive Board, After more than nine years on the Executive Board of KWS SAAT AG, I am leaving the company at the age of 65 at the end of 2014. My thanks go to all the colleagues around the world with whom I have had the honor of Philip von dem Bussche Chief Executive Ofﬁ cer Report of the Supervisory Board The main task in the ﬁ scal year under review was to expand the market position of KWS and to create the foundation for the company’s future growth. To do that, the Supervisory Board approved considerable up-front costs that will reduce the company’s current proﬁ tability, but not excessively strain it. The overriding goal is to secure KWS’ gratifyingly sustained earnings strength at an EBIT margin of at least 10% in the long term. With this in mind, we again took important steps in the past year. The Supervisory Board discharged the duties incum- bent on it in accordance with the law, the company’s Articles of Association and the bylaws, regularly advised and monitored the Executive Board of KWS SAAT AG in its activities and satisﬁ ed itself that the company was run properly and in compliance with the law and that it was organized efﬁ ciently and cost-effectively. The Supervisory Board decided on all signiﬁ cant business transactions requiring its consent and carefully accom- panied the Executive Board in all fundamental deci- sions of importance to the company. The Supervisory Board discussed the information and assessments that inﬂ uenced its decisions together with the Execu- tive Board. Both boards continued their seamless and constructive cooperation based on mutual trust. Among other things, this was demonstrated by the fact that, as is customary, the Supervisory Board was involved in all decisions of vital importance to the company at an early stage. The Supervisory Board was provided with the necessary information in written 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 situation, risk management and compliance. Business transactions requiring consent were submitted to and discussed and approved by the Supervisory Board in compliance with the bylaws for the Executive Board. The com- pany’s business policy, corporate and ﬁ nancial planning, proﬁ tability and situation, the general development of the various businesses, market trends and the competi- tive environment, research and product development and, along with important individual projects, risk Andreas J. Büchting, Chairman of the Supervisory Board management at the KWS Group were also the subject of detailed discussions. The Chairman of the Supervi- sory Board continued the bilateral discussions with the Chief Executive Ofﬁ cer 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 par- ticular, 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 granted by Section 111 (2) AktG (German Stock Corpo- ration Act) since the reporting by the Executive Board meant there was no reason to do so. Focal areas of deliberations The full Supervisory Board held ﬁ ve regular meetings in ﬁ scal 2013/2014. Its members participated in all of the meetings, with the exception of two members who were 6 Report of the Supervisory Board Report of the Supervisory Board 7 each unable to attend one meeting. The meeting of the Supervisory Board to discuss the ﬁ nancial statements on October 23, 2013, was devoted to examining and ap- proving the ﬁ nancial statements of KWS SAAT AG and the consolidated ﬁ nancial statements of the KWS Group as of June 30, 2013. At that meeting, the Supervisory Board also dealt with the consequences of the recent changes to the International Financial Reporting Stan- dard (IFRS 11) on consolidation practices at the KWS Group. The focus of the meetings on December 18 and 19, 2013, was the “Strategic Planning” of KWS, cover- ing a timescale of the next ten years. At its meeting on March 27, 2014, the Supervisory Board heard reports on the progress made in breeding in all of KWS’ prod- uct categories. In addition, the status of development in the most important research projects was discussed. Not least, the Supervisory Board made the decision at this meeting to establish a research center in the United States to complement the research location in Einbeck. The Supervisory Board also approved acquisition of the outstanding shares of KWS LOCHOW GMBH. On June 26, 2014, the agenda as usual included adoption of the corporate planning for ﬁ scal 2014/2015, including medium-term planning up to 2017/2018. This comprised individual projects requiring the Supervisory Board’s consent and relating to further expansion of the Einbeck location, extensive increases in capacity for our seed processing plants and additions to our IT structures. The survey of the Supervisory Board with the aim of avoiding and identifying fraud was also conducted. The Super visory Board is not aware of any such acts. At its meeting on October 15, 2014, the Supervisory Board discussed changing KWS SAAT AG to an European stock corporation – KWS SAAT SE – and agreed on a corresponding proposed resolution for the Annual Shareholders’ Meeting. Annual and consolidated ﬁ nancial statements and auditing Deloitte & Touche GmbH Wirtschaftsprüfungsgesell- schaft, Hanover, the independent auditor chosen at the Shareholders’ Meeting on December 19, 2013, and commissioned by the Audit Committee, has audited the ﬁ nancial statements of KWS SAAT AG that were present- ed by the Executive Board and prepared in accordance with the provisions of the German Commercial Code (HGB) for ﬁ scal 2013/2014 and the ﬁ nancial state- ments of the KWS Group (IFRS consolidated ﬁ nancial 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 unqualiﬁ ed audit certiﬁ cate. In addition, the auditor concluded that the audit of the ﬁ nancial state- ments did not reveal any facts that might indicate a misstatement in the declaration of compliance issued by the Executive Board and the Supervisory Board in ac- cordance with Section 161 AktG (German Stock Corpo- ration Act) with respect to the recommendations of the “Government Commission for the German Corporate Governance Code” (cf. Clause 7.2.3 (2) of the German Corporate Governance Code). The Supervisory Board received and discussed the ﬁ nancial statements of KWS SAAT AG and the consoli- dated ﬁ nancial statements and Management Reports of KWS SAAT AG and the KWS Group, along with the report by the independent auditor of KWS SAAT AG and the KWS Group and the proposal on utilization of the net proﬁ t for the year made by KWS SAAT AG, in due time. Comprehensive documents and drafts were submitted to the members of the Supervisory Board as preparation; for example, all of them were provided with the annual ﬁ nancial statements, Management Reports, audit reports by the independent auditors, Corporate Governance Report, Compensation Report and the proposal by the Executive Board on the appropriation of the proﬁ ts. The Supervisory Board also held detailed discussions of questions on the agenda at its meet- ing to discuss the ﬁ nancial statements on October 15, 2014. The auditor took part in the meeting and reported on the main results of the audit and was 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 relation to the accounting process. There were also no circumstances that might indicate a lack of impartiality on the part of the independent auditor. The small extent of services additionally provided by the independent auditor can be seen from the Notes. In accordance with the ﬁ nal results of its own examina- tion, the Supervisory Board endorsed the results of the audit, among other things as a result of the vote by the Audit Committee, and did not raise any objections. The Supervisory Board gave its consent to the annual ﬁ nancial statements of KWS SAAT AG, which were prepared by the Executive Board, and to the consoli- dated ﬁ nancial statements of the KWS Group, along with the Management Reports of KWS SAAT AG and the KWS Group. The ﬁ nancial statements are thereby approved. The Supervisory Board also endorses the proposal by the Executive Board to the Annual Share- holders’ Meeting on the appropriation of the net retained proﬁ t of KWS SAAT AG after having examined it. Corporate Governance The Supervisory Board conducted its efﬁ ciency review in accordance with Clause 5.6 of the German Corporate Governance Code for ﬁ scal 2013/2014 accompanied and supported by Ernst & Young GmbH Wirtschafts- prüfungsgesellschaft. Recommendations and measures derived from it were implemented without exception. The Supervisory Board regularly addressed the question of any conﬂ icts of interest on the part of its members and those of the Executive Board. In the year under re- view, there were no such conﬂ icts of interests that had to be disclosed immediately to the Supervisory Board and reported to the Annual Shareholders’ Meeting. Supervisory Board Committees The Audit Committee convened for two joint meetings in ﬁ scal 2013/2014 and also held three telephone confer- ences, on all occasion with all its members in attendance. In its meeting on September 30, 2013, the Audit Commit- tee discussed the 2012/2013 annual ﬁ nancial statements and accounting of KWS SAAT AG and consolidated ﬁ nancial statements of the KWS Group. Its deliberations also focused on the changes in consolidation practices at the KWS Group due to the fact that it will no longer be possible to consolidate joint ventures proportionately effective ﬁ scal year 2014/2015. The Annual Compliance Report and the results of the auditing projects were on the agenda at its second meeting on March 27, 2014. The audit plan for ﬁ scal 2014/2015 was also discussed and adopted. The quarterly reports and the semiannual report for ﬁ scal 2013/2014 were discussed in detail in three tele- phone conferences and their publication was approved. In addition, the Audit Committee obtained the state- ment of independence from the auditor in accordance with Clause 7.2.1 of the German Corporate Gover- nance Code, monitored the auditor’s independence and examined its qualiﬁ cations. The Audit Committee also satisﬁ ed itself that the regulations on internal rotation pursuant to Section 319a (1) No. 4 HGB were observed by the independent auditor. The Audit Committee con- vened on September 29, 2014, to discuss the current annual ﬁ nancial statements of KWS SAAT AG and KWS’ consolidated ﬁ nancial statements and accounting. The independent auditor explained the results of its audit of the 2013/2014 ﬁ nancial 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 proposal by the Executive Board on the appropriation of the net retained proﬁ t of KWS SAAT AG and recommended that the Supervisory Board approve it. At this meeting the Audit Committee also heard a report on the audit relat- ing to the conversion of KWS SAAT AG into a European Company – KWS SAAT SE – in accordance with Article 37 (6) of the Council Regulation on the Statute for a European Company. This audit was likewise carried out by Deloitte & Touche GmbH Wirtschaftsprüfungsgesell- schaft, Hanover. In the year under review the Committee for Executive Board Affairs dealt with the question of the successor to Chief Executive Ofﬁ cer Philip von dem Bussche, who will leave the Executive Board of KWS SAAT AG at the end of 2014 aged 65. Dr. Hagen Duenbostel, who was KWS’ Chief Financial Ofﬁ cer until mid-2013 and is cur- rently responsible for the Corn Segment, was appointed by the Supervisory Board as Chief Executive Ofﬁ cer as of January 1, 2015, at the proposal of the Committee for Executive Board Affairs. As part of that, the Supervisory Board extended his contract until December 31, 2019. The Supervisory Board appointed Dr. Peter Hofmann as a new member of KWS’ Executive Board effective Octo- ber 1, 2014, for an initial period of three years. He will as- sume responsibility from Philip von dem Bussche for the product segments Sugarbeet and Cereals, as well as for Corporate Marketing. Dr. Hofmann is 54 years old, has a degree in agricultural engineering and has been with KWS for 20 years. He has managed operational business at the Sugarbeet Segment since 2005. The Supervisory Board also appointed Eva Kienle as a full member of the Executive Board for a term of ﬁ ve years as of July 1, 2014, at the proposal of the Committee for Executive Board Affairs and additionally entrusted her with Human Resources effective January 1, 2015. In addition, the 8 Report of the Supervisory Board | The KWS share The KWS share 9 Supervisory Board Committees Committee Chairman Audit Committee Hubertus von Baumbach Committee for Executive Board Affairs Andreas J. Büchting Nominating Committee Andreas J. Büchting Members Andreas J. Büchting Jürgen Bolduan Arend Oetker Cathrina Claas-Mühlhauser Arend Oetker Cathrina Claas-Mühlhauser Committee for Executive Board Affairs formulated a pro- posal to the full Supervisory Board regarding adjustment of Executive Board compensation; the proposal was accepted by the full body on June 26, 2014, and went into force on July 1, 2014 (see report on compensation on page 62). The Nominating Committee dealt with the question of the composition of the Supervisory Board to be formed for KWS SAAT SE. In agreement with the full body, the sitting members of the Supervisory Board will be pro- posed to the Annual Shareholders‘ Meeting on Decem- ber 18, 2014, for election to the Supervisory Board of the future KWS SAAT SE. The term of the ﬁ rst Supervisory Board of KWS SAAT SE is to end with the completion of the Annual Shareholders’ Meeting that will decide on the ratiﬁ cation on the acts of the Supervisory Board of KWS SAAT SE for ﬁ scal 2016/2017. That corresponds to the term of the current body. The Supervisory Board expresses its thanks to the Executive Board and all employees of KWS SAAT AG and its subsidiaries in the KWS Group for their com- mitment and contributions to the successful continued performance of KWS in ﬁ scal 2013/2014. Einbeck, October 15, 2014 Dr. Drs. h.c. Andreas J. Büchting Chairman of the Supervisory Board The KWS share Expansive monetary policy drives capital markets The capital markets continued to be swayed by eco- nomic and political uncertainties in the year under review. The expansive monetary policy of the central banks continued to ensure that the price trend was predominantly positive, a situation that was interrupted temporarily only by fears that the massive injection of liquidity into the markets would begin to be reduced. Against this backdrop and driven by additional positive signals about economic trends in Europe, the German stock indexes posted new record highs. The DAX broke the 10,000 point mark for the ﬁ rst time and closed just below it at 9,833 points on June 30, 2014. The DAX rose by 22.9% year on year. That performance was sur- passed in the period under review by the SDAX, which soared by 27.2% to 7,385 points. The KWS share remains stable in a narrow range After its sharp rise in price in 2012/2013, the KWS share entered calmer waters in the year under review. That is reﬂ ected by its ﬂ uctuation within a relatively narrow range between €243.20 (low for the year) and €280.60 (high for the year). Overall, the KWS share fell by around 7.4% in the period from July 1, 2013, to June 30, 2014. The rea- sons for this are to be found in an overall more restrained mood on the global agricultural markets and the negative exchange rate effects that impacted the past ﬁ scal year. Performance of the KWS share in % 35 30 25 20 15 10 5 0 –5 –10 –15 07/01/13 08/01/13 09/01/13 10/01/13 11/01/13 12/01/13 01/01/14 02/01/14 03/01/14 04/01/14 05/01/14 06/01/14 06/30/14 KWS share –7.4% DAX +22.9% SDAX +27.2% The KWS share is a ﬁ rm part of the SDAX and the DAXplus Family 30 Index On the basis of the share price development in the past ﬁ scal year, KWS SAAT AG’s market capitalization fell slightly to €1,700 million (previous year: €1,834 million) or, solely taking into account the free ﬂ oat of 29.7%, €511.7 million (€552.0 million). The KWS share occu- pies a mid-range position in the SDAX, Germany’s most important index for small caps. Measured in terms of free ﬂ oat market capitalization, the KWS share ranked 17th in the index, which comprises 50 companies, at the relevant key date of June 30, 2014, and 26th in terms of trading volume over the past twelve months. No change in the shareholder structure KWS SAAT AG’s shareholder structure remained practi- cally unchanged in the past ﬁ scal year. Only Tessner Beteiligungs GmbH increased its holdings by 0.4 per- centage points to 14.2%. Shareholder structure at September 30, 2014 in % 29.7 (cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:389)(cid:82)(cid:68)(cid:87) 14.2 Tessner Beteiligungs GmbH Shareholder structure 6,600,000 shares 56.1 Families Büchting Arend Oetker Giesecke 10 The KWS share Spotlight topic 11 Great acceptance for our Employee Share Program For more than 35 years we have offered our employees the chance to become a shareholder in the company and thus share in its success and identify more strongly with it. The structure of our Employee Share Program remained unchanged in the year under review. Our employees were able to buy up to 500 KWS shares at a price of €202.16, including a 20% bonus, which the individual employees must pay tax on. 401 employees (previous year: 384) took up this offer and purchased a total of 11,028 shares (previous year: 12,725), corre- sponding to an average stake per employee of 28 shares (previous year: 33). The acquired shares are subject to a lock-up period of four years. They cannot be sold, transferred or pledged during this period. As in previous years, the shares used for the Employee Share Program were acquired in accordance with the stipulations in Section 71 (1) No. 2 of the German Stock Corporation Act (AktG). A total of €2.8 million (previous year: €3.4 million) was used to buy back the company’s own shares, giving an average purchase price per share of €257.00 (previous year: €265.20). Dividend of €3.00 a share At the Annual Shareholders’ Meeting on December 19, 2013, the shareholders resolved to increase the dividend per share by €0.20 to €3.00. The number of shares remained unchanged at 6,600,000, giving a total amount distributed of €19.8 million (previous year: €18.5 million). The dividend payout ratio was thus 21.5% relative to the KWS Group’s net income of €92.3 million for ﬁ scal 2012/2013. Trend in dividend payouts in € 2.80 3.00 1.80 1.90 2.30 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 Proposal on the appropriation of the proﬁ ts for ﬁ scal 2013/2014 The Executive Board and Supervisory Board propose payment of a dividend of €3.00 for ﬁ scal 2013/2014 to the Annual Shareholders’ Meeting. This continues our proven dividend policy of an annual payout of between 20% and 25% of the KWS Group’s net income for the year. The dividend yield of the KWS share based on its closing price on June 30, 2014, would thus be 1.1%. Key ﬁ gures for the KWS share Number of shares (June 30) Closing price (June 30) Low High Market capitalization (June 30) 2012/2013 2013/2014 in millions in € in € in € in € millions 6.6 277.95 200.10 297.10 1,834 6.6 257.50 243.20 280.60 1,700 In this context, it must also be kept in mind that the properties and performance our crops now exhibit have only been achieved through decades – no, centuries – of breeding work. The breeder’s exemption Until now, the breeder’s exemption has been regarded as an adequate means of sharing beneﬁ ts. It states that every protected variety that is commercially available is allowed to be bred further, i.e. crossed, without the consent of the holder of the rights to the variety. That means donor countries also have free access to breed- ing progress. This open source system has proven its worth over many years, ensuring the lively international exchange of plant genetic resources and promoting both genetic diversity and breeding progress. Even small and inventive plant breeders were able to successfully share in the innovation process as a result. Spotlight topic Who owns our planet’s plant genetic resources? The international community wants to regulate how beneﬁ ts are shared between the donor countries and users This interesting question was actually resolved in 1992, when the parties to the Convention on Biological Diversity (CBD) speciﬁ ed that plant genetic resources are owned by their countries of origin. Until that time, it had been assumed that they were a common heritage of mankind. Since then, the question has been to ﬁ nd a practicable way to ensure that beneﬁ ts are shared between the donor countries and users. Should beneﬁ t sharing extend to the past? That would mean Germany would have to pay royalties to Peru retroactively since Frederick the Great’s famous “Potato Decree” in 1756, under which he ordered the tuber from Peru to be grown in Prussia. And we would not only have to pay royalties for potatoes, but also for all major agricultural crops, since they mainly originate from the resource-rich centers of diversity outside Europe. Vavilov centers of diversity Sunﬂower Cereals Sugarbeet Lucernes Sorghum Beans Sweet potatoes Corn Potatoes Corn Cereals Coffee Rice Sugar cane Banana Coconut 12 Spotlight topic Spotlight topic 13 ABS The term “access and beneﬁ t sharing” comes from the CBD (1992) and denotes global access to genetic resources coupled with ensuring that the countries of origin have a fair and equitable share in the beneﬁ ts from their use. The current genetic diversity in commercial plant breeding may be sufﬁ cient to achieve small pro- gress in breeding year after year. However, global chal- lenges, such as climate change, demand that hitherto Colorful mix: The genetic diversity of corn seed is clear to the naked eye during planting. unexplored genetic resources be tapped and leveraged – and, as in the past, they are to be found in the well- known centers of diversity. The Nagoya Protocol The Nagoya Protocol (Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Beneﬁ ts Arising from their Utilization) enshrined in the Convention on Biological Diversity is now intended to regulate access to and use of genetic resources and fair and equitable sharing of beneﬁ ts under international law. It aims to enable resource-rich developing and emerging countries to gain for the ﬁ rst time a share of the com- mercial advantages that companies obtain from using genetic resources. The intention is therefore to create a genuine win-win situation that also establishes legal security. The Nagoya Protocol was adopted in 2010 and came into effect on October 12, 2014, after being ratiﬁ ed by more than 50 parties to the convention. The participating countries were urged to enact legislation in their jurisdictions to make sure that the agreements in the Nagoya Protocol are implemented and observed. In April 2014, the European Union thus adopted Regula- tion No. 511/2014, under which the Nagoya Protocol is to be implemented in its jurisdiction. The EU Regulation However, the provisions of the EU Regulation go well beyond the requirements deﬁ ned in the Nagoya Protocol. Users of genetic material will then not only be obliged to obtain a declaration of consent from the country of origin for them to access genetic material, but also to document the sources for the genetic material used to develop new varieties. That applies not only to plant genetic resources used in situ, i.e. directly from their natural habitat, but also to plant genetic material that is used ex situ for further breeding and comes from existing public and private collections. There would therefore be no cut-off point for the obligation to furnish proof of origin and provide documentation. Conse- quently, the origin of all variations used for a variety that already has market approval must be completely docu- mented if that variety is used for further breeding to en- able claims for royalties to be asserted. Such documen- tation as required by the EU Regulation is not feasible in practice, as the following example demonstrates. Breeding tree for the winter wheat variety “Dekan” Vers. P342 Rabe Jubilar Crossings of breeding strains of Perdix, Cappelle, Champlein, Viking, Tetrix, Jubilegem Crossings of breeding strains of: Cappelle, Prof. Marchal, Marne Ibis Caribo Strain LP 2.1341.69 Armada Maris Hobbit Carimulti Strain SB 1/9/83 Strain LP 10990.80 Greif Dekan Source: KWS LOCHOW GMBH breeding documentation, approval 1999 The wheat variety “Veery” is the product of 3,170 crosses between 51 parent varieties from 26 different countries. By way of comparison: KWS alone puts some 300 new varieties on the market every year. The upshot is an exponentially increasing deluge of data that no one can furnish or analyze properly. Last but not least, the Regu- lation even prevents hitherto free and unhindered access to commercially available varieties and breeding materials, unlike under the breeder’s exemption. A possible solution Plant breeding companies, associations and scientiﬁ c institutions support the goals of the Nagoya Protocol. A practicable alternative on the use of plant genetic resources is in principle offered by the FAO’s International Treaty on Plant Genetic Resources for Food and Agricul- ture. It likewise aims to ensure beneﬁ ts are shared, while creating maximum legal security for all parties. However, the treaty does not cover all types of plants, so it is vital for it to be expanded. German plant breeders across all companies are in favor of this treaty being extended to cover all food and non-food crops so that the countries of origin of new genetic material share in the beneﬁ ts from commercial use of future agricultural varieties. As part of that, it must not be forgotten that the “original material” for our crops has been enhanced considerably by many years of breeding. In view of the challenges of climate change and feeding the world’s population, this work to produce innovation must also be rewarded fairly and equitably. Otherwise innovation will come to a standstill! 14 Spotlight topic Spotlight topic 15 WINTER-HARDY Cold resistance in sugarbeet Sugarbeets that are not sown in the spring but rather in the fall are called winter beet. They defy the cold during the winter months and have a well-developed foliage by the time spring comes around. As a result, the light intensity in this season can be used more effectively and the beets can store more sugar in their roots than would be possible in conventional cultivation. An increase in yields of 20%–30% is expected to result from extending the vegetation period to around a year, which also opens up diverse options for the entire value chain. KWS is applying the latest research and breeding methods to increase winter beet’s frost tolerance. ICEBREAKER 16 Sustainability Sustainability The importance of sustainability for our company Since being founded in 1856, we as a family-run busi- ness have developed a corporate culture and values that are based on a special sense of responsibility toward future generations and unite this responsibility with the mission of long-term commercial success. The development of each new variety takes up to ten years. That requires proactive planning and action. We believe it is important to identify and anticipate the eco- nomic, ecological and social challenges of the future, i.e. to orient our company strategically and operationally on that basis. We therefore address regularly and carefully external inﬂ uences and the resulting risks and opportunities, now and in the future, in our business activities. Group-wide analysis of core sustainability issues We conducted a materiality analysis this year for the ﬁ rst time ever, as part of which we asked various stakehold- ers, including farmers, suppliers, scientists, investors and NGOs, about what they expect from KWS regarding sustainability. The results will enable us to address key sustainability issues even more purposefully and entrench them more deeply in our strategy. Issues of particular relevance were: Seed quality: Our customers trust in the quality of our seed, which we ensure by extensive testing. Product innovations: New plant varieties are geared toward market needs. By steadily improving the yield performance of our products, we help improve resource efﬁ ciency in the agricultural production process. Only by doing that can we effectively tackle the challenges of climate change and growing demand as a result of global population growth. Modern breeding methods: By using leading-edge breeding methods, we create progress in yields of 1% – 2% a year. In addition, the essence of plant breed- ing is to promote preservation of genetic diversity by new crossings. Variety protection: We are committed to appropriate variety protection. We can only reﬁ nance our high ex- penditures on research and development if our varieties are adequately protected. Product safety: Our products must not endanger peo- ple’s health or the environment – irrespective of whether the variety is ecological, conventional or genetically modiﬁ ed. Extensive trials and analyses are conducted in accordance with ofﬁ cial requirements in order to prove their safety. Economic performance: A clear focus on core busi- ness and ﬁ nancial independence, liquidity and proﬁ tabil- ity have contributed to the company’s positive economic development. Our aim is to ensure that that remains so. Employment, social and environmental standards: As a responsible, internationally growing company we have to deﬁ ne values, rules, guidelines and standards in the ﬁ elds of employment, protection of the environment and social welfare and ensure they are put into practice at all subsidiaries and associated companies. We must also establish them for our business partners in the sup- ply chain and prevent violations of them. Compliance: We have to ensure compliance with the law and company requirements in a growing group of com- panies by means of effective compliance management. Employees: KWS is positioned worldwide as one of the leading seed companies. We tackle the challenge of acquiring and keeping qualiﬁ ed employees by tailored employer branding measures and talent sourcing activi- ties. The difference between KWS and other market play- ers is reﬂ ected in a personal and down-to-earth culture based on communication across hierarchies. We also Corporate Governance 17 We see our responsibility toward future generations in sustainable behavior toward people and nature. attach great importance to extensive training and con- tinuing education. Society: Since the company was founded, KWS has strengthened and enhanced the attractiveness of its so- cial environment by pinpointed donations and sponsor- ing in the regions where we operate. However, continu- ous, trust-building dialogue with our stakeholders is vital – and we also conduct such dialogue on critical issues. Environmental protection: We strive to surpass statu- tory requirements relating to the safety of our plants and processes, as well as to efﬁ cient use of resources in the production process, such as water, energy, fertilizers and pesticides, as far as our inﬂ uence allows. Reporting on sustainability and outlook Since 2008 we have published our annual Sustainability Report in accordance with the criteria speciﬁ ed by the Global Reporting Initiative. We have adapted our sus- tainability reporting this year on the basis of the materiality analysis and geared the report’s structure and content to the results of that analysis. In order to increase trans- parency regarding the development of key sustainability issues, we are working to expand our sustainability reporting in conjunction with Group-wide data capture and analysis. The medium to long-term objectives are to extend sustainability reporting to the entire KWS Group and to integrate it in our Annual Report. The results of the analysis will also give us a basis for reviewing the strategic and operational action our compa- ny needs to take and to derive potential for improvement. 18 Corporate Governance Corporate Governance 19 Corporate Governance KWS SAAT AG’s successful development since 1856 is founded on thinking for the long term and acting in terms of sustainability. Corporate Governance is entrenched at the company and enables us to ensure responsible, value-creating management and control of the company, in particular by the Executive Board and Supervisory Board. We create trust by heeding the interests of our customers and employees, the capital markets and our national and international business partners – and that makes a key contribution to our lasting success. We live up to our responsibility and take into account the relevant legal requirements regarding management and supervision of German stock corporations in our decisions. We also intensively address the acknowl- edged standards of good and responsible Corporate Governance, in particular the German Corporate Gover- nance Code. The Executive Board and the Supervisory Board regularly discuss different aspects of Corporate Governance and make a major contribution to its con- tinuous further development. You can ﬁ nd detailed information on Corporate Gov- ernance in our Corporate Governance Report (which is also the declaration on Corporate Governance in accordance with Section 289a of the German Com- mercial Code (HGB)), which is available on our website at www.kws.com > Company > Investor Relations > Corporate Governance. The Compensation Report, which is presented on pages 60 to 62, contains details on the compensation system and the individual remu- neration of the members of the Executive Board and the Supervisory Board. Compliance declaration in accordance with Section 161 AktG (German Stock Corporation Act) 2013/2014 The Executive Board and the Supervisory Board of KWS SAAT AG declare in compliance with Section 161 AktG (German Stock Corporation Act) that the com- pany has complied with the recommendations of the German Corporate Governance Code in the version dated May 13, 2013, since the last compliance declara- tion in October 2013, and with the recommendations of the code in the version dated June 24, 2014, since its publication in the ofﬁ cial section of the Federal Ofﬁ cial Gazette, and does now comply and will comply with them in the future, with the following exceptions. In accordance with Clause 5.4.3 Sentence 1 of the German Corporate Governance Code, elections to the Supervisory Board are to be made on an individual basis. The Supervisory Board and the Executive Board will propose to the Annual Shareholders’ Meeting that the company be converted into a European Company (SE), with the shareholder representatives of the ﬁ rst Supervi- sory Board of KWS SAAT SE being appointed pursuant to the Articles of Association in accordance with Article 40 (2) Sentence 2 of the Council Regulation on the Statute for a European Company. There is not to be any change in the persons representing the shareholders as a result of the conversion; the term of ofﬁ ce for members of the ﬁ rst Supervisory Board of KWS SAAT SE is also not to exceed their remaining term for which they hold their seat on the Supervisory Board at KWS SAAT AG. Clause 7.1.2 Sentence 4 of the German Corporate Governance Code states that the consolidated ﬁ nancial statements shall be publicly accessible within 90 days of the end of the ﬁ scal year and interim reports within 45 days of the end of the reporting period. KWS SAAT AG publishes its consolidated ﬁ nancial statements and interim reports within the period of time deﬁ ned in the regulations for the Prime Standard of the German Stock Exchange. The company’s seasonal course of business means that it cannot ensure compliance with the periods recommended in the German Corporate Governance Code. Einbeck, October 2014 The Supervisory Board The Executive Board Improvements in seed quality and technological progress have signiﬁ cantly increased sugarbeet emergence in the past years – and that is vital in achieving a high adjusted sugar yield. 20 Corporate Governance Corporate Governance 21 COST SAVINGS Dry-down effect in grain corn Dent corn varieties have a further, extremely positive property in addition to their high yield: They can release wa- ter from their grain particularly well and quickly – what is called the dry-down effect. This has a major impact on the cost of drying corn. The less water a variety contains when harvested, the less energy is needed to dry the corn before storing it and getting it ready for the market. This lower energy consumption has a positive environmental effect – and cuts costs. Initial grain corn varieties with especially good maturation have been bred by KWS and have already obtained approval from the German Federal Ofﬁ ce of Plant Varieties – innovations from KWS. SOMETIMES DRY IS GOOD 22 Management Report of the KWS Group for 2013/2014 Fundamentals Management Report of the KWS Group for 2013/2014 Fundamentals 23 Management Report of the KWS Group for 2013/2014 Fundamentals Group structure and business activity The KWS Group is one of the world’s leading vendors of high-quality seed. We have specialized in develop- ing, producing and distributing seed for agriculture since 1856. From its origins as a sugarbeet breeder, our company has evolved into an innovative provider with a broad portfolio of crops thanks to its strong focus on research and breeding of new, high-yielding varieties. We cover the complete value chain of a modern seed producer – from the breeding of new varieties, multipli- cation and processing to marketing and consulting for farmers. Extensive product portfolio We supply our customers, the farmers, with crops tai- lored to the different climatic conditions in their regions. They include corn and sugarbeet, the cereals wheat, rye and barley, oil plants such as rapeseed, sunﬂ ower and soybean, as well as potatoes, mainly for the moder- ate climatic zone. We expanded our portfolio to include varieties for subtropical regions by moving into Brazil in 2012. Global footprint The KWS Group maintains its own breeding and distri- bution operations in more than 70 countries. We gener- ate 19% of our net sales in Germany and 38% in other European countries. Another 38% of our revenue is from North and South America, with the remaining 5% coming from other foreign countries. Breeding as a growth driver We have geared our operational business activities to providing modern agriculture with competitive varieties to grow feed and food and regenerative raw materials to produce renewable energy. As part of that, we deliver products that can be used for all kinds of farming sys- tems: conventional, ecological and genetically improved. Genetically modiﬁ ed varieties, which are distributed particularly in North and South America, now contribute 34% (32%) of our net sales. With our extensive breeding activities for all types of crops, we lay the foundation for the KWS Group’s long- term growth. The main drivers of continuous innovation and optimization of our varieties are our employees’ great expertise and close cooperation with other companies and research institutions. We have our own selection and testing locations in all key markets and are able to pro- duce top-quality seed seasonally and contra-seasonally in our processing plants. In view of the long development and approval cycles for new varieties, we pursue a sustainable approach in our research and breeding activities. The section “Research and development” on page 27 contains an overview of the main focus of our activities in this area last ﬁ scal year. Three operating units KWS SAAT AG is the parent company of the KWS Group. It multiplies and distributes sugarbeet seed, breeds a broad range of crops and provides its subsidiaries with new varieties every year for the purpose of multiplica- tion and distribution. It also assumes the function of a holding company and manages the Group with its 64 subsidiaries and associated companies operationally and strategically. An overview of the subsidiaries and associated companies included in the consolidated ﬁ nancial statements of the KWS Group is provided in the Notes on page 82. Breeding and distribution activities in over 70 countries • Test locations for trial cultivation • Breeding stations Distribution of value added (around 30% of the total output) 15% Company 5% Shareholders 1% Minority interest 14% Public sector 4% Lenders Value added €373.1 million 61% Employees • Zuchtstationen • Versuchsstandorte 24 Management Report of the KWS Group for 2013/2014 Fundamentals Management Report of the KWS Group for 2013/2014 Fundamentals 25 The KWS Group’s operational business is divided into the three segments Corn, Sugarbeet and Cereals. The Corn Segment is the KWS Group’s largest division, accounting for 61% of net sales. Apart from corn pro- duction and distribution, this segment also contains our activities in the ﬁ elds of oil and ﬁ eld seed, which include rapeseed, soybean, sunﬂ ower and sorghum. The most important markets are still the U.S. and Europe, where we are one of the top 3 vendors of corn seed measured in terms of cultivation area (7% in the U.S. and 19% in the EU). The lion’s share of our corn revenue comes from regions where sowing is not carried out until the spring, with the result that the segment’s operating performance is shaped by the seasonal course of its business. The segment generates only about 15% of its revenue in the ﬁ rst half of our ﬁ scal year from July to December, mainly from winter rapeseed in Europe and corn varieties in Latin America. The Sugarbeet Segment generates 30% of the KWS Group’s net sales. Around 90% comes from the produc- tion and distribution of sugarbeet and 10% from seed potatoes. The strongest sales market for our sugarbeet seed is North America. Genetically improved, herbicide- tolerant sugarbeet varieties are used almost exclusively in this region. KWS began marketing its Roundup Ready® sugarbeet in 2007, and since then it has been far and away the leading vendor of these innovative special products. We are the undisputed leader in the ﬁ eld of sugarbeet, with a market share of 40% in the EU and 45% worldwide. Farmers begin sowing sugarbeet in the ﬁ rst quarter of a calendar year, meaning the predominant share of net sales is generated in the second half of our ﬁ scal year. The Cereals Segment handles the production and distribution of rye, wheat, barley and rapeseed. Cereals business is our third-largest segment and accounts for 9% of the KWS Group’s net sales. We generate 52% of net sales in this segment from rye, around 34% from wheat and barley, and almost 16% from other crops. Our core markets for cereals seed are Germany, Poland, the UK and France. Farmers sow most of the cereal varieties in the fall, which means we generate net sales in this segment mainly in the ﬁ rst half of our ﬁ scal year (July to December). Apart from the three operating segments, the Corporate Segment, in which our research activities are bundled, supports long-term development of competitive products. Cross-segment, strategic administrative functions are also grouped there. Its relatively low net sales come solely from farms. The segment’s income is usually negative due to the high function costs and research expenditure. Objectives and strategies The KWS Group’s corporate strategy is based on long- term, proactive activities. Our goal with this core frame- work for our values and objectives is to achieve sustain- able and proﬁ table growth for our customers, employees and investors. Particular cornerstones of our business model are intensive research work, development of new, high-yielding varieties and continuous expansion of our global footprint so that we are able to operate locally in regional agricultural markets with their special climatic conditions. Guiding principles with a clear focus One of the major challenges of the 21st century is to supply a growing world population with sufﬁ cient food and regenerative raw materials despite the fact that these resources are growing scarcer. While more than seven billion people now have to be provided with food and raw materials, the arable land available worldwide cannot be increased at will. Consequently, it is falling in terms of area per capita. That makes it necessary to keep on increasing production on the area available. Our plant breeders tackle this key challenge by supply- ing newly developed varieties so that agriculture can achieve signiﬁ cant increases in yield and thus continu- ously improve yield per unit area. Our goal is to supply our customers, the farmers, in many regions of the world with seed that meets the very highest require- ments in terms of quality and performance. As a guide for our strategic decisions and everyday activities in our operational business, we have developed guiding principles that help us pursue our strategic objective at all times. Our guiding principles are based on four core activities: • We increase genetic potential through outstanding research and breeding programs. • We supply our farmers with the very best seed. • Farmers trust us as a strong partner throughout their value chain. • We create entrepreneurial freedom and help people unfold their talents. As a result, we give individuals the same freedom of action that is a distinguishing feature of our company. Research and development of new varieties Our core competence is plant breeding. It is at the begin- ning of the value chains for food and feed production and all forms of regenerative raw materials. Modern variety breeding is a process that extends over a period of about ten years. This time span is necessary to develop a plant with new properties into a variety that can be awarded approval and is ready for marketing. Progress in plant breeding is reﬂ ected in varieties that produce higher and higher yields and are adapted better to environmental and climatic conditions. We want to of- fer our customers progress in yields averaging 1% to 2% a year from new varieties. To do that, we invest between 12% and 15% of our consolidated net sales in research and development every year. Adapting varieties and species to different environ- mental conditions brought about by climate change is increasingly playing a key role in breeding. Our most important objectives in plant breeding, across all crops, are to increase yield, resistance to pests, weeds and various diseases, and the technical quality of seed. We also strive to conserve genetic resources. The KWS Group’s medium- and long-term objectives Proﬁ table growth • Increase in consolidated net sales by an average of Research & development Internationalization Sustainability Dividend 5% to 10% p.a. • EBIT margin > 10% • R&D intensity of 12% to 15% of consolidated net sales • 1% to 2% annual progress in yields for our customers and development of tolerances and resistances • Foreign sales > 80% • Expansion of the portfolio of varieties for subtropical markets • Integration of the international subsidiaries • Dividend payout ratio of 20% to 25% of net income of the KWS Group for the year 26 Management Report of the KWS Group for 2013/2014 Fundamentals Management Report of the KWS Group for 2013/2014 Fundamentals 27 Expanded internationalization The KWS Group has its own breeding and distribution units in more than 70 countries. Although we already generate more than 80% of our net sales abroad, our strategic objective is still to keep on pushing ahead with the internationalization of our company. Important milestones on that path are our extensive commitment in Brazil, as well as approval from the China’s Ministry of Agriculture for the joint venture with our longstanding partner Beidahuang Kenfeng Seed Ltd. We will be able to start business operations in the key Chinese market as of ﬁ scal 2015/2016. Apart from the attractiveness and potential of these markets – in particular for our corn business – there is a further aspect of importance for us: While our main revenue drivers, corn and sugarbeet, are not sown until the spring in our core markets, farmers in South America have different sowing and harvesting cycles. As a result, we can cushion the highly seasonal nature of our business in the medium term. High quality for our customers The quality of seed, fairness toward each other and expert consulting are key factors for farmers when they choose varieties. Our goal as a trusted partner, special- ist and consultant to agriculture is to always supply high-quality, innovative seed for producing food and feed as well as regenerative raw materials. The KWS Group is a powerful partner at all stages in the value chain of modern plant breeding: in research and development, as part of the approval process for new varieties, in mul- tiplying and processing seed, in distribution and service, and when it comes to providing onsite consulting. Entrepreneurial freedom for employees We believe qualiﬁ ed and motivated employees are the key to our commercial success. We offer our employees the opportunity to shape their place of work and work- ing environment. All employees at the KWS Group can develop their strengths and pursue their own ideas. The foundation for that is open dialogue, which is a ﬁ rm part of the culture of our organically grown and innova- tive family business and offers a maximum of ﬂ exibility. The objective is for all employees to have substantial entrepreneurial freedom, offering them prospects for their individual development. Employees assume individual responsibility, which fosters their personal initiative. Sustainable and proﬁ table growth We create the basis for proﬁ table growth by investing in research and the development of new varieties. Our objective is to increase the KWS Group’s net sales by 5% to 10% p.a. and achieve a minimum return (EBIT margin) of 10%. The economic report beginning on page 32 contains information on how our key performance indi- cators developed in ﬁ scal 2013/2014. In compliance with the principles of our long-term corporate strategy, we use years in which our proﬁ tability is well above our targets to undertake additional investments, acquisitions and to increase spending, in particular on research and breed- ing and to expand our distribution structures. In this way we strengthen the KWS Group’s potential and lay the foundation for our further growth. Control system The KWS Group’s long-term corporate strategy is formulated by the Executive Board and deﬁ ned by the Supervisory Board. The overriding objective is to en- sure the company’s sustainable and long-term growth. Detailed annual and medium-term operational plans are used to control the Group and the three segments Corn, Sugarbeet and Cereals. The medium-term plan covers the time frame of the annual plan plus three further ﬁ scal years. In turn, the medium-term plan is derived from our strategic corporate planning, which covers a timescale of ten years. The basic assumptions for planning are arrived at on the basis of the regional economic and legal situation, anticipated market trends and assessments of the com- pany’s position in the market and potential product per- formance. In a subsequent bottom-up process, these premises are used to deﬁ ne targets for sales volumes and net sales, production capacities and quantities, the allocation of resources (including capital spending and personnel), the level of material costs and internal charge allocations and the resultant balance sheet data, along with the ﬁ nancial budget. A ﬁ rm part of the plan- ning documentation is an opportunity/risk assessment which every manager must conduct for his or her unit. The planning is compared every quarter with the com- pany’s actual business performance and the updated assessments of the underlying general conditions, and suitable countermeasures are initiated and adjustments made if necessary. A detailed forecast for the current ﬁ scal year is made at the end of each quarter. In this way, we ensure that we can respond quickly to the latest information and knowledge. At the end of each ﬁ scal year, all the segments and functions conduct a detailed variance analysis of the budgeted and actual results. That serves to optimize our internal planning processes and further enhance the already high quality of our forecasts. Corporate Controlling is responsible for coordinating and documenting all planning processes and our current ex- pectations. It monitors compliance with adopted budgets and analyzes the efﬁ ciency and cost-effectiveness of business processes and measures. The Controlling team also advises decision-makers on economic optimization measures. The respective heads of the individual areas of responsibility are responsible for the contents of their planning and current forecasts. They include in particular the heads of the three segments, the heads of R&D ac- tivities, central functions and the regional Heads of Sales. The Executive Board uses various indicators for planning, controlling and monitoring the business performance of the KWS Group and its operating units. The two main in- dicators are net sales and return (EBIT margin) – in each case at the Group and segment levels. The development of these two key metrics in ﬁ scal 2013/2014 can be found in the economic report. Management and control As a listed stock corporation, KWS SAAT AG has a system of dual management, consisting of its Execu- tive Board and its Supervisory Board. Both bodies have strictly separated authorities and different members. While the Executive Board is responsible for managing the company, the Supervisory Board monitors the com- pany and the Executive Board’s activity. This proven form of dual management is to be retained after the company is converted to an SE. The declaration on Corporate Governance in accordance with Section 289a of the Ger- man Commercial Code (HGB) contains detailed informa- tion on the extensive and close cooperation between the Executive Board and the Supervisory Board and has been published at www.kws.com > Company > Investor Relations > Corporate Governance. Research and development Our company’s long-term success is founded on research and the breeding of new varieties. Research and development expenditures in the past ﬁ scal year were €148.8 (140.4) million – 6.0% above the level of the previous year. As a result, we plowed 12.6% of the KWS Group’s total net sales back into our diverse R&D activities. At June 30, 2014, we employed 1,836 (1,768) people worldwide in research and development, or almost 38% of the total workforce. The success of our R&D is reﬂ ected in the number of product approvals we were awarded worldwide, among other things. We obtained 336 (276) marketing approvals for new KWS varieties across all our crops in ﬁ scal 2013/2014. As a result, the product pipeline for our international markets is well-ﬁ lled. Key ﬁ gures for R&D R&D employees Ratio of R&D employees1 R&D expenditure R&D intensity2 Marketing approvals for new varieties 1 Ratio of R&D employees to the total workforce at June 30 2 Ratio of research and development expenditure to net sales in % in € millions in % 2012/2013 2013/2014 1,768 39.8 140.4 12.2 276 1,836 37.9 148.8 12.6 336 +/– 78 6.0% 21.7% 28 Management Report of the KWS Group for 2013/2014 Fundamentals Management Report of the KWS Group for 2013/2014 Fundamentals 29 Establishment of a research center in North America In view of the strategic decision to increase the inter- national orientation of our research activities, we began to establish a new research center in North America in the spring of 2014. At the Bio-Research & Development Growth Park (BRDG Park) in St. Louis, Missouri (U.S.), where we are surrounded by universities, other institu- tions and a wide range of companies from our industry, we can leverage a top-class infrastructure for plant research and have access to an excellent talent pool. Our two research centers in Einbeck, Germany, and the U.S., which work closely together and beneﬁ t from each other, will enable us to develop new products for the global market more efﬁ ciently and further strengthen our position in international plant research. Increasing importance of powerful information technologies The amount of valuable data available is increasing at a terriﬁ c pace in plant breeding, just as it is elsewhere. Fields such as genome research, marker technologies or the automated assessment of plant traits (phenotyping) generate huge volumes of heterogeneous data, which is used as the basis for making sound decisions in breed- ing. We are therefore investing in high-performance IT in- frastructures and innovative bioinformatics solution con- cepts that enable data from different areas of research to be linked together and important interconnections to be identiﬁ ed. Customized development of smart database architectures that are tailored speciﬁ cally to R&D require- ments, as well as data storage, processing and analysis standards for all crops enable us to make pinpointed use of this big data in our breeding process. The Bio-Research & Development Growth Park in St. Louis, Missouri (U.S.), the home of KWS’ second research center. Genome sequences decoded: Sugarbeet and bread wheat After more than ten years of intensive research work, the genome sequence of sugarbeet was able to be completely decoded and published in the journal “Nature” in December 2013. Since this research strand, which involves public and private participation, was launched in the year 2000, KWS has played an active part and, among other things, provided its own sugar- beet parent line as the basis for creating a genome-wide reference sequence. In the course of the project, we were able to use parts of this sequence for our own re- search and development work. Completion of the work means we have a high-quality sequence with a great deal of additional biological information. On the basis of this, interesting genes can be pinpointed directly in the genome and converted into molecular markers, which in turn enable faster decisions on selection and may thus signiﬁ cantly increase the success of breeding. An important milestone was also achieved in research into the wheat genome. The International Wheat Ge- nome Sequencing Consortium (IWGSC), in which KWS is one of 22 partners, has published a draft sequence of the bread wheat genome in the journal “Science.” It gives scientists and breeders new insight into the struc- ture and organization of the large and very complex genome of bread wheat. It also marks an important step in conserving a complete reference sequence of the world’s most widely grown cereal crop. Work starts on our own corn breeding station in Peru Winter breeding gardens in the southern hemisphere offer ideal conditions for conducting breeding work on corn throughout the year so that our breeding programs can be optimized and sped up. In Peru, where we have cooperated to date with external local providers, we are currently establishing our own efﬁ cient breeding station that will enable us to grow three generations a year. Corn was sown for the ﬁ rst time in July and August 2014; the station is expected to be completed by the end of the year. Success in sunﬂ ower breeding After moving back into sunﬂ ower breeding ﬁ ve years ago, we have now achieved a key milestone with the completion of our new breeding station for sunﬂ ower and corn in Kozármisleny near Pécs, Hungary. We now have the necessary special seed, harvesting and processing technologies and can maintain our testing capacities at a competitive level. The candidates tested in the network have already achieved a good level of performance in terms of yield and agronomic character- istics, with the result that four of them have been able to be registered for the ofﬁ cial variety tests, a process that will last several years. Premiere in Canada: Two hybrid rye varieties registered We succeeded in registering two hybrid rye varieties in Canada for the ﬁ rst time in the spring of 2014. An increase in yield of more than 20% was achieved in the local quality controls. That gives us a good springboard on which to breed and market continuously improved varieties that are specially adapted to this region. Shedding light on things: The sugarbeet’s genome was completely decoded in December 2013. 30 Management Report of the KWS Group for 2013/2014 Fundamentals Management Report of the KWS Group for 2013/2014 Fundamentals 31 A GOOD DEFENDER FIGHTING AGAINST FUNGUS Ergot resistance in hybrid rye In recent years, varieties with resistance to the ergot fungus have been planted to an increasing extent. By far the most important contribution here is made by PollenPlus® technology from KWS’s Cereal Segment. The decline in ergot infestation is primarily due to a clever choice of the planted variety by farmers and illustrates how breeding progress is successful- ly transferred to practice. Ergot has hardly been a topic in the last few years thanks to the direct effectiveness of PollenPlus® technology. 32 Management Report of the KWS Group for 2013/2014 Economic report | Business performance Business performance In ﬁ scal 2013/2014 we continued the implementation of our proven, long-term corporate strategy and, as planned, invested more in research and breeding new varieties and in the further expansion of our distribution structures. In this way we are creating the foundation to tap into new markets for the KWS Group and keep on growing our earnings strength with high-yielding variet- ies. Apart from higher expenditures on product devel- opment and distribution of €21.9 million, the growing strength of the euro compared with important curren- cies for us, such as the US dollar, the Russian ruble, the Ukrainian hryvnia, the Brazilian real, the Argentinean peso and the Turkish lira, had a signiﬁ cant impact on our operating income. Negative exchange rate effects impacted the KWS Group’s net sales in the year under review by about €51 million and its operating income (EBIT) by just over €4 million. Forecast versus actual business performance KWS Group Net sales EBIT Corn Net sales EBIT Sugarbeet Net sales EBIT Cereals Net sales EBIT At the beginning of our 2013/2014 ﬁ scal year, we fore- cast that net sales for the KWS Group would increase by just over 5% and EBIT would fall by approximately €10 million to around €141 million (–6.6%). The ex- change rate issue mentioned above made us a little more cautious, despite the positive trend in our opera- tional business in the ﬁ rst three quarters, with the result that we revised our forecasts slightly downward. At the end of the third quarter, we assumed that we would grow net sales by 2.4% and that operating income would fall by 10.8%. However, we were able to surpass this forecast slightly by the end of the ﬁ scal year thanks to the positive development of our Corn and Sugarbeet Segments. Sales ultimately grew by 2.7% and EBIT fell by 9.0%. Forecast for 2013/20141 Adjustment during the year2 > 5% Approx. 2.4% About –7% Approx. –11% 10% 8% +/–0% –10% Approx. 4% Approx. 2% Approx. 1% Approx. –6% Approx. –3% –20% Approx. –30% Results for 2013/2014 2.7% –9.0% 1.9% 9.4% 6.8% –5.1% –3.9% –36.4% 1 Forecasts taken from the respective Annual Reports 2 Adjustment of the forecast with publication of the 3rd Quarterly Report for the period from July 1, 2013, to March 31, 2014 Management Report of the KWS Group for 2013/2014 Economic report | Earnings, ﬁ nancial position and assets 33 Earnings, ﬁ nancial position and assets Earnings Selected key earnings ﬁ gures Net sales EBITDA EBIT Return on sales (EBIT margin) Net income for the period in € millions in € millions in € millions in % in € millions 2012/2013 2013/2014 1,147.2 1,178.0 190.5 152.1 13.3 92.3 184.2 138.4 11.8 80.3 +/– 2.7% –3.3% –9.0% –11.3% –13.0% Sales increase by 2.7% The KWS Group grew its net sales in ﬁ scal 2013/2014 by 2.7% to €1,178.0 (1,147.2) million, despite negative exchange rate effects. This growth was mainly driven by the positive performance of the Sugarbeet and Corn Segments. We achieved the strongest growth in South America, followed by slight increases in our European markets. The regional spread of sales hardly changed year on year due to the signiﬁ cant currency effects. After adjustment for exchange rate effects, net sales would have been €1,228.5 million and thus up 7.1% over the previous year. 4.3% increase in gross proﬁ t Gross proﬁ t in the year under review rose from €540.2 mil- lion to €563.5 million. License and material costs were only slightly higher and resulted in a below-proportionate increase in the cost of sales by 1.2% to €614.5 (607.0) million. The gross margin thus rose to 47.8% (47.1%). R&D and distribution budgets increase as planned The planned expansion of our international distribution structures, the goal of which is to enable us to keep on offering high-quality, tailored consulting for customers as we continue to grow, caused selling expenses to increase by 7.1% to €204.0 (190.5) million. The ratio of selling expenses to net sales was thus 17.3% (16.6%). The continuous expansion of our R&D activities is reﬂ ect- ed in our research and development expenditure, which was €148.8 (140.4) million, 6.0% above the previous year. The R&D intensity was thus 12.6% (12.2%). Gen- eral and administrative expenses increased by 11.2% to €76.7 (69.0) million, mainly as a result of projects aimed at further expansion of our business activities. Operating income (EBIT) of €138.4 million The balance of other operating income (€60.7 million) and other operating expenses (€56.2 million), the individual items of which are presented in detail in the Notes on pages 103/104, fell to €4.5 (11.8) million. The decline is in part due to negative exchange rate inﬂ uences, as well as to amortization and write-downs in potato business. Operating income (EBIT) thus fell by 9.0% to €138.4 (152.1) million in the year under review. The return on sales (EBIT margin) accordingly fell by 1.5 percentage points to 11.8% (13.3%). After adjustment for exchange rate effects, we would have generated an EBIT of €142.6 million. Additional interest expenses for the fund- ing of our expanding business in South America and for tax back payments meant that net ﬁ nancial income/ expenses fell to € –12.5 (–10.3) million. Earnings before taxes (EBT) were thus €125.9 (141.8) million. Income taxes in ﬁ scal 2013/2014 were €45.6 (49.5) million. As a result, they were higher than the previous year in relation to income. This was due to extraordinary effects such as losses that cannot be recognized against tax and tax payments relating to previous periods. As a result, the tax rate increased by an additional 5 percentage points over what we had anticipated. The tax rate was 36.2% and, as in the previous year (34.9%), well above our long-term average. It is still mainly impacted by the rates in regions where we post strong earnings. Western Europe, with an average effective tax rate of 33%, and North America (38%) account for almost 60% of the current tax expense. The contribution to earnings from our growth markets in South America and Southeastern Europe will not perceptibly reduce the tax rate for the Group until subsequent ﬁ scal years. The KWS Group’s net income for the ﬁ scal 2013/2014 was €80.3 (92.3) million. Of this, €3.2 (3.4) million was attributable to minority interests and €77.1 (88.9) million to the shareholders of KWS SAAT AG. Given that the number of shares remained the same, earnings per share were €11.69 (13.47). 34 Management Report of the KWS Group for 2013/2014 Economic report | Corn Segment Management Report of the KWS Group for 2013/2014 Sugarbeet Segment 35 Corn Segment Key ﬁ gures for the Corn Segment Net sales EBIT EBIT margin Capital expenditure 2012/2013 2013/2014 in € millions in € millions in % in € millions 701.7 92.2 13.1 23.6 714.9 100.9 14.1 42.0 +/– 1.9% 9.4% 78.0% Net sales up by 1.9%, earnings rise above- proportionately by 9.4% In ﬁ scal 2013/2014, the Corn Segment increased its net sales slightly by 1.9% to €714.9 (701.7) million. Its continuing good operating performance was sharply impaired by unfavorable exchange rate inﬂ uences. The US dollar zone and Brazil, Argentina, Turkey, Romania, Russia and Ukraine were hit especially hard. After adjust- ment for these negative exchange rate effects totaling €28 million, the segment’s net sales would have been €742.9 million (+5.9%). Regionally, a slight increase in net sales (3.2%) was achieved in Europe, although the strongest relative growth was in South America, particu- larly Brazil (43.2%). Although our expenditures on research and development and on expanding our international distribution struc- tures were again above the level of the previous year as planned (7.2%), segment income (EBIT) rose more strongly than net sales. EBIT grew by 9.4% to €100.9 (92.2) million, giving a return on sales (EBIT margin) of 14.1% (13.1%). However, earnings for the previous year were reduced by revaluation of a put/call option in con- nection with our acquisitions in Brazil. Record harvests lead to a decline in the price of corn for consumption General conditions in the global market for corn for consumption changed signiﬁ cantly in ﬁ scal 2013/2014 compared with the previous year. Record harvests were recorded in many regions of the world, while periods of heat and drought had reduced harvests in the previ- ous year. The high level of supply thus resulted in a dramatic decline in the price of corn for consumption on the Chicago Mercantile Exchange (CME). The price in January 2014 was around 40% below the previous year’s level of €286 a ton. The consequences of this for the global corn seed market and our 2013/2014 sales season were an easing in the supply situation as well as rather muted demand, especially in markets where farmers were able to switch to protein crops such as soybeans. The prices for these crops did not come under such severe pressure as those for corn for con- sumption, with the result that many farmers decided to grow these alternative crops to a greater extent. Report from the regions: Strong performance in South America According to the United States Department of Agri- culture (USDA), corn cultivation area in North America fell year on year by 4% to around 37 million hectares. Nevertheless, we were able to consolidate our market position as the third-largest corn breeder in the U.S. with AGRELIANT, our North American joint venture with the French company Vilmorin & Cie. AGRELIANT’s net sales fell by 5% to €509 (537) million due to exchange rate effects. There was still large demand for genetically improved varieties with resistance to herbicides and insects. KWS had an especially successful ﬁ scal 2013/2014 in South America. We were able to improve our market share signiﬁ cantly in both Brazil and Argentina. Sales volumes of corn seed rose year on year by just over 20% in Argentina and by more than 45% in Brazil. As a result, we were able to beneﬁ t perceptibly from the increasing integration of our Brazilian companies RIBER KWS SEMENTES (production and distribution) and Whether as feed, food or a regenerative raw material – corn is still on the rise worldwide. KWS MELHORAMENTO E SEMENTES LTDA (research and development). However, we largely used the income from operational business to build our structures in the region. As in North America, genetically engineered corn varieties are also increasing in importance in South America. We were able to continue our steady growth in Europe. Building on our strong market position as a corn breeder in Germany, all regions contributed to this positive trend. Our business in Ukraine remained at a low level as a result of the country’s political destabilization, coupled with currency risks and farmers’ poor liquidity. We continued to invest highly in seed production in the period under review with regard to expanding our dis- tribution activities. That includes setting up a new seed plant for corn and sunﬂ ower in the climatically favorable part of Serbia (Vojvodina). Further large investments were made at our production sites in the U.S., Southern France and Turkey, where we expanded capacities for storage, drying and packaging. At the end of the period under review, we were given ofﬁ cial approval from China’s Ministry of Agriculture to establish our corn production and distribution joint venture there. Together with our longstanding partner Kenfeng, one of the largest national seed companies, we will now create the necessary structures and make investments in production facilities. The start of opera- tions is scheduled for ﬁ scal 2015/2016. Net sales from oil seed rise further While rapeseed and sunﬂ ower are marketed predomi- nantly in Europe, demand in North and South America focuses on soybean. Oilseed contributed a total of €82.2 (71.4) million to the segment’s net sales. 36 Management Report of the KWS Group for 2013/2014 Economic report | Sugarbeet Segment Management Report of the KWS Group for 2013/2014 Economic report | Sugarbeet Segment 37 Sugarbeet Segment Key ﬁ gures for the Sugarbeet Segment Net sales EBIT EBIT margin Capital expenditure 2012/2013 2013/2014 in € millions in € millions in % in € millions 328.6 73.9 22.5 22.4 351.1 70.1 20.0 18.5 +/– 6.8% –5.1% –17.4% Higher investments in R&D, production and distribution The Sugarbeet Segment, at which our seed potato busi- ness is also consolidated, recorded net sales of €351.1 (328.6) million in ﬁ scal 2013/2014, an increase of 6.8%. After adjustment for negative exchange rate effects of €13.4 million, the segment’s net sales would have been €364.5 million. In the core markets of North America and the EU 28, we were again able to grow our net sales on the back of our portfolio of high-yielding varieties and further expand our leading market position in the sugarbeet product segment. Sugarbeet seed business accounted for €318.5 (297.8) million and seed potato business for €32.6 (30.8) million of total net sales here. As planned, we increased spending on research and de- velopment, modernized and expanded our production facilities and further expanded our distribution structures so as to ensure sustainable further development of our operations and create the foundation for securing our market leadership in sugarbeet seed business. As part of the fundamental realignment of our seed potato business, we recognized write-downs in connection with the streamlining of our portfolio of varieties, as well as amortization of the capitalized goodwill. That reduced KWS POTATO’s income by a total of €6.3 million. Conse- quently, the segment’s income (EBIT) fell slightly by 5.1% to €70.1 (73.9) million. The return on sales (EBIT margin) declined to 20.0% (22.5%). Innovations as a response to lower cultivation areas In the 2014 growing season, high stockpiles of sugar and good harvests, coupled with falling world mar- ket prices, again resulted in a reduction in sugarbeet cultivation area worldwide by 3% to 4.1 million hectares. Nevertheless, the KWS Group was able to grow its net sales from sugarbeet seed again in ﬁ scal 2013/2014 by 7.0% to €318.5 (297.8) million. This performance is driven by our longstanding, excellent expertise in the ﬁ eld of breeding. A key cornerstone of our research and development activities is our exclusive cooperation project with Bayer CropScience. Our joint research in developing ALS-tolerant sugarbeet has already pro- duced two patents. These innovative varieties, which are based on conventional breeding methods, have a natural resistance to highly effective herbicides. We expect them to be launched on the market in ﬁ scal 2017/2018. Our innovative strength is also reﬂ ected in the expansion of our portfolio of varieties. In the year under review, we were awarded marketing approvals for 174 (130) new sugarbeet varieties and two new potato varieties in 30 countries. Report from the regions: North America contributes 40% of net sales The North American region remained one of the growth regions for sugarbeet, along with Northern Europe and Turkey, in ﬁ scal 2013/2014. We now generate almost 40% of our net sales from sugarbeet, or €127.0 (115.8) million, in North America. In order to safeguard our positon in North America, where we are far and away the market leader, we are currently modernizing our existing production plants in Oregon. We are also opening up further growth opportunities for the future with our goal of continuing to improve quality and by expanding capacities. We were able to beneﬁ t from our good results in variety performance in the EU 28, and net sales rose to €137.0 million compared with €127.7 million the year before. Net sales remained stable in Germany, where cultiva- tion area was constant, while there was a slight increase in net sales in France, where cultivation area grew. In Central Europe, we posted higher net sales in Poland in particular. Good variety performance resulted in a sharp increase in net sales in the Netherlands and Belgium, enabling us to further expand our leading market posi- tion in Northern Europe. Net sales outside the EU 28 increased to €181.5 (170.1) million, in particular on the back of strong business in North America. That more than compensated for the lower level of business in China and Russia as a result of the decline in cultivation area there. In Turkey we beneﬁ ted from our own local seed production, thanks to which we were able to increase net sales despite a decline in area. Seed potato business with a clear focus After the sale and licensing-out of our specialty business, we continued to sharpen the focus of our seed potato business in the year under review. The portfolio of our subsidiary KWS POTATO comprises varieties for the pro- cessing industry for making chips and French fries and to satisfy demand for ware potatoes in export markets. This focus of the segment is now also reﬂ ected in the internal organization of our potato business. The empha- sis in our seed potato production at present is not only on increasing volumes, but in particular on ensuring and enhancing quality at our younger production sites, for example in Russia. Establishment of the potato breeding station in Emmeloord in the Netherlands was concluded in the year under review with completion of the green- house. Net sales from our seed potato business were €32.6 (30.8) million. The necessary up-front and start-up costs meant that it did not make a positive contribution to income in ﬁ scal 2013/2014 either. The annual impair- ment test for our potato business also revealed the need for a write-down. Consequently, the capitalized goodwill and intangible assets of KWS POTATO were written down to a total amount of €6.3 million. KWS sugarbeet varieties achieved a sugar content of more than 18% for the ﬁ rst time in Germany. 38 Management Report of the KWS Group for 2013/2014 Economic report | Cereals Segment Management Report of the KWS Group for 2013/2014 Economic report | Cereals Segment 39 Cereals Segment Key ﬁ gures for the Cereals Segment Net sales EBIT EBIT margin Capital expenditure 2012/2013 2013/2014 in € millions in € millions in % in € millions 111.7 26.9 24.1 7.3 107.3 17.1 15.9 6.8 +/– –3.9% –36.4% –6.8% Lower prices for cereals for consumption cause demand for seed to fall After an extremely good previous year, net sales in the Cereals Segment fell by 3.9% to €107.3 (111.7) million. The decline was due in particular to a drop in demand for hybrid rye in Germany and Poland, since lower market prices induced farmers to grow other crops. As a result, net sales in our rye business fell by a total of 10.3%. In general, there was less demand on the part of farmers for certiﬁ ed seed from breeders in view of the lower prices for cereals for consumption at the time of the 2013/2014 winter sowing season, meaning they increasingly used farm saved seed. Consequently, net sales from wheat and rapeseed likewise declined. However, we were able to post further growth in barley, where our good quality and variety performance for Over 40% of farmers in the UK now select a wheat variety from KWS. both winter and summer barley had a positive impact. Rye remains the main contributor to the segment’s net sales, followed by wheat, barley and rapeseed. The fall in net sales from rye, as well as expansion of our breeding and distribution activities as planned, impacted the segment’s income (EBIT) in ﬁ scal 2013/2014. EBIT consequently fell by 36.4% to €17.1 (26.9) million and the return on sales (EBIT margin) dropped accordingly to 15.9% (24.1%). At the end of ﬁ scal 2013/2014, KWS SAAT AG acquired the remaining 18.9% of shares in KWS LOCHOW GMBH from the previous family shareholders. At the same time, the company continued the integration efforts it initiated ﬁ ve years ago and established the independent name KWS GETREIDE to enhance its external visibility. As a result, all the segments of the KWS Group have a con- sistent look and name. The legal name of the company is still KWS LOCHOW GMBH. Extensive investment in developing new cereal varieties We continued our growth strategy in the year under review and again increased spending in our national and international programs to develop new cereal varieties. Our diverse breeding programs in the core markets of Germany, the UK, Poland, France, Russia and the U.S. again produced good results. In ﬁ scal 2013/2014, we obtained a total of 42 (43) marketing approvals for new varieties in 6 (7) countries at the Cereals Segment. The focus of farmers in Germany was on ergot resis- tance in rye. We were able to maintain our share in a declining market thanks to good results in the approval tests for our rye varieties for the 2013 harvest and the very good ergot resistance they exhibited. Apart from continuous optimization of yields, our breeding strategy also comprises very long-term projects, such as estab- lishment of hybrid breeding for wheat and barley. We are also developing specially optimized rye and wheat varieties for the regions of Eastern Europe and North America. Our goal for Eastern Europe is to adapt our rye varieties to the continental weather conditions and thus to tap additional market potential in the medium term. In the U.S. we are focusing on developing special winter wheat varieties (Soft Red Winter). In Canada we obtained the ﬁ rst ofﬁ cial approvals for two rye varieties. Report from the regions: Less use of certiﬁ ed seed The general conditions in Germany for using certiﬁ ed seed worsened as a result of much lower prices for cere- als for consumption than in the previous year. The share of cultivation area on which certiﬁ ed seed was used fell to 50% (53%). However, we were able to maintain our market share. The Polish market displayed a similar trend in the year under review. There was continued large demand for rye seed from our PollenPlus® variet- ies, which are highly tolerant to infection by the toxic ergot fungus. In the UK we obtained approval for new, high-yielding wheat varieties. As a result, we were able to maintain our leadership with a market share of 43%. Sales of rye and wheat increased in Scandinavia, while net sales in France were down slightly overall from the previous year. 40 Management Report of the KWS Group for 2013/2014 Economic report | Corporate Segment Management Report of the KWS Group for 2013/2014 Economic report | Financial situation 41 Corporate Segment Financial situation Key ﬁ gures for the Corporate Segment Selected key ﬁ gures on the ﬁ nancial situation Net sales EBIT Capital expenditure 2012/2013 2013/2014 in € millions in € millions in € millions 5.2 –40.9 6.1 4.7 –49.7 13.9 +/– –9.6% –21.5% 127.9% Net sales at the Corporate Segment, which come mainly from revenue from our farms, were €4.7 (5.2) million in the year under review. All cross-segment costs, including the higher expenses for all central functions of the KWS Group and for long-term research projects, are allocated to this segment, which means that its income is regularly negative. Its income (EBIT), due particularly to the in- creased expenditure for research and development, was € –49.7 (–40.9) million. KWS: A stock corporation since 1885 and now on the way to becoming an SE (Societas Europaea). Cash and cash equivalents Cash proceeds from operating activities Net cash used in investing activities Net cash from ﬁ nancing activities 2012/2013 2013/2014 In € millions In € millions In € millions In € millions 202.4 84.6 88.9 27.2 155.0 61.0 75.4 –31.5 +/– –23.4% –27.9% –15.2% The overriding objective of ﬁ nancial management at the KWS Group is to secure the company’s ﬁ nancial strength for the long term and maintain its ﬁ nancial independence by ensuring it has sufﬁ cient liquidity. With this approach we can shape the company’s further growth ﬂ exibly and exploit opportunities as and when they arise. The ﬁ nan- cial management organization is controlled in the Group centrally from Einbeck. A balanced mix of different ﬁ nancing, investment and hedging instruments is used. Derivative ﬁ nancial instruments are used only to hedge the risk of interest rate changes and currency risks. Net cash of €61.0 million from operating activities Cash earnings in ﬁ scal 2013/2014 were €110.4 (109.5) million, with lower net income for the year and higher depreciation, amortization and write-downs, and were at the level of the previous year. The net cash from operat- ing activities (operating cash ﬂ ow) was €61.0 (84.6) mil- lion. The decline is due largely to the increase in working capital: Net working capital in the year under review rose to €268.0 (238.0) million, mainly to increase inventories so as to ensure our ability to deliver seed. Net cash used in investing activities was €75.4 (88.9) million, €8.7 mil- lion of which relates to higher payments for tangible ﬁ xed assets, whereas in the previous year the acquisition of shares in consolidated companies reduced the cash ﬂ ow by €23.0 million. The net cash from ﬁ nancing activities in- cludes not only the dividend payout for ﬁ scal 2012/2013 of €19.8 (18.5) million and the repayment of loan install- ments, but also the price paid to acquire the remaining shares in KWS LOCHOW GMBH. Net cash from ﬁ nanc- ing activities, which was impacted last year by the raising of a borrower’s note loan with a volume of €50 million, fell in the period under review to € –31.5 million. Cash and cash equivalents on the balance sheet date June 30, 2014, were a comfortable €155.0 (202.4) million. Capital spending increases by 36.5% In ﬁ scal 2013/2014 our Group invested a total of €82.6 (65.2) million, 26.7% more than in the previous year. One focus of our investments was expanding our corn production capacity. Among other things, we began building a new corn processing plant in Serbia at a total cost of €27.5 million. We invested an additional €7.6 million in modernizing sugarbeet production in North America. The Corn Segment accounted for 51.8% (39.8%), the Sugarbeet Segment for 22.8% (37.7%) and the Cereals Segment for 8.3% (12.3%) of our invest- ments. The Group-wide investments were spread over the regions as follows: 28.8% (26.8%) of the invest- ments went to Germany, 33.7% (28.0%) to the rest of Europe, 35.0% (37.3%) to North, Central and South America and 2.5% (7.9%) to the rest of the world. Depreciation and amortization in ﬁ scal 2013/2014 were €45.8 (38.4) million and, due to the increase in spending on property, plant and equipment and necessary write- downs in our potato business, were above the level of the previous year. 42 Management Report of the KWS Group for 2013/2014 Financial situation Management Report of the KWS Group for 2013/2014 Financial situation 43 A FORTIFIER FOR IN-BETWEEN KWS ACKERFIT Catch crop mixtures from KWS Farmers’ greatest asset is their land. Measures to improve soil are vital to ensure that it continues to produce high yields. KWS has developed a new product line for catch crops to enable that. KWS AckerFit are catch crop mixtures that ﬂ ourish after the main crop has been harvested and before the next crop is sown. They offer many beneﬁ ts for the soil and the plants subsequently grown in it: They promote soil life and fertility, their extensive root sys- tems improve the soil structure, they absorb valuable nutrients and restrict their leaching, increase biodiversity in the ﬁ eld and make crop rotation more ﬂ exible. 44 Management Report of the KWS Group for 2013/2014 Economic report | Assets Management Report of the KWS Group for 2013/2014 Economic report | Employees 45 Assets Abridged balance sheet Assets Noncurrent assets Current assets Equity and liabilities Equity Long-term borrowings Short-term borrowings Total assets 2012/2013 2013/2014 +/– in € millions in € millions in € millions in € millions in € millions 447.5 771.2 649.7 229.3 339.7 476.8 786.0 637.8 254.2 370.8 in € millions 1,218.7 1,262.8 6.5% 1.9% –1.8% 10.9% 9.2% 3.6% The KWS Group’s total assets increased in the ﬁ scal year by €44.1 million to €1,262.8 (1,218.7) million, mainly due to expansion of the KWS Group’s business and the as- sociated investments. Noncurrent assets increased year on year to €476.8 (447.5) million, mainly as a result of investments in property, plant and equipment. Current assets increased by €14.8 million to €786.0 (771.2) million. As part of that, inventories at the balance sheet date rose by €48.5 million to €193.0 (144.5) million and ensure our ability to deliver seed for the next sowing season. Cash and cash equivalents fell to €155.0 (202.4) million, mainly due to acquisition of the remaining shares in KWS LOCHOW GMBH. After deduction of ﬁ nancial liabilities, net liquidity was € –12.1 (70.6) million. On the other side of the balance sheet, the KWS Group’s equity fell slightly by 1.8% to €637.8 (649.7) million. This reﬂ ects the exchange rate effects of €19.2 million, which are not recognized in the income statement, as well as effects from our takeover of the minority interests in our cereals business. However, we still have solid ﬁ nancing, with an equity ratio of 50.5% (53.3%). Equity at the balance sheet date fully covers noncurrent as- sets. Long-term borrowings increased by €24.9 million to €254.2 (229.3) million and short-term borrowings by €31.1 million to €370.8 (339.7) million. This increase is mainly due to the greater need for capital as a result of the share acquisitions and expansion of business in the growth markets of South America. Employees Headcount increases again The KWS Group combines the values of a company that has a tradition of family ownership with an attractive and open international working environment. We are com- mitted to fairness and respect toward each other, as well as to fostering openness and mutual support. That has helped to establish a culture of closeness and trust at our company. The KWS Group’s workforce continued to grow as planned in ﬁ scal 2013/2014. In ﬁ scal 2013/2014, we had an average of 4,847 (4,443) employees worldwide, an increase of 9.1%. Despite our considerable growth over the past years, the average length of service in Germany has remained constant at the high level of 13.9 years – a trend that underscores KWS’ attractive- ness as a modern and fair employer. Working together in teams that reﬂ ect the diversity of a global and modern company enables us to come up with unconventional, creative ideas and ﬁ nd innovative solutions. We speciﬁ cally encourage all employees to develop their abilities and make their own contributions. We therefore consciously delegate responsibility and foster the entrepreneurial spirit of every employee. Personnel costs rose below-proportionately relative to the increase in headcount by 7.6% to a total of €225.8 (209.9) million. Of that, €180.3 (167.4) million went to compensation and €45.6 (42.5) million to social security contributions, expenses for pension plans and beneﬁ ts. Employees by region Germany Europe (excluding Germany) Americas Rest of world Total Employees by function1 Research & development Distribution Production Administration Total 1 on average for the year 2012/2013 2013/2014 1,676 1,139 1,505 123 4,443 1,763 1,223 1,711 150 4,847 2012/2013 2013/2014 1,768 1,132 956 587 4,443 1,836 1,241 1,136 634 4,847 +/– 5.2% 7.4% 13.7% 22.0% 9.1% +/– 3.8% 9.6% 18.8% 8.0% 9.1% 46 Management Report of the KWS Group for 2013/2014 Economic report | Employees Management Report of the KWS Group for 2013/2014 Economic report | Employees 47 KWS – an attractive employer Our employees are the foundation of our business success. To secure that foundation, we have to remain attractive as an employer. We take an approach that enables us to ﬁ nd new talents – career starters and experienced professionals alike – as well as to develop the existing workforce with its diverse skills. One focus of our activities is on modern online commu- nications and participation in selected career fairs. At the same time we have intensiﬁ ed our recruiting activities, strengthening our cooperation with relevant universities and organizations in Germany and abroad. As part of our plans to open a second research location in St. Louis, Missouri (U.S.), a main focus of our recruiting was to po- sition KWS as an attractive employer in the eyes of biolo- gists and biotechnologists in the region and universities in and around Missouri. Throughout the Group, we have continuously expanded the opportunities we offer students to work as an intern at KWS or write their degree theses in cooperation with us. 76 students took up this offer in the year under re- view. In Germany, KWS also offers the option of pursu- ing a dual course of study and obtaining a scholarship, including a Germany Scholarship funded by the German Ministry of Education and Research. We were able to in- crease the number of people KWS sponsored by means of a Germany Scholarship from ﬁ ve to twelve in the past ﬁ scal year. We have also actively expanded our offering to students to visit KWS, to get to know the wide range of activities of a modern plant breeding company and to learn more about their professional prospects in person. Successful career start at KWS In addition to sound, in-depth technical training, our career starters are given extensive insight into our inter- national business processes. We also attach particular importance to developing the personal and social qualiﬁ cation of our trainees. In the year under review we employed 98 (92) trainees in six business administration, agricultural science and industrial vocations. Around 120 trainers at the KWS Group ensure a high quality of knowledge transfer. We offer university graduates our proven trainee program. 37 (43) university graduates made use of this attractive means of starting their career in ﬁ scal 2013/2014. In addition, KWS offers career starters wishing to become a plant breeder practical internal training as part of its “Breeders Academy.” Employee development is of key importance The continuing personal development of our employees in a dynamically changing global environment, charac- terized by continuous innovation, customer focus and modern communication, is one of the key objectives of our human resources work. The foundation for that is a Group-wide personnel development landscape that is systematically optimized and expanded. In general, we emphasize on-the-job training in conjunction with targeted internal and external training measures to suit needs. In the year under review, the ﬁ rst group completed the International Development Program (IDP), which is oriented toward the requirements of a global business environment. By establishing the IDP, we have created a special offering to help experts, young talents and man- agers develop their skills. One focus is also on directly imparting KWS’ typical management and leadership style through our executives. Further elements of employee development are the “KWS On Board” conference, in which new executive employees provide extensive insight into our corporate strategy, our culture and our expectations, as well as the Orientation Center, which offers valuable sugges- tions for employees’ personal and professional develop- ment. In order to promote the sharing of knowledge and experience regarding leadership and cooperation and to strengthen coaching skills, we also continued the proven Sparring Circles for executive employees this year. KWS Healthy Working World The Works Council, the HR departments in the KWS Group and the German service companies have jointly developed the initiative “KWS Health Working World” to address the issue of work and health. As part of this initiative, a Health Day was held in Einbeck at the end of May 2014. More than 600 employees took the oppor- tunity to learn more about the various facets of health – and not only at work – at an interactive fair during their working time. KWS as a family-friendly company We want our employees to be able to balance their career and private lives in every phase of their life. We support them in that with ﬂ exitime models and company agreements on child care allowances, as well as giving employees leave or reducing their working time so that they can look after dependents who need caring for. Key ﬁ gures for employees (in Germany) Number of employees in Germany of which Number of part-time employees Ratio of men Ratio of women Number of trainees Trainee ratio Average age (in years) Length of service (in years) Expansion of the global HR strategy In ﬁ scal 2013/2014 we continued the international establishment and further development of HR to meet global requirements. We increased resources at the regional service companies as planned and also com- menced preparations to open two more HR depart- ments at the planned service companies in North and South America. A professional software product will enable us to process, manage and aggregate all orga- nizational and personal data even more efﬁ ciently and thus address the company’s growth over the past years in this ﬁ eld as well. in % in % in % 2012/2013 2013/2014 1,676 350 49 51 92 5.5 40.4 13.9 1,763 350 50 50 98 5.6 40.2 13.9 +/– 5.2% +/– 0% 6.5% 48 Management Report of the KWS Group for 2013/2014 Assets Management Report of the KWS Group for 2013/2014 Assets 49 THE GENETIC POOL The basis of product development Every plant has different “talents.” Characterizing the various genotypes, choosing them by traits and combining them in new ways by means of selective crossing – that is the essence of plant breeding. Every restriction to biodiversity therefore reduces the possibilities when it comes to breeding agricultural crops. Conserving plant genetic resources is a key concern in our industry. Übersetzung TREASURE TROVE OF TALENT 50 Management Report of the KWS Group for 2013/2014 Explanations regarding the annual ﬁ nancial statements of KWS SAAT AG | Report on events after the balance sheet date | Opportunity and risk report Management Report of the KWS Group for 2013/2014 Opportunity and risk report 51 Explanations regarding the annual ﬁ nancial statements of KWS SAAT AG The annual ﬁ nancial statements of KWS SAAT AG are prepared in accordance with the provisions of the Ger- man Commercial Code (HGB). Operational business relating to the production and marketing of sugarbeet seed was expanded slightly in ﬁ scal 2013/2014. How- ever, the central costs for administration and all other costs of the Corporate Segment were not covered by the income from corn business, which comprises sales of basic seed and royalties. Consequently, the operating income (EBIT) of KWS SAAT AG in the year under review was €–14.3 (11.8) million, well below the previous year’s ﬁ gure despite a slight increase in net sales of 2.5% to €270.1 (263.5) million. Net ﬁ nancial income/expenses is mainly from income from investments within the group and was €37.9 (35.5) million. Accordingly, net income for the year was €23.8 (35.7) million. Taking into account the proﬁ t of €0.2 million carried forward from the previous year and an allocation of €4.0 million to the revenue reserves, the net retained proﬁ t is €20.0 (20.0) million. Report on events after the balance sheet date At the beginning of September 2014, KWS SAAT AG issued a further borrower’s note loan for €100 million at very low interest rates. Parts of the last issue with higher interest rates were replaced by longer-term loans at a lower rate. Part of the new borrower’s note loan has a variable interest rate. In this regard, KWS SAAT AG has concluded long-term interest rate hedges to limit the risk of changes in interest rates. Apart from that, there were no signiﬁ cant events that the Executive Board expects might have an impact on the KWS Group’s earnings, assets and ﬁ nancial position. Opportunity and risk report As an international seed company, the KWS Group oper- ates in a dynamically changing environment. We aim to identify the resultant opportunities and risks early on so that we can reduce or avoid negative effects by means of proactive strategies to counter risks and seize opportuni- ties systematically as and when they arise. The opportu- nity and risk management system we have implemented helps us to achieve our goal of operating on the global market with lasting success. Opportunities At the KWS Group, opportunity management is an integral component of the established controlling system between the subsidiaries, associated companies and company management. The Management of our three product segments – Corn, Sugarbeet and Cereals – is responsible for identifying, analyzing and making the most of operational opportunities. Targeted measures are formulated together with the Executive Board so that strengths can be leveraged and strategic growth poten- tial tapped. Strategic opportunities of major importance are handled by the Executive Board. Extensive strategic planning covering a 10-year time frame is the basis for opportunity management. In keeping with our estab- lished growth strategy, we exploit the industry-speciﬁ c and strategic opportunities that arise by means of pin- pointed investments in production capacities, research and development and acquisitions. We see numerous opportunities to continue developing the KWS Group in keeping with our strategy. To ensure that we achieve sustainable and proﬁ table growth in the future as well, it is especially important that we maintain and even increase our innovative strength. In the seed business, that strength is reﬂ ected in continuous yield increases in new varieties. That involves either boosting the yield potential of the plants or improving their resis- tance to detrimental inﬂ uences of all kinds. It is our goal to offer our customers new varieties representing yield in- creases of between one and two percent each year. For that reason, we continuously expand our research and development activities. One measure of our innovative strength in this context is the number of newly approved varieties. In approval processes, our varieties compete directly with competitors’ products in the performance tests conducted by the authorities. More detailed infor- mation on this and on our research and development activities is available on page 27 of this Annual Report. Market opportunities also result from our intensiﬁ ed activities in subtropical regions. With our corn activities in Brazil and China, in the mid- or longer term we can tap additional sales potential for the KWS Group in these – for us – young markets by developing varieties adapted exactly to the right climatic conditions. Particularly in the strongly fragmented Chinese corn market there is a good chance of playing a role in the emerging consolidation. Investments in the expansion of our production capaci- ties and the modernization of our seed processing facili- ties offer additional opportunities for further growth. The continued development of our portfolio of varieties and the expansion of our capacities go hand in hand with the expansion of our international distribution structure since they enable us to inform and advise our customers even more intensively and individually about the use of our seed and, in this way, to ﬁ nd further sales potential. In addition, the KWS Group has opportunities to increase its productivity and optimize its cost structures through continuous process optimization. Short-term opportuni- ties can also result from changing relationships among exchange rates. Risks Objectives and strategies in risk management Risk management at the KWS Group is based on an approach that is oriented toward our corporate culture. The foundation for that is trust in employees and the experience that they act responsibly toward themselves, their colleagues and the company as a whole. Training measures enable our employees to assess risks on their own at all times. A responsible approach to risks is supported by an ex- tensive risk management system and an internal control system. A risk here denotes a potential future event or future development that may result in monetary conse- quences and thus lead to a negative deviation from fore- casts or targets. Risk management is deﬁ ned at KWS as the totality of all organizational regulations and measures to enable prompt identiﬁ cation, assessment, control, communication and monitoring of the relevant risks. The objective of risk management at the KWS Group is to ensure that all regulatory requirements demanded of the risk management system are fully complied with through- out the Group and company value-added is generated for decision-making processes. Structure of the risk management system Our risk management system is also based on strategic planning and investment controlling, continuous opera- tional controlling and the quality and process monitoring systems. Central responsibility for risk management lies with the Executive Board. It is supported by Corporate Finance – Treasury and Risk Management, Corporate Law & Compliance, Corporate Responsibility Affairs and Corporate Controlling, as well as a permanent Risk Com- mittee (Corporate Management Circle) (see ﬁ gure). The Risk Committee consists of the two top management levels (Executive Board and Heads of Departments/Seg- ment) and convenes regularly. The principles of our risk management are enshrined in the “Rules, Guidelines & Procedures (RGPs)”. These are published on the intranet, which can be accessed throughout the Group. With these RGPs, which are continuously revised and adapted to reﬂ ect changes to the regulatory framework, we have created a shared understanding for risk management within the KWS Group. Core contents include principles relating to early detection and the communication and handling of risks. 52 Management Report of the KWS Group for 2013/2014 Opportunity and risk report Structure of risk management at the KWS Group Corporate Finance • Risk control matrix • Early detection of risks • Minimum requirements • Interest and currency management • Insurance • External audits • IT security Corporate Responsibility Affairs • Rules, Guidelines & Procedures • Integrated Management System • Internal audits Corporate Controlling • Early detection of risks • Planning / budget • Current expectation Corporate Law & Compliance • CoRA – Compliance Risk Assessment (self-assessment approach) • Compliance training • External audits • Examinations KWS’ risk management system is organized on the basis of the internationally recognized COSO model (Com- mittee of Sponsoring Organizations of the Treadway Commission). As part of its audit of the ﬁ nancial state- ments for the ﬁ scal year 2013/2014, Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft also audited KWS SAAT AG’s system for the early detection of risks with regard to its compliance with requirements under the German Stock Corporation Act. The auditors came to the conclusion that the system meets all the neces- sary statutory requirements. Risk management process The risk management process at KWS consists of ﬁ ve phases that build on each other: identiﬁ cation, assess- ment, control and monitoring of risks and risk reporting. These phases form a closed and continuous control loop. Risk identiﬁ cation is at the beginning of the risk manage- ment process. We understand this to be the identiﬁ ca- tion of current and future risks, as well as potential risks, by the persons responsible for an area of risk. All the identiﬁ ed risks are plausibilized and summarized in a risk control matrix. The risk control matrix presents the re- sults of the identiﬁ cation phase and documents the sys- tematic entirety of all individual risks at the KWS Group (risk inventory). Around 100 key risks and ways to control them are currently contained in the risk control matrix. Risk identiﬁ cation is followed by risk assessment, i.e. the qualitative and quantitative assessment of all identiﬁ ed individual risks. Risks are assessed on a net basis, i.e. allowing for control and monitoring instruments. Their materiality (upper risk limit) is evaluated on the basis of their possible effect on operating income (EBIT) or spe- ciﬁ c qualitative indicators. As part of this, the individual risks are assessed with their individual likelihood of occurrence and potential level of damage and classiﬁ ed according to a trafﬁ c light system. As part of risk controlling, we deﬁ ne suitable instruments for tackling the identiﬁ ed and assessed risks and deploy them accordingly. The objective of risk controlling is to in- ﬂ uence risks actively. Risk controlling comprises selecting and carrying out measures to tackle and reduce risks, as well as constant in-process monitoring of risks and risk transfer. The effectiveness of the instruments used for controlling and monitoring the main risks is systematically reviewed as part of our internal control system (ICS). The prime tasks of the ICS include documentation of the effectiveness of the controls and standardized reporting to the Audit Committee. The adequacy and proper func- tioning of the controls must be examined once a year by the persons responsible for them at the respective business segment or by a commissioned third party. We ensure with this process that the risk control measures actually do unfold their full effect. A control can only be termed effective if it is adequately designed and works properly. We assess the effectiveness of the controls by means of regular tests using random samples. The results of the effectiveness tests are documented and reported annually to the Audit Committee. Any weak- nesses identiﬁ ed in the control process are eliminated promptly and fully. External audits conducted by experi- enced auditors are an essential part of the ICS by ensur- ing that our internal controls function properly. As part of risk reporting during the year, the Risk Com- mittee is informed quarterly of the current risk situation for the KWS Group and its ﬁ elds of business. Management Report of the KWS Group for 2013/2014 Opportunity and risk report 53 Internal control and risk management system with regard to the accounting process The internal accounting control and risk management system for the ﬁ nancial statements of KWS SAAT AG and the KWS Group comprises all suitable measures, structures and processes designed to make sure that all business events and transactions are included in accounting promptly, consistently and correctly. It is intended to ensure compliance with the statutory stan- dards, accounting regulations and internal accounting control policies that are binding on all consolidated companies. The focus of regular internal examina- tions to optimize processes is on, among other things, the completeness of ﬁ nancial reporting, the Group’s uniform accounting, measurement and account al- location stipulations, and the authorization and access regulations for IT systems used in accounting. Proper, complete elimination of intra-Group transactions as part of consolidation is also examined. The consolidat- ed accounting process is controlled at KWS SAAT AG by the corporate units Group Accounting and Group Controlling. Main areas of risk In the following we describe the main risks to which we as an international company are exposed in our every- day business and that may have a signiﬁ cant negative impact on our business situation, assets, ﬁ nancial posi- tion and earnings, our share price and our reputation. The KWS Group is subject to the usual economic and political risks in the countries and regions in which it and its subsidiaries operate. The order in which the risks are listed does not reﬂ ect their importance. Unless otherwise speciﬁ ed, the risks apply to all segments of the KWS Group. Development of the individual risks is reported on regularly in the Risk Committee. Strategic risks We press ahead continuously with the Group’s strategic further development. That comprises permanent optimi- zation of efﬁ ciency, strengthening our core areas, prod- uct portfolio management and investment in research and development. The success of the related decisions is subject to a risk regarding forecasting future (market) developments. Overview of the signiﬁ cant individual risks Risk Market risks Production risks Procurement risks Liquidity risks Legal risks Environmental risks Personnel risks IT risks Examples • 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 • Diversiﬁ cation • Cash / cash ﬂ ow • Credit lines (with banks) • Antitrust risks • Corruption risks • Capital market risks • Access to technologies • Receivables management • Infringement of patents / trademarks / know-how • Data protection • Pollution of air, soil and water by dusts, waste water and dangerous waste • Transport of hazardous goods • Genetic mixing • Recruitment / development • Work safety • High availability • IT security • Working time / old-age pensions • Authorization concept 54 Management Report of the KWS Group for 2013/2014 Opportunity and risk report Management Report of the KWS Group for 2013/2014 Opportunity and risk report 55 Market risks In the strongly regulated international agricultural indus- try, political risks have a signiﬁ cant impact on our busi- ness development. Uncertainty about what will happen in Ukraine and the effects of sanctions on Russia, which are difﬁ cult to assess, may have a negative impact on our business activities in these two countries. We gener- ated net sales totaling €50.6 million in the two countries in ﬁ scal 2013/2014. 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 modiﬁ ed organisms (GMOs) in conventional seed. In the absence of a standardized legal threshold value, a number of European countries practice a policy of zero tolerance. Thanks to an exten- sive quality assurance system, only two suspicious seed samples were identiﬁ ed in international ofﬁ cial tests in ﬁ scal 2013/2014. A further risk lies in the uncertain regulatory framework for growing energy plants. Extensive government market incentive programs and speculation on the agricultural commodity markets have meant that this sector of agri- cultural production is currently being called into question as a whole. In principle, what is needed here is a careful analysis of what form of cultivation of energy plants represents an economically sensible and sustainable alternative form of producing energy. This must take into account increases in efﬁ ciency in energy plant cultiva- tion and the fact that the prices for fossil fuels will tend to rise. The medium-term sales risk depends on product per- formance and the competitive situation. We address this challenge with systematic analyses of the market and the competition and by constantly developing higher-quality seed for innovative, high-yield plants. The greatest risk for a plant breeding company is the loss of its innovative strength. KWS and its more than 1,800 R&D employees see innovativeness as a huge opportunity. Currency risks arise in particular from existing receiv- ables and liabilities denominated in foreign currency due to ﬂ uctuations in exchange rates. There are interest rate risks as a result of potential changes to market inter- est rates. Variable-interest ﬁ nancial instruments may result in ﬂ uctuations in interest payments and thus have a positive or negative impact on earnings. The risk of interest rate changes and currency risks are addressed through the usual standardized hedging instruments, which in turn may have an inﬂ uence on the KWS Group’s earnings and assets situation. The KWS Group aims to minimize ﬁ nancial risks resulting from its business, such as currency and interest-rate risks, through systematic management. This is done primarily with derivatives and other ﬁ nancial instruments such as forward exchange dealings. Production risks The agricultural production process of breeding and mul- tiplying seed depends to a large extent on the weather. We counteract the risk of production losses stemming from bad weather by distributing seed multiplication over various locations in Europe and North and South America. Our presence in various markets around the world also means that we can cope with ﬂ uctuations in demand in individual regions as part of our global pro- duction network. Contra-seasonal multiplication is carried out in the winter half-year in Chile and Argentina if there are bottlenecks in seed availability, for example. We counter the risk of outages of production facilities with regular maintenance and Group-wide business interruption insurance. In addition, our products are subjected to regular and extensive quality checks on the ﬁ elds used for multiplication and during processing so as to reduce quality-related risks. In this way, we ensure the high quality of our products through stringent internal quality standards and monitoring. Procurement risks We minimize risks that might arise from procurement of seed by means of international diversiﬁ cation of our production locations and sufﬁ cient stockpiling. More- over, supply risks related to sources no longer being able to deliver are largely reduced by means of continu- ous classiﬁ cation of risks. As part of that, we observe the creditworthiness of important business partners, among our customers and suppliers alike. To keep on improving our supply and reduce any other risks, the entire area of purchasing is currently being improved by the Corporate Procurement department. Liquidity risks We address liquidity risks with professional cash man- agement and sufﬁ cient long-term borrower’s note loans and syndicated credit lines. As in the previous year, full use was not made of the variable credit lines in ﬁ scal 2013/2014. Our loan agreements include ﬁ nancial cov- enants, compliance with which has been ensured at all times to date. KWS uses extensive trade credit insurance to minimize the risk of losing receivables in risky regions and business segments. To enable this, we pursue an active receivables management policy so that impending payment defaults can be identiﬁ ed at an early stage. Legal risks The KWS Group faces risks from legal disputes and ofﬁ cial procedures both nationally and internationally as part of its operations. Such legal disputes may arise in particular with suppliers, dealers, customers, employees or investors. They may result in payment obligations or other commitments. In ﬁ scal 2013/2014 there were no pending legal proceedings that might result in signiﬁ cant risks for the KWS Group. In order to prevent any viola- tions of the diverse tax, environmental and competition and other regulations and laws, we obligate all employ- ees to abide by our compliance policies. The Code of Business Ethics and the compliance policies based on it contain provisions stipulating that all KWS employees must act in accordance with KWS’ corporate values and comply with the law, contracts and internal rules. 56 Management Report of the KWS Group for 2013/2014 Opportunity and risk report Management Report of the KWS Group for 2013/2014 Forecast report 57 Environmental risks The Integrated Management System and environmental policies, which employees are obligated to implement under our internal regulations, in conjunction with the requirements deﬁ ned by environmental protection law, form the foundation for all our strategic and operational measures in protecting the environment. The organiza- tion of processes and operation of plants and systems, including documentation, 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 (environment) standards. The working order and effectiveness of this system is examined regularly by internal audits and reviews and conﬁ rmed by an external certiﬁ er. This minimizes pos- sible risks of pollution of the air, soil and water by dusts, waste water and hazardous waste. Personnel risks Our success builds on the individual skills and know- ledge of our employees. We encourage the workforce to expand and transfer knowledge through targeted continuing education and development programs. We minimize the risk of losing knowledge when people retire by means of intensive and subject-speciﬁ c qualiﬁ ca- tion and timely succession planning. In addition to our speciﬁ c vocational training and trainee programs, we initiated the “Breeders Academy” with the aim of training young people in the ﬁ eld of research and breeding. IT risks Ensuring the security of our information systems is of great importance to us. We address risks, such as unau- thorized access to sensitive electronic company data and information as a result of hacking or computer viruses, with an IT security organization, IT security policies and the use of state-of-the-art ﬁ rewall and antivirus programs. Due to the rapid pace of technological development, there is a residual risk to IT security which can be mini- mized but not completely controlled. Overall statement on the risk situation by the Executive Board The rising share of our business in foreign currency, particularly in emerging countries, means there will be additional currency risks. Nevertheless, and taking into account our countermeasures, we assess the potential ﬁ nancial impact of currency risks as being moderate. The risks presented above do not jeopardize the exis- tence of the KWS Group, neither individually nor in their entirety. All in all, the risk situation did not change signiﬁ - cantly in ﬁ scal 2013/2014. The main risks for us are still related to production and the market. We feel sure that, thanks to our global footprint, our innovativeness and the high quality of our products, we can seize opportunities and successfully counter risks as they arise. 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 signiﬁ cant may impact the continued existence of the KWS Group in the future. Change in risks in ﬁ scal 2013/2014 Individual risk Market risks Production risks Liquidity risks Legal risks Environmental risks IT risks Procurement risks Personnel risks Likelihood of occurrence Potential ﬁ nancial impact Change Possible Possible Unlikely Possible Possible Possible Unlikely Unlikely Signiﬁ cant Signiﬁ cant Signiﬁ cant Signiﬁ cant Signiﬁ cant Signiﬁ cant Moderate Moderate No change Increase Forecast report KWS Group: Net sales expected to rise by 5% to 10% We will stick to our proven, long-term corporate strategy in ﬁ scal 2014/2015 and focus on tapping young sales markets and developing high-yielding new varieties. Consequently, we intend to increase our spending on distribution activities and research and development sharply again. That will be accompanied by extensive investments in property, plant and equipment – in particular, we need to expand our seed processing capacities in order to han- dle our planned growth in the coming years. Especially in our growth regions of North and South America, Eastern Europe and China, there is hardly any possibility of hav- ing seed production carried out by third parties, meaning we will establish our own plants. In addition, we are ex- panding our research facilities at Einbeck and continuing to set up our new research center in St. Louis, Missouri (U.S.) Our expansion strategy will also lead to growth in our international workforce. As far as can be seen at present, the number of employees at the KWS Group will grow by around 300 to approximately 5,200 by the end of the ﬁ scal year. Operationally, the KWS Group’s Executive Board ex- pects net sales to rise by between 5 and 10% with an EBIT margin of at least 10% in ﬁ scal 2014/2015. We are thus sticking to our long-term objective. This plan- ning is based on net sales of €1,178 million for ﬁ scal 2013/2014. As far as can be seen at present the further increase in research and development expenditure will result in an R&D level of 13%. We intend to continue our dividend policy, which is based on a payout ratio of 20% to 25% of the net proﬁ t of KWS. As already announced last year, the presentation of the companies consolidated in the KWS Group will change signiﬁ cantly due to an amendment to the International Financial Reporting Standard (IFRS 11). Since the be- ginning of ﬁ scal 2014/2015, we cannot include net sales and costs of our 50 : 50 joint ventures in the KWS Group by way of proportionate consolidation. The earnings contributed by these companies will instead be carried as a sum total under net ﬁ nancial income/expenses. However, we will present our business activity as usual at the segment level so as to ensure there is no impair- ment to the transparency of our operational develop- ment. The KWS family will grow to more than 5,000 employees worldwide for the ﬁ rst time in ﬁ scal 2014/2015. 58 Management Report of the KWS Group for 2013/2014 Forecast report Management Report of the KWS Group for 2013/2014 Other disclosures 59 Corn Segment: Return to our former growth While growth in the Corn Segment was somewhat more restrained in the year under review, mainly due to exchange rate effects, we expect net sales to increase again by double digits in ﬁ scal 2014/2015. The regions of North and South America and Southern, Southeast- ern and Eastern Europe are expected to make major contributions to that. We also intend to make further progress in France, where we were able to become the market leader last year for the ﬁ rst time. The Corn Seg- ment’s anticipated income will inevitably be impacted by the high up-front costs on ensuring our future growth. As far as can be seen at present, we nevertheless expect an EBIT margin of 11% to 12%. Sugarbeet Segment: Stable at the ambitious level of the previous year We expect at best a stable level of net sales and income for the Sugarbeet Segment with its two product areas of sugarbeet seed and seed potatoes in ﬁ scal 2014/2015. Despite declining sugarbeet cultivation area, we man- aged to break the €300 million mark for net sales for the ﬁ rst time last year. Whether we can repeat this success in the forecast period depends mainly on our business performance in our most important sales market of North America. Our goal is to defend our exceptionally high market share there. In the countries covered by the European Sugar Market Regime, we also posted record net sales last ﬁ scal year. Given that there are now expected to be declines in area due to good harvests and low sugar prices, we do not see any potential for growth at the moment. The good potato harvest in the 2014 growing season will also exert pressure on prices and result in lower demand for seed potatoes. Never- theless, we still expect an EBIT margin of 20% in the Sugarbeet Segment. Cereals Segment: Again greater cultivation of rye The further decrease in prices for cereals for consump- tion means that no increase in cereal cultivation area can be expected next growing season. However, we assume that there might be a slight shift in the variety mix and that the share of rye in cereal cultivation might increase slightly again. Overall, we anticipate that the segment’s net sales and income will be at the level of the previous year. A good outlook – because growth is our core competence. Other disclosures Takeover-related disclosures Disclosures in accordance with Section 315 (4) HGB (German Commercial Code) and explanatory report in accordance with Section 176 (1) AktG (German Stock Corporation Act) • Matthias Sohnemann, Germany • Malte Sohnemann, Germany • Arne Sohnemann, Germany • AKB Stiftung, Hannover, Germany • Zukunftsstiftung Jugend, Umwelt und Kultur, Einbeck, Composition of the subscribed capital KWS SAAT AG’s subscribed capital comprises 6,600,000 no-par bearer shares. Each share confers one voting right. Restrictions relating to voting rights or the transfer of shares Apart from the statutory restrictions on exercising voting rights in accordance with Section 136 of the German Stock Corporation Act (AktG) or Section 28 of the Ger- man Securities Trading Act (WpHG), there are no other restrictions relating to voting rights. Transfer of shares is merely restricted by a four-year holding period under the annual Employee Share Program. Only a small part of the shares is affected by this regulation. For example, our employees acquired 11,028 shares as part of the program in 2014. You can ﬁ nd more information on our Employee Share Program in the section “The KWS share” on page 8 of this report. Apart from that, the Executive Board is not aware of any agreements between share- holders relating to voting rights or the transfer of shares. Direct or indirect participating interests in excess of 10% of the voting rights 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) or elsewhere. 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 are 56.1%: • Dr. Drs. h.c. Andreas J. Büchting, Germany • Christiane Stratmann, Germany • Dorothea Schuppert, Germany • Michael C.-E. Büchting, Germany • Annette Büchting, Germany • Stephan O. Büchting, Germany • Elke Giesecke, Germany • Christa Nagel, Germany • Bodo Sohnemann, Germany Germany • Dr. Arend Oetker, Germany • Kommanditgesellschaft Dr. Arend Oetker Vermögens- verwaltungsgesellschaft mbH &. Co., Berlin, Germany The voting shares, including mutual allocations, of the shareholders stated below each exceed 10% and are 14.2%. • Hans-Joachim Tessner, Germany • Tessner Beteiligungs GmbH, Goslar, Germany • Tessner Holding KG, Goslar, Germany Regulations and provisions regarding the appoint- ment and removal of members of the Executive Board and changes to the Articles of Association Section 84 (1) of the German Stock Corporation Act (AktG) speciﬁ es that members of the Executive Board are appointed or removed by the Supervisory Board. Under Section 6 of the Articles of Association, the Executive Board consists of at least two persons. The Supervisory Board is responsible for deﬁ ning the number. In compliance with Section 179 (2) Sentence 2 of the German Stock Corporation Act (AktG), Section 18 of KWS SAAT AG’s Articles of Association speciﬁ es that resolutions, and thus changes to the Articles of Associa- tion as well, are adopted by the Annual Shareholders’ Meeting by a simple majority of the votes cast or with the simple majority of the capital stock represented in adoption of the resolution. Mandatory statutory provisions that stand in the way of this arrangement are not affected by it. The power to make amendments to the Articles of Association that only affect the wording has been conferred on the Supervisory Board pursuant to Section 179 (1) Sentence 2 AktG in accordance with Section 22 of KWS SAAT AG’s Articles of Association. Compensation agreements in the event of a takeover bid In the event of a takeover, there are agreements for the members of KWS SAAT AG’s Executive Board which comply with the provisions of the German Corporate Governance Code (Clause 4.2.3). They specify a com- mitment to pay a maximum of three year’s compensa- tion if an Executive Board member’s activity is terminated 60 Management Report of the KWS Group for 2013/2014 Other disclosures Management Report of the KWS Group for 2013/2014 Other disclosures 61 prematurely as a result of a change of control. At the same time, the payment does not exceed the compen- sation to be paid for the remainder of the contract of employment. The other circumstances speciﬁ ed in Section 315 (4) of the German Commercial Code (HGB) do not apply at KWS SAAT AG, so no disclosures can be made in this regard. Declaration regarding Corporate Governance The declaration on Corporate Governance in accor- dance with Section 289a of the German Commercial Code (HGB) (which is also the Corporate Governance Report) is available on our website at www.kws.com > Company > Investor Relations > Corporate Govern- ance. Among other things, it contains the declaration in accordance with Section 161 of the German Stock Cor- poration Act (AktG) (declaration of compliance), which is also reproduced on page 18 of this report, relevant disclosures on Corporate Governance practices and a description of the working practices of the Executive Board and the Supervisory Board. includes not only a ﬁ xed payment of €28 thousand p.a. and payment for work on committees, but also a per- formance-related component, which is oriented toward the company’s sustainable development. The members of the Supervisory Board receive €400.00 for each full €0.10 by which the average net income per share before minority interests, as disclosed by the consolidated ﬁ nancial statements, exceeds €4.00 for the ﬁ scal year for which the compensation is paid and for the two prior ﬁ scal years. The performance-related payment is limited to the amount of the ﬁ xed payment. The Chairman of the Supervisory Board receives three times and his or her deputy one-and-a-half times the total compensation of an ordinary member. There is currently no extra compensation for them for work on commit- tees. 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 Supervi- sory Board are reimbursed for all expenses – including value-added tax – that they incur while carrying out the duties of their position. Compensation Report The Supervisory Board’s compensation was set by the Annual 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 The total compensation for members of the Supervisory Board amounts to €516 thousand (€516 thousand), excluding value-added tax. In all, 46% (46%) or €238 thousand (€238 thousand) of the total compensation is performance-related. Supervisory Board compensation in 2013/2014 in € Dr. Andreas J. Büchting1 Dr. Arend Oetker2 Hubertus von Baumbach3 Jürgen Bolduan Cathrina Claas-Mühlhauser Dr. Berthold Niehoff 1 Chairman 2 Deputy Chairman 3 Chairman of the Audit Committee Fixed 84,000.00 42,000.00 Work on com- mittees Perfor- mance- related Total 0.00 84,000.00 168,000.00 0.00 42,000.00 84,000.00 28,000.00 25,000.00 28,000.00 81,000.00 28,000.00 10,000.00 28,000.00 66,000.00 28,000.00 5,000.00 28,000.00 61,000.00 28,000.00 0.00 28,000.00 56,000.00 238,000.00 40,000.00 238,000.00 516,000.00 Supervisory Board compensation in the previous year in € Dr. Andreas J. Büchting1 Dr. Arend Oetker2 Hubertus von Baumbach3 Jürgen Bolduan Cathrina Claas-Mühlhauser Dr. Berthold Niehoff Dr. Dietmar Stahl (until December 2012) 1 Chairman 2 Deputy Chairman 3 Chairman of the Audit Committee Fixed 84,000.00 42,000.00 Work on com- mittees Perfor- mance- related Total 0.00 84,000.00 168,000.00 0.00 42,000.00 84,000.00 28,000.00 25,000.00 28,000.00 81,000.00 28,000.00 10,000.00 28,000.00 66,000.00 28,000.00 5,000.00 28,000.00 61,000.00 14,000.00 14,000.00 0.00 14,000.00 28,000.00 0.00 14,000.00 28,000.00 238,000.00 40,000.00 238,000.00 516,000.00 The compensation of members of the Executive Board was set by the Supervisory Board and approved by the Annual Shareholders’ Meeting. It is based on the size and activity of the company, its economic and ﬁ nan- cial situation and the level and structure of compensation for managing board members at comparable companies. The “total compensation” of the Executive Board com- prises ﬁ ve components: 1. A basic ﬁ xed annual salary 2. a variable payment in the form of a performance-related bonus 3. a variable payment in the form of a long-term incentive based on the KWS stock price 4. any special payments 5. other remuneration and pension awards. The basic annual salary, bonus payment and other remuneration, including any special payments, are also jointly termed “cash compensation” in the fol- lowing. Payments for duties performed in subsidiar- ies and associated companies are offset against the performance-related payment. The cash compensation is limited to an absolute amount of €750,000 per ﬁ scal year. If the company generates sustainable average net income of more than €70 million a year in two succes- sive ﬁ scal years, this limit will be subsequently increased to €800,000 and, in the case of sustainable average net income of more than €100 million a year in two succes- sive ﬁ scal years, to €900,000. It has been agreed that this arrangement does not apply in ﬁ scal 2013/2014 to the members of the Executive Board Dr. Léon Broers and Dr. Hagen Duenbostel. The limit of €750,000 there- fore remains for them. The basic gross annual salary is €216.000. The Chief Executive Ofﬁ cer receives an extra “CEO bonus” of 25% on top of the basic annual salary. The variable payment (performance-related bonus) for our Executive Board members depends on the Company’s performance over several years. It is calculated on the basis of a percent- age of the average net income of the KWS Group for the past three ﬁ scal years. This percentage is reduced if net income for the year exceeds certain thresholds. There is also a stock-based incentive program intended to act as a long-term incentive. Every member of the Executive Board is obligated to invest a freely selectable amount ranging between at least 20% and at most 50% of the gross performance-related bonus payment in KWS shares. A long-term incentive (LTI) is paid in the form of cash compensation after a holding period of ﬁ ve years. This payment is calculated on the basis of the share’s performance over the holding period and on the aver- age return on sales, measured as the ratio of operating income to net sales (ROS). However, it is capped at a maximum of two-and-a-half times the payments made by the Executive Board member as part of his or her own investment. One third of the LTI before taxes must be reinvested in KWS shares after it is paid out. 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 mem- bers of the Executive Board. 62 Management Report of the KWS Group for 2013/2014 Other disclosures Management Report of the KWS Group for 2013/2014 Other disclosures 63 Annual Financial Statements of the KWS Group 2013/2014 64 Statement of comprehensive income 65 Balance sheet of the KWS Group 66 Statement of changes in ﬁ xed assets 68 Statement of changes in equity 70 Cash ﬂ ow statement of the KWS Group 71 Notes for the KWS Group 2013/2014 112 Auditors’ Report Executive Board compensation in 2013/2014 in € Cash compensation LTI Total Basic com- pensation Other emoluments Performance- related Total Fair Value Philip von dem Bussche1 270,000.00 17,876.82 566,123.18 854,000.00 235,178.36 1,089,178.36 Dr. Léon Broers 216,000.00 21,104.58 512,895.42 750,000.00 186,895.18 936,895.18 Dr. Hagen Duenbostel 216,000.00 19,488.16 514,511.84 750,000.00 187,819.26 937,819.26 Eva Kienle 200,000.00 26,548.49 290,263.21 516,811.70 0.00 516,811.70 902,000.00 85,018.05 1,883,793.65 2,870,811.70 609,892.80 3,480,704.50 1 CEO Executive Board compensation in the previous year in € Cash compensation LTI Total Basic com- pensation Other emoluments Performance- related Total Fair Value Philip von dem Bussche1 270,000.00 18,519.38 515,480.62 804,000.00 271,844.32 1,075,844.32 Dr. Christoph Amberger 216,000.00 22,882.03 511,117.97 750,000.00 135,128.84 885,128.84 Dr. Léon Broers 216,000.00 21,456.48 512,543.52 750,000.00 211,023.12 961,023.12 Dr. Hagen Duenbostel 216,000.00 19,244.95 514,755.05 750,000.00 273,166.52 1,023,166.52 Eva Kienle 50,000.00 6,483.24 70,000.00 126,483.24 0.00 126,483.24 968,000.00 88,586.08 2,123,897.16 3,180,483.24 891,162.80 4,071,646.04 1 CEO As of ﬁ scal 2014/2015, a new arrangement has been agreed upon with the members of the Executive Board, under which the basic compensation is to rise from €216,000 to €300,000. At the same time, calculation of the performance-related bonus on the basis of a declin- ing scale will be replaced by its being calculated as a linear function of the sustained net income; that means that the variable compensation will be lower, as well as being more dependent on the company’s earnings and thus subject to greater volatility. The performance- related bonus will be limited to €500,000, a ﬁ gure that will increase subsequently to €600,000 if the company posts two successive, average sustained annual incomes of more than €100 million. The other compensation compo- nents will remain unchanged, but there will no longer be an obligation to invest one third of the LTI before taxes in KWS shares after it has been paid out. between €130 thousand and €140 thousand. In ﬁ scal 2013/2014, €108 thousand (€72 thousand) were paid into a provident fund backed by a guarantee for pen- sion commitments to members of the Executive Board. €115 thousand (€193 thousand) were allocated to the pension provisions in accordance with IAS 19. Pension provisions totaling €588 thousand (€1,689 thousand) were formed for members of the Executive Board of KWS SAAT AG. Compensation of former members of the Executive Board and their surviving dependents amounted to €1,476 thousand (€1,097 thousand). Pension commit- ments in accordance with IAS 19 (2011) recognized for this group of persons amounted to €7,018 thousand (€3,155 thousand) as of June 30, 2014. The pension commitments for three former members of the Execu- tive Board are backed by a guarantee. Pension obligations are granted both in the form of a direct obligation to provide beneﬁ ts and a deﬁ ned contribution plan, with the annual pensions ranging No loans were granted to members of the Executive Board and Supervisory Board in the year under review. Pension commitments in € Dr. Hagen Duenbostel 07/01/2013 Interest expenses Revaluation effects 06/30/2014 472,785.00 16,547.00 98,529.00 587,861.00 64 Annual ﬁ nancial statements Statement of comprehensive income Annual ﬁ nancial statements Balance sheet of the KWS Group 65 Balance sheet of the KWS Group Note No. 2013/2014 Previous year1 at June 30, 2014 Assets in € thousand Intangible assets 1,178,007 1,147,235 Property, plant and equipment Statement of comprehensive income from July 1, 2013 through June 30, 2014 in € thousand I. Income statement Net sales Cost of sales Gross proﬁ t on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Interest and similar income Interest and similar expenses Net income from equity investments Net ﬁ nancial income/expenses Results of ordinary activities Taxes Net income for the year II. Other comprehensive income Revaluation of ﬁ nancial instruments Currency translation difference for economically independent foreign units Items that may have to be subsequently reclassiﬁ ed as proﬁ t or loss Revaluation of net liabilities/assets from deﬁ ned beneﬁ t plans Items not reclassiﬁ ed as proﬁ t or loss Other comprehensive income after tax III. 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 adjusted pursuant to IAS 19 (2011) (18) (18) (18) (18) (18) (19) (20) 614,528 563,479 203,952 148,821 76,741 60,672 56,205 607,027 540,208 190,548 140,371 69,043 61,943 50,061 138,432 152,128 1,910 14,468 7 1,719 12,080 45 (21) –12,551 –10,316 (22) (24) (11) 125,881 141,812 45,595 80,286 49,528 92,284 – 161 –19,198 –19,359 –5,878 –5,878 86 –13,478 –13,392 –1,817 –1,817 – 25,237 – 15,209 55,049 3,057 51,992 80,286 3,162 77,124 77,075 2,201 74,874 92,284 3,383 88,901 11.69 13.47 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 ﬁ nancial assets Other current assets Current assets Total assets 1 adjusted pursuant to IAS 19 (2011) Equity and Liabilities in € thousand Subscribed capital Capital reserve Retained earnings Minority interest Equity Long-term provisions Long-term borrowings Trade payables Deferred tax liabilities Other noncurrent liabilities Noncurrent liabilities Short-term provisions Short-term borrowings Trade payables Current tax liabilities Other current ﬁ nancial liabilities Other current liabilities Current liabilities Liabilities Total equity and liabilities 1 adjusted pursuant to IAS 19 (2011) Note no. 06/30/2014 06/30/2013 1 07/01/2012 1 (2) (3) (4) (5) (6) (7) (8) (9) (10) (8) (8) (8) 99,803 321,947 2,774 4,189 48,056 476,769 192,988 361,576 76,712 78,261 45,609 15,881 15,033 101,866 287,623 7,305 5,719 44,949 447,462 144,452 359,867 100,878 101,517 24,385 26,587 13,535 111,725 261,457 1,938 6,093 33,622 414,835 139,694 309,422 40,399 142,569 25,957 14,689 9,304 786,060 771,221 682,034 1,262,829 1,218,683 1,096,869 Note no. 06/30/2014 06/30/2013 1 07/01/2012 1 (11) 19,800 5,530 604,376 8,073 637,779 99,634 113,754 1,470 26,332 12,964 19,800 5,530 592,553 31,762 649,645 90,389 98,460 1,697 29,695 9,075 19,800 5,530 536,542 24,124 585,996 88,256 48,717 1,914 36,043 8,207 (12) 254,154 229,316 183,137 131,841 131,350 121,633 53,357 81,111 35,467 12,191 56,929 370,896 625,050 33,259 82,746 31,929 11,833 48,605 339,722 569,038 58,419 74,373 24,053 8,857 40,401 327,736 510,873 1,262,829 1,218,683 1,096,869 (13) 66 Annual ﬁ nancial statements Statement of changes in ﬁ xed assets Annual ﬁ nancial statements Statement of changes in ﬁ xed assets 67 Statement of changes in ﬁ xed assets of the KWS Group 2013/2014 in € thousand Currency translation Additions Write-ups Disposals Transfers Currency translation Additions Write-ups Disposals Transfers Gross values Amortization/depreciation Net book values Balance 07/01/2013 Patents, industrial property rights and software Goodwill 83,434 56,449 – 1,008 – 491 Intangible assets 139,883 – 1,499 7,957 499 8,456 Land and buildings 250,567 –4,258 11,239 Technical equipment and machinery Operating and ofﬁ ce equipment Payments on account Property, plant and equipment 183,088 – 3,007 14,040 87,599 14,971 – 1,965 8,878 – 501 38,552 536,225 – 9,731 72,709 Financial assets 7,471 – 5 1,438 Assets 683,579 – 11,235 82,603 0 0 0 0 0 0 0 0 0 0 Balance 06/30/2014 101 0 101 1,136 4,859 5,995 91,418 61,316 152,734 Balance 07/01/2013 31,267 6,750 38,017 – 41 – 39 – 80 12,943 2,150 15,093 762 8,371 265,157 76,958 – 663 8,287 2,441 9,529 201,209 114,959 – 1,498 13,028 5,023 5,807 151 – 22,069 95,296 30,802 56,683 – 1,036 9,384 2 0 0 8,377 1,638 592,464 248,602 – 3,197 30,699 109 – 5,673 3,122 166 182 0 8,587 1,960 748,320 286,785 – 3,095 45,792 Balance 06/30/2014 Balance 06/30/2014 Previous year 99 0 99 700 0 0 0 5 44,070 8,861 52,931 47,348 52,455 99,803 52,167 49,699 101,866 83,887 181,270 173,609 1,918 – 696 123,875 77,334 68,129 4,543 2,265 62,753 0 0 2 32,543 30,800 30,916 14,969 7,161 1,574 270,517 321,947 287,623 0 0 348 2,774 7,305 7,260 1,574 323,796 424,524 396,794 0 0 0 0 0 0 0 0 0 0 Statement of changes in ﬁ xed assets of the KWS Group 2012/2013 1 in € thousand Currency translation Additions Write-ups Disposals Transfers Currency translation Additions Write-ups Disposals Transfers Gross values Amortization/depreciation Net book values Balance 07/01/2012 Patents, industrial property rights and software Goodwill 82,622 56,907 – 2,584 4,406 – 458 0 Intangible assets 139,529 – 3,042 4,406 Land and buildings Technical equipment and machinery Operating and ofﬁ ce equipment Payments on account 237,471 – 3,703 9,991 170,233 75,591 8,707 – 2,504 – 1,096 – 115 16,899 10,107 18,046 55,043 Property, plant and equipment 492,002 – 7,418 Financial assets 2,104 – 18 5,746 Assets 633,635 –10,478 65,195 1 adjusted pursuant to IAS 19 (2011) Balance 06/30/2013 1,021 0 1,021 11 0 11 83,434 56,449 139,883 Balance 07/01/2012 21,014 6,790 27,804 – 404 – 40 – 444 11,674 0 11,674 341 7,149 250,567 70,864 – 804 7,076 5,109 3,074 3,569 6,071 11 – 11,656 183,088 87,599 14,971 8,535 5,133 536,225 109,373 – 1,549 11,637 50,308 – 713 8,061 0 0 0 230,545 – 3,066 26,774 362 0 7,471 166 0 0 9,918 5,144 683,579 258,515 – 3,510 38,448 0 0 0 0 0 0 0 0 1 1 Balance 06/30/2013 Balance 06/30/2013 Previous year 0 0 0 5 31,267 6,750 38,017 52,167 49,699 61,608 50,117 101,866 111,725 76,958 173,609 166,607 – 162 1,845 0 114,959 56,683 2 68,129 30,916 14,969 60,860 25,283 8,707 1,688 248,602 287,623 261,457 1,017 0 1,017 183 4,340 2,818 – 2 7,339 0 0 166 7,305 1,938 8,356 1,688 286,785 396,794 375,120 0 0 0 0 0 0 0 0 0 0 68 Annual ﬁ nancial statements Statement of changes in equity Statement of changes in equity of the KWS Group 2013/14 in € thousand Subscribed capital Capital reserve Parent company Accumu- lated group equity from earnings Comprehensive other group income Adjustments from currency translation Reserve for from ﬁ nancial assets cur- rency held for sale Balance as at June 30, 2012 Adjustment due to IAS 19 (2011) Balance as at July 1, 2012 1 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests Other changes 19,800 5,530 554,110 – 1,590 19,800 5,530 – 1,590 – 12,720 – 12,720 554,110 – 18,480 88,901 88,901 0 144 144 86 86 Annual ﬁ nancial statements Statement of changes in equity 69 Parent company Minority interest Group equity Comprehensive other group income Total Minority interest Comprehensive other group income Total Revaluation of deﬁ ned beneﬁ t plans Other transactions Adjustments from currency translation Revaluation of deﬁ ned beneﬁ t plans Other transactions 0 – 16,716 – 16,716 – 1,776 – 1,776 594 594 578,588 – 16,716 561,872 – 18,480 88,901 – 14,410 74,491 0 24,792 – 280 24,792 – 664 3,383 3,383 5,716 – 280 – 756 – 756 0 – 384 – 384 – 41 – 41 – 4 – 4 24,508 – 384 24,124 – 664 3,383 – 797 2,586 5,716 603,096 – 17,100 585,996 – 19,144 92,284 – 15,207 77,077 5,716 0 Balance as at June 30, 2013 1 19,800 5,530 624,531 – 14,310 230 – 18,492 594 617,883 33,227 – 1,036 – 425 – 4 31,762 649,645 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests Other changes Balance as at June 30, 2014 1 adjusted pursuant to IAS 19 (2011) – 19,800 77,124 77,124 – 19,559 – 265 – 19,213 – 19,213 – 161 – 161 – 5,758 – 5,758 – 545 – 19,800 77,124 – 25,132 51,992 – 1,328 3,162 3,162 – 20,104 – 25,963 – 265 15 15 – 120 – 120 545 – 1,328 – 21,128 3,162 – 105 3,057 80,286 – 25,237 55,049 – 25,418 – 45,522 – 265 19,800 5,530 662,031 – 33,523 69 – 24,795 594 629,706 9,098 – 1,021 0 – 4 8,073 637,779 70 Annual ﬁ nancial statements Cash ﬂ ow statement of the KWS Group Notes Notes for the KWS Group 2013/2014 71 Cash ﬂ ow statement of the KWS Group Notes for the KWS Group 2013/2014 in € thousand 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 Note 2013/2014 Previous year 1 80,286 92,284 45,792 1,423 –17,100 110,400 20,631 –146 38,448 –2,755 –18,492 109,485 24,062 –191 –90,881 –86,287 Increase (–)/decrease in inventories, trade receivables, and other assets not attributable to investing or ﬁ nancing activities Increase/decrease (–) in trade payables and other liabilities not attributable to investing or ﬁ nancing activities Net cash from operating activities (1) 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 ﬁ nancial assets Payments (–) for capital expenditure on ﬁ nancial assets Payments (–) for purchase of shares in consolidated subsidiaries and other business units 21,014 61,018 1,361 –66,461 2 –8,531 109 –1,901 0 Net cash from investing activities (2) –75,421 Cash receipts from issue of capital Dividend payments (–) to owners and minority shareholders Cash proceeds from long-term borrowings Cash repayments of long-term borrowings Changes from proceeds (+)/repayments (–) of short-term borrowings Net cash from ﬁ nancing activities (3) 0 –66,915 58,301 –32,903 9,994 –31,523 37,509 84,578 1,554 –57,739 3 –4,406 361 –5,745 –22,970 –88,942 5,716 –19,144 100,264 –51,998 –7,616 27,222 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 –45,926 22,858 –1,496 202,395 –3,431 182,968 Cash and cash equivalents at end of year (4) 154,973 202,395 1 adjusted pursuant to IAS 19 (2011) The KWS Group (KWS Konzern) is a consolidated group as deﬁ ned in the International Financial Reporting Stan- dards (IFRS) published by the International Accounting Standards Board (IASB), London, taking into account the interpretations of the International Financial Report- ing Interpretations Committee (IFRIC) and in addition the commercial law regulations to be applied pursuant to section 315a (1) of the HGB (German Commercial Code). In accordance with Section 291 (1) HGB, the consoli- dated ﬁ nancial statements of KWS SAAT AG, Einbeck, discharge the obligations of KWS LOCHOW GMBH, Bergen, and KWS MAIS GMBH, Einbeck, to produce their own consolidated ﬁ nancial statements and Group Management Report. The statements were prepared under the assumption that the operations of the company will be continued. The accounting and measurement methods have been retained without change, except for the changes resulting from the new accounting standards IAS 19 (2011) “Em- ployee Beneﬁ ts” and IFRS 13 “Fair Value Measurement”. IAS 19 (2011) – “Employee Beneﬁ ts” IAS 19 (2011) “Employee Beneﬁ ts” must be applied for the ﬁ rst time to ﬁ scal year 2013/2014. The amend- ments to this standard must be applied retrospectively. The main change relates to the abolition of the corridor method. The net interest cost is still carried in the net ﬁ nancial income/expenses. Remeasurement effects due to actuarial gains and losses and income from planned assets not already included as interest income must be recognized in proﬁ t or loss in the statement of compre- hensive income. IAS 19 (2011) introduces an amended deﬁ nition of post-employment beneﬁ ts. The top-up amounts for semi-retirement obligations are now other long-term beneﬁ ts to employees that must be accumu- lated on a pro-rata basis over the vesting period. Up to now, top-up amounts have been carried in full at their present value. That resulted in a reversal of the provision against the retained income of €601 thousand, which must be allocated again in proﬁ t or loss in the subse- quent periods. Allowing for deferred taxes, there were the following changes for the previous years: Changes to IAS 19 (2011) – Balance sheet in € thousand Assets Noncurrent assets Deferred tax assets Current assets Total assets Equity and Liabilities Equity Pension provisions Other provisions Deferred tax liabilities Long-term borrowings Short-term borrowings 06/30/2013 (adjusted) Adjustment 06/30/2013 07/01/2012 (adjusted) Adjustment 07/01/12 402,513 –2,455 404,968 381,213 –3,099 384,312 44,949 771,221 7,815 37,134 33,622 7,652 25,970 0 771,221 682,034 0 682,034 1,218,683 5,360 1,213,323 1,096,869 4,553 1,092,316 649,645 –17,881 667,526 585,996 –17,100 603,096 78,865 21,653 57,212 81,549 8,840 29,695 109,232 339,722 23,842 –601 0 0 0 57,707 9,441 29,695 109,232 9,391 36,043 58,838 339,722 327,736 0 0 0 0 9,391 36,043 58,838 327,736 Total equity and liabilities 1,218,683 5,360 1,213,323 1,096,869 4,553 1,092,316 72 Notes Notes for the KWS Group 2013/2014 Notes Notes for the KWS Group 2013/2014 73 Changes to IAS 19 (2011) – Income statement and statement of comprehensive income Financial reporting standards and interpretations Mandatory ﬁ rst-time application in € thousand Net sales Cost of sales Gross proﬁ t on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income Net ﬁ nancial income/expenses Results of ordinary activities Taxes Net income for the year Revaluation of ﬁ nancial instruments Currency translation difference for economically independent foreign units Items that may have to be subsequently reclassiﬁ ed as proﬁ t or loss Revaluation of net liabilities/assets from deﬁ ned beneﬁ t plans Items not reclassiﬁ ed as proﬁ t or loss Other comprehensive income after tax Comprehensive income 2012/2013 (adjusted) 1,147,235 607,027 540,208 190,548 140,371 69,043 61,943 50,061 Adjustment 2012/2013 0 1,147,235 –367 367 –214 –439 –442 0 0 607,394 539,841 190,762 140,810 69,485 61,943 50,061 152,128 1,462 150,666 –10,316 141,812 49,528 92,284 86 –13,478 –13,392 –1,817 –1,817 –15,209 77,075 0 –10,316 1,462 140,350 426 1,036 0 0 0 –1,817 –1,817 49,102 91,248 86 –13,478 –13,392 0 0 –1,817 –13,392 –781 77,856 Earnings per share in ﬁ scal 2012/2013 are higher by €0.15 as a result of IAS 19 (2011). If the old version of IAS 19 had continued to be applied in ﬁ scal 2013/2014, the following changes would not have occurred in the present ﬁ nancial statements: • A reduction of €24,846 thousand in the other reserves • An increase of €34,371 thousand in pension provisions • An increase in deferred tax assets and a reduction in deferred tax liabilities of €10,265 thousand • An increase of €740 thousand in net income for the year • An increase of €0.11 in earnings per share IFRS 13 – “Fair Value Measurement” On May 12, 2011, the IASB adopted the new account- ing standard IFRS 13 “Fair Value Measurement” with the objective of introducing a consistent deﬁ nition and principles for determining fair value. IFRS 13 must be applied prospectively. First-time application of the new standard does not result in any signiﬁ cant effects on the consolidated ﬁ nancial statements of the KWS Group. The following ﬁ nancial reporting standards and inter- pretations were published by the IASB by the balance sheet date, but must be applied by the KWS Group only at a later date. IFRS 10: Consolidated Financial Statements IFRS 11: Joint Arrangements IFRS 12: Disclosure of Interests in Other Entities Amendments to IAS 27: Separate Financial Statements Amendments to IAS 28: Investments in Associates and Joint Ventures In ﬁ scal year 2014/2015 In ﬁ scal year 2014/2015 In ﬁ scal year 2014/2015 In ﬁ scal year 2014/2015 In ﬁ scal year 2014/2015 Amendments to IFRS 10, IFRS 11 and IFRS 12 – Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance In ﬁ scal year 2014/2015 Amendments to IFRS 10, IFRS 12 and IAS 27 – Consolidated Financial Statements, Disclosure of Interests in Other Entities and Separate Financial Statements: Invest- ment Entities In ﬁ scal year 2014/2015 Amendments to IAS 32 – Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities In ﬁ scal year 2014/2015 Amendments to IAS 36 – Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets In ﬁ scal year 2014/2015 Amendments to IAS 39 – Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting IFRIC 21 – Levies In ﬁ scal year 2014/2015 In ﬁ scal year 2014/2015 Amendments to IAS 19 (2011) – Employee Beneﬁ ts: Deﬁ ned Beneﬁ t Plans At the earliest in ﬁ scal year 2014/2015 Annual Improvements to the International Financial Reporting Standards (2010 – 2012 cycle) Annual Improvements to the International Financial Reporting Standards (2011 – 2013 cycle) IFRS 14 – Regulatory Deferral Accounts Amendments to IFRS 11 – Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations At the earliest in ﬁ scal year 2014/2015 At the earliest in ﬁ scal year 2014/2015 At the earliest in ﬁ scal year 2016/2017 At the earliest in ﬁ scal year 2016/2017 Amendments to IAS 16 and IAS 38 – Property, Plant and Equipment and Intangible Assets: Clariﬁ cation of Acceptable Methods of Depreciation and Amortization At the earliest in ﬁ scal year 2016/2017 Amendments to IAS 16 and IAS 41 – Property, Plant and Equipment and Agriculture: Bearer Plants At the earliest in ﬁ scal year 2016/2017 Amendments to IAS 27 – Separate Financial Statements: Equity Method in Separate Financial Statements IFRS 15 – Revenue from Contracts with Customers IFRS 9 – Financial Instruments At the earliest in ﬁ scal year 2016/2017 At the earliest in ﬁ scal year 2017/2018 At the earliest in ﬁ scal year 2018/2019 74 Notes Notes for the KWS Group 2013/2014 IAS 27 (2011), IAS 28 (2011), IFRS 10, IFRS 11 and IFRS 12 – Consolidation IFRS 10 introduces a new concept of control that inﬂ u- ences the methods and scope of consolidation. IFRS 11 governs the ﬁ nancial reporting of joint arrangements and prescribes only the equity method for consolidation of joint ventures in future. IFRS 12 contains more extensive disclosure requirements in connection with subsidiaries, joint ventures, associated companies and unconsolidated structured companies. IAS 27 (2011) and IAS 28 (2011) are subsequent amendments of the new IFRS 10, IFRS 11 and IFRS 12. KWS will apply the new ﬁ nancial reporting standards relating to consolidation for the ﬁ rst time in ﬁ scal year 2014/2015. There will be signiﬁ cant changes for the KWS Group in particular from application of IFRS 11. At June 30, 2014, eight joint ventures were proportionately consolidated in the KWS Group’s ﬁ nancial statements and will be con- solidated using the equity method in future in accordance with IFRS 11. For the ﬁ rst time in ﬁ scal 2014/2015, the balance sheet and statement of comprehensive income will no longer include the proportionate revenue, expenses, assets and liabilities of the above-mentioned joint ventures. The balance sheet for ﬁ scal 2013/2014 would be as follows if IFRS 11 were applied early: Assets in € millions Noncurrent assets Current assets Total assets Equity and liabilities in € millions Equity Noncurrent liabilities Current liabilities Total equity and liabilities The income statement sheet for ﬁ scal 2013/2014 would be as follows if IFRS 11 were applied early: Income statement for the period July 1, 2013 through June 30, 2014 in € millions Net sales Operating income Net ﬁ nancial income/expenses Result of ordinary activities Taxes Net income for the year After adjustment 534.5 630.5 1,165.0 Adjustments pursuant to IFRS 11 57.7 –155.5 –97.8 As reported 476.8 786.0 1,262.8 After adjustment Adjustments pursuant to IFRS 11 637.8 252.7 274.5 1,165.0 0.0 –1.4 –96.4 –97.8 As reported 637.8 254.1 370.9 1,262.8 After adjustment Adjustments pursuant to IFRS 11 As reported 923.5 118.3 7.6 125.9 45.6 80.3 –254.5 –20.1 20.1 0.0 0.0 0.0 1,178.0 138.4 –12.5 125.9 45.6 80.3 To the extent that these relate to supplementary disclo- sure obligations, there will be no effects on the balance sheet or statement of comprehensive income. As far as can be seen at present, the other ﬁ nancial reporting standards and interpretations will not have a signiﬁ cant impact on the consolidated ﬁ nancial state- ments of the KWS Group. Notes Notes for the KWS Group 2013/2014 1. General disclosures 75 According to IAS 36, goodwill is not amortized, but tested for impairment at least once a year (impairment- only approach). Investments in unconsolidated compa- nies are carried at cost. Joint ventures are carried according to the percent- age of equity held in the companies concerned using IAS 31. Subsidiaries and joint ventures are consolidated and associated companies measured at equity only if such recognition is considered material for the fair presenta- tion of the ﬁ nancial position and results of operations of the KWS Group. As part of the elimination of intra- Group balances, borrowings, receivables, liabilities, and provisions are netted between the consolidated com- panies. Intercompany proﬁ ts not realized at Group level are eliminated from intra-Group transactions. Sales, income, and expenses are netted between consolidated companies, and intra-group distributions of proﬁ t are eliminated. Deferred taxes on consolidation transactions recognized in income are calculated at the tax rate applicable to the company concerned. These deferred taxes are aggre- gated with the deferred taxes recognized in the sepa- rate ﬁ nancial statements. Minority interests are recognized in the amount of the imputed percentage of equity in the consolidated com- panies. 1. General disclosures Companies consolidated in the KWS Group The consolidated ﬁ nancial statements of the KWS Group include the single-entity ﬁ nancial statements of KWS SAAT AG and its subsidiaries in Germany and other countries in which it directly or indirectly controls more than 50% of the voting rights. In addition, joint ventures are pro- portionately consolidated according to the percentage of equity held in those companies. Subsidiaries and joint ven- tures that are considered immaterial for the presentation and evaluation of the ﬁ nancial position and performance of the Group are not included. Details on the changes in the consolidated group are provided in Section 2. Disclosures on the annual ﬁ nancial statements – Consolidated group and changes in the consolidated group. Consolidation methods The single-entity ﬁ nancial statements of the individual subsidiaries and joint ventures included in the consoli- dated ﬁ nancial statements were uniformly prepared on the basis of the accounting and measurement methods applied at KWS SAAT AG; they were audited by indepen- dent auditors. For fully or proportionately consolidated units acquired before July 1, 2003, the Group exercised the option allowed by IFRS 1 to maintain the consolida- tion procedures chosen to date. The goodwill reported in the HGB ﬁ nancial statements as of June 30, 2003, was therefore transferred unchanged at its carrying amount to the opening IFRS balance sheet. For acquisitions made after June 30, 2003, capital consolidation follows the purchase method by allocating the cost of acquisition to the Group’s interest in the subsidiary’s remeasured 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 good- will remaining after ﬁ rst-time consolidation is recognized under intangible assets. 76 Notes Notes for the KWS Group 2013/2014 1. General disclosures Currency translation Under IAS 21, the ﬁ nancial statements of the con- solidated foreign subsidiaries and joint ventures that conduct their business as ﬁ nancially, economically, and organizationally independent entities are translated into euros using the functional currency method and rounded in accordance with standard commercial prac- tice 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 an- nual average rates to the net proﬁ t for the period in the income statement is taken directly to equity. Exchange differences resulting from loans to foreign subsidiaries and joint ventures are reported in the other comprehen- sive income and are not recognized in proﬁ t or loss. Classiﬁ cation of the statement of comprehensive income The costs for the functions include all directly attributable costs, including other taxes. Research and develop- ment expenses are reported separately for reasons of trans parency. Research grants are not deducted from the costs to which they relate, but reported gross under other operating income. Accounting policies Consistency of accounting policies The accounting policies are unchanged from the previ- ous year, with the exception of the ﬁ nancial reporting standards IAS 19 (2011) and IFRS 13, which had to be applied for the ﬁ rst time in the year under review. 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 circum- stances. Recognition of income and expenses Net sales include sales of products and services, less revenue reductions. Net sales from the sale of products are realized at the time at which the opportunities and risks pass to the buyer. Net sales from service transac- tions are recognized at the time at which the outcome of the transaction can be reliably estimated in accordance with the percentage of completion. Other income, such as interest, royalties and dividends, is recognized in the period it accrues as soon as there is a contractual or legal entitlement to it. Performance-based public grants are carried under the other operating income as part of proﬁ t/loss. Operating expenses are recognized in the income state- ment upon the service in question being used or as of the date on which they occur. Intangible assets Purchased intangible assets are carried at cost less straight-line amortization Impairment losses on in- tangible assets with ﬁ nite useful lives are recognized according to IAS 36. Goodwill and intangible assets with an indeﬁ nite useful life are 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 deﬁ nition in IAS 38 or result from a contractual or legal right, and fair value can be reliably measured. Straight-line amortization of these intangible assets is applied over their individual useful life. Notes Notes for the KWS Group 2013/2014 1. General disclosures 77 Financial instruments Financial instruments are in particular ﬁ nancial assets and ﬁ nancial liabilities. The ﬁ nancial assets consist primarily of bank balances and cash on hand, trade receivables, other receivables and securities. The credit risk mainly comprises trade receivables. The amount recognized in the balance sheet is net of allowances for receivables expected to be uncollectible, estimated on the basis of historical patterns and the current economic environment. The credit risk on cash and derivative ﬁ nancial instruments is limited because they are kept with banks that have been given a good credit rating by international rating agencies. There is no signiﬁ cant 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. Available-for-sale ﬁ nancial assets are carried at fair value if that can be reliably measured. Unrealized gains and losses, including deferred taxes, are recognized directly in the reserve for available-for-sale ﬁ nancial assets under equity. Allowances are recognized immediately through the income statement. Financial assets belonging to this category of ﬁ nancial instruments are measured at cost, since there is no active market. The ﬁ nancial assets include shares in unconsolidated subsidiaries and securities classiﬁ ed as noncurrent assets. They are subsequently measured at amortized cost. Borrowings are carried at amortized cost. The carrying amount of receivables, ﬁ xed-income securities and cash is assumed as the fair value due to their short term and the ﬁ xed-interest structure of the investments. The useful life of intangible assets is as follows: Breeding material, proprietary rights to varieties and trademarks Other rights Software Distribution rights Useful life 10 years 5 – 10 years 3 – 8 years 5 – 20 years Property, plant, and equipment Property, plant, and equipment is measured at cost less straight-line depreciation. If the impairments exceed the use-related depreciation that has already been applied, a loss is recognized. In addition to directly attributable costs, the cost of self-produced plant or equipment also includes a proportion of the overheads and deprecia- tion/amortization. Buildings Operating equipment and other facilities Technical equipment and machinery Laboratory and research facilities Other equipment, operating and ofﬁ ce equipment Useful life 10 – 50 years 5 – 25 years 5 – 15 years 5 – 13 years 3 – 15 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 ﬁ xed assets. Impairment losses on property, plant, and equipment are recognized according to IAS 36 when- ever the recoverable amount of the asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell or the value in use. In accordance with IAS 20, government grants are de- ducted from the costs of the asset. Any deferred income is not recognized. • Loans and receivables • Available-for-sale ﬁ nancial assets 78 Notes Notes for the KWS Group 2013/2014 1. General disclosures The ﬁ nancial liabilities comprise in particular trade pay- ables, borrowings and other liabilities. The fair value of ﬁ nancial liabilities with a long-term ﬁ xed interest rate is determined as present values of the payments related to the liabilities, using a yield curve applicable on the balance sheet date. Derivative instruments are measured at fair value in ac- cordance with IAS 39; they can be assets or liabilities. Common derivative ﬁ nancial instruments are essentially used to hedge interest rate and foreign currency risks. The fair value of the derivative ﬁ nancial instruments is measured on the basis of the market information avail- able on the balance sheet date and using recognized mathematical models, such as present value or Black- Scholes, to calculate option values, taking their volatility, remaining maturity and capital market interest rates into account. The instruments must also be classiﬁ ed in a level of the fair value hierarchy. Financial instruments in level 1 are measured using quoted prices in active markets for identical assets or liabilities. In level 2, they are measured by directly ob- servable 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 ﬁ nancial instruments. Subsequent measurement of the ﬁ nancial instruments depends on their classiﬁ cation in one of the following categories deﬁ ned in IAS 39: This category mainly comprises trade receivables, other receivables, loans and cash, including ﬁ xed- income short-term securities. Loans are measured at cost. Loans that carry no interest or only low interest are measured at their present value. Discernable risks are taken into account by recognition of an impairment loss. After their initial recognition, the other ﬁ nancial assets in this category are measured at amortized cost using the effective interest method, minus impair- ments. 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 ﬁ nancial 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 inten- tion of being sold in the short term are assigned to this category. Derivative ﬁ nancial instruments with a positive market value are also categorized as held for trading, unless they are designated hedging instru- ments in accordance with IAS 39. They are measured at fair value. Changes in value are recognized in income. Securities are derecognized after being sold on the settlement date. Notes Notes for the KWS Group 2013/2014 1. General disclosures 79 Securities are generally classiﬁ ed 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 directly included in the net income for the period. The outstanding purchase price obligation for consoli- dated subsidiaries must be carried at the present value of the anticipated future purchase price payments for minority interests. Changes to the estimates in subse- quent years are recognized in proﬁ t or loss. The cost of interest accrued on the purchase price obligation is carried in the net ﬁ nancial income/expenses. Derivatives The derivatives do not meet the requirements of IAS 39 to be designated as a hedging instrument. They are measured at their fair value. The changes in their market value are recognized in the income statement. Deriva- tives are derecognized on their day of settlement. This category covers all ﬁ nancial assets that have not been assigned to one of the above categories. In principle, securities are classed as available for sale, unless a different classiﬁ cation is required due to the fact that they have an explicit purpose. Equity instruments, such as shares in (unconsolidated) af- ﬁ liated companies, which are measured at amortized cost, and shares held in listed companies, are also included in this category. In principle, ﬁ nancial instru- ments 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 reserve for available-for-sale ﬁ nancial assets. The realized gains or losses are not recognized as proﬁ t or loss until they are disposed of. If there is objective evidence of permanent impairment on the balance sheet date, the instruments are written down to the lower value. Any subsequent decreases in the impair- ment loss are recognized directly in equity. • Financial liabilities measured at amortized cost All ﬁ nancial liabilities, with the exception of derivative ﬁ nancial instruments, are measured at amortized cost using the effective interest method. The liabilities are derecognized at the time they are settled or when the reason why they were formed no longer exists. • Financial liabilities at fair value This category covers derivative ﬁ nancial instruments that have a negative market value and are categorized in principle as held for trading. 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. Inventories and biological assets Derivatives are measured at the lower of cost or net realiz- able value less an allowance for obsolescent or slow-mov- ing items. In addition to directly attributable costs, the cost of sales also includes indirect labor and materials including depreciation under IAS 2. Under IAS 41, biological assets are measured at fair value less the estimated costs to sell. Immature biological assets are carried as inventories as of the time they are harvested. 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 80 Notes Notes for the KWS Group 2013/2014 1. General disclosures Notes Notes for the KWS Group 2013/2014 2. Disclosures on the annual ﬁ nancial statements 81 and their tax base, and on loss carryforwards; they are reported on a gross basis. Deferred tax assets are recognized if they result from deductible temporary dif- ferences and sufﬁ cient taxable proﬁ t in future periods is expected. Deferred tax liabilities must be set up for all taxable temporary differences. All deferred taxes must be assessed individually at each balance sheet date and must not be discounted. Under IAS 12, deferred taxes are calculated on the basis of the applicable local income tax. Provisions for pensions and other employee beneﬁ ts The provisions for pensions and other employee ben- eﬁ ts are calculated using actuarial principles in accor- dance with the projected unit credit method. Actuarial gains and losses resulting from revaluation of the net liability must be recognized directly in equity in the other comprehensive income. If there are planned assets, they are netted off against the associated obligations. The provisions for semi-retirement include obligations from concluded semi-retirement agreements. Payment arrears and top-up amounts for semi-retirement pay and for contributions to the statutory pension insurance program are recognized in measuring them. Other provisions Tax and other provisions account for all discernible risks and contingent liabilities. Depending on circumstances, they are measured at the most probable amount or at the expected value. Contingent liabilities The contingent liabilities result from debt obligations where outﬂ ow of the resource is not probable or the level of the obligation cannot be estimated with sufﬁ cient reli- ability 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 capital- ized if they can be classiﬁ ed as qualifying assets. Discretionary decisions and estimates The measurement approaches and amounts to be car- ried in these IFRS ﬁ nancial statements are partly based on estimates and speciﬁ cally deﬁ ned speciﬁ cations. This relates in particular to: • Determination of the useful life of the depreciable asset • Deﬁ nition of measurement assumptions and future results in connection with impairment tests, above all for capitalized goodwill and in connection with mea- surement of outstanding purchase price obligations for fully consolidated subsidiaries • Determination of the net selling price for inventories • Deﬁ nition of the parameters required for measuring pension provisions • Selection of parameters for the model-based mea- surement of derivatives • Determination whether tax losses carried forward can be used • Determination of the fair value of intangible assets, tangible 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 Despite careful estimates, the actual development may deviate from the assumptions. The Executive Board of KWS SAAT AG prepared the consolidated ﬁ nancial statements on October 1, 2014, and released them for distribution to the Supervisory Board. The Supervisory Board has the task of examin- ing the consolidated ﬁ nancial statements and declaring whether it approves them. 2. Disclosures on the annual ﬁ nancial statements Consolidated group and changes in the consolidated group Number of companies including KWS SAAT AG 06/30/2014 Previous year Domestic Foreign Total Domestic Foreign Total Fully consolidated Proportionately consolidated Total Equity method Total We founded the breeding company KWS PERU S.A.C. in Lima, Peru, at the beginning of the ﬁ scal year. KWS SERVICES MEDITERRANEAN S.L. in Barcelona took over the existing activities of the French Service Center on July 24, 2013. The research center KWS GATEWAY RESEARCH CENTER LLC. in St. Louis, Missouri (U.S.) was founded on March 12, 2014. BETASEED LTD. in Rothwell, UK, discontinued its business operations on June 19, 2014. The joint venture GENECTIVE S.A. in Chappes, France, which had been previously included at equity, was proportionately included in the consoli- dated ﬁ nancial statements for the ﬁ rst time in ﬁ scal 2013/2014. A total of 57 (55) companies were fully consolidated and eight (seven) proportionately consolidated in the year under review. Proportionately consolidated companies 13 0 13 0 13 44 8 52 0 52 57 8 65 0 65 13 0 13 0 13 42 7 49 1 50 55 7 62 1 63 In line with the corporate strategy for the Cereals Segment, we expanded our wheat breeding activities in France by acquiring the remaining 51% stake in SOCIETÉ DE MAR - TINVAL S.A. effective September 30, 2014. 110 employees there currently generate net sales of more than €20 million, of which over 20% is plowed back into research. The net assets to be acquired total around €12.5 million; a large part of the purchase price of approximately €30 million is accounted for by intangible assets, such as approved varieties, the gene pool and customer base. Details on the purchase price allocation will be provided in the ﬁ rst quarterly report as of September 30, 2014. The ﬁ nancial position and results of operations of the eight (seven) proportionately consolidated companies are as follows: in € thousand Noncurrent assets Current assets Total assets Equity Noncurrent liabilities Current liabilities Total equity and liabilities Total income Total expenses Net income for the year 2013/2014 Previous year 52,802 163,022 215,824 113,101 1,630 101,093 215,824 274,068 253,858 20,210 44,767 155,378 200,145 107,640 868 91,637 200,145 281,396 257,758 23,638 82 Notes Notes for the KWS Group 2013/2014 List of shareholdings in accordance with Section 313 HGB (German Commercial Code) Notes Notes for the KWS Group 2013/2014 3. Segment reporting for the KWS Group 83 List of shareholdings in accordance with Section 313 HGB (German Commercial Code) Subsidiaries and associated companies included in the consolidated group 1 Sugarbeet Corn Cereals Corporate 3. Segment reporting for the KWS Group In accordance with its internal reporting system, the KWS Group is primarily organized according to the following business segments: 100 % 100 % 100 % 100 % 100 % BETASEED INC. 2 Shakopee, MN/U.S. KWS FRANCE S.A.R.L. Roye/France DELITZSCH PFLANZEN- ZUCHT GMBH 10 Einbeck O.O.O. KWS RUS 12 Lipezk/Russia O.O.O. KWS R&D RUS 11 Lipezk/Russia 100 % KWS ITALIA S.P.A. Forli/Italy 100 % KWS POLSKA SP.Z O.O. Poznan/Poland 100 % KWS SCANDINAVIA A/S 10 100 % 100 % Guldborgsund/Denmark KWS SEMILLAS IBERICA S.L. 10 Zaratán/Spain SEMILLAS KWS CHILE LTDA. Rancagua/Chile 100 % KWS SRBIJA D.O.O. New Belgrade/Serbia 100 % KWS SUISSE SA Basle/Switzerland 100 % ACH SEEDS INC. 4 100 % KWS MAIS GMBH Einbeck 100 % KWS BENELUX B.V. 5 100 % KWS LOCHOW GMBH 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/U.S. 49 % SOCIETE DE MARTINVAL 100 % S.A. 8, * Mons-en-Pévèle/France MOMONT HENNETTE S.A. 14, * Mons-en-Pévèle/France 95 % LABOGERM S.A.R.L. 14, * Mons-en-Pévèle/France ADRIEN MOMONT S.A.R.L. 14, * Mons-en-Pévèle/France 100 % 100 % HAMET S.C.A. 14, * Mons-en-Pévèle/France 100 % 100 % Amsterdam/Netherlands KWS SEMENA S.R.O. 5 Bratislava/Slovakia KWS MAIS FRANCE S.A.R.L. 5 Champol/France KWS AUSTRIA SAAT GMBH 5 Vienna/Austria 100 % KWS SJEME D.O.O. 5 Pozega/Croatia 100 % 100 % KWS OSIVA S.R.O. 5 Velke Mezirici/Czech Republic 100 % KWS BULGARIA E.O.O.D. 5 Soﬁ a/Bulgaria Formerly: KWS Semena Bulgaria E.O.O.D. AGROMAIS GMBH 5 Everswinkel KWS MAGYARORSZÁG KFT. 5 Györ/Hungary KWS SEMINTE S.R.L. 13 Bucharest/Romania 100 % 100 % 100 % 100 % Eden Prairie, MN/U.S. BETASEED FRANCE S.A.R.L. 18 Bethune/France 100 % KWS UKRAINE T.O.W. 12 99 % KWS ARGENTINA S.A. 5 51 % Balcarce/Argentina RAZES HYBRIDES S.A.R.L. 3 Alzonne/France 50 % AGRELIANT GENETICS 100 % Kiev/Ukraine KWS TÜRK TARIM TICARET A.S. 9 Eskisehir/Turkey 100 % BETASEED GMBH Frankfurt am Main KWS POTATO B.V. 17 Emmeloord/Netherlands 100 % 93 % DYNAGRI S.A.R.L. 16 Casablanca/Morocco LLC. 6, * Westﬁ eld, IND/U.S. 50 % AGRELIANT GENETICS 100 % INC.* Chatham, Ontario/Canada KWS MELHORAMENTO E SEMENTES LTDA. 21 Curitiba/Brazil 50 % RIBER KWS SEMENTES S.A. 21 Patos de Minas/Brazil KWS PERU S.A.C. 22 Lima/Peru 100 % 100 % KWS R&D China LTD. 15 Hefei/China 50 % GENECTIVE S.A.* Chappes/France 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. 22 Subsidiary of KWS CHILE LTDA. and KWS SEMENTES BRASIL PARTICIPACOES LTDA. 100 % 100 % 100 % KWS LANDWIRTSCHAFT GMBH ** Einbeck KWS INTERSAAT GMBH Einbeck KWS SEEDS INC. 9 Shakopee, MN/U.S. • Corn • Sugarbeet • Cereals • Corporate Considered a core competency for the KWS Group’s entire product range, plant breeding, including the related biotechnology research, is essentially concen- trated at the parent company KWS SAAT AG in Einbeck. The breeding material, including the relevant informa- tion and expertise about how to use it, is owned by KWS SAAT AG with respect to sugarbeet and corn and by KWS LOCHOW GMBH with respect to cereals. Product-related R&D costs are carried directly in the product segments Corn, Sugarbeet and Cereals. Cen- trally controlled corporate functions are grouped in the Corporate Segment. Because of their minor importance within the KWS Group, the distribution and production of oil and ﬁ eld seed are reported in the Cereals and Corn Segments, in keeping with the legal entities involved. Description of segments Corn KWS MAIS GMBH is the lead company for the Corn Segment. In addition to KWS MAIS GMBH, business activities are conducted by one (one) German company and 18 (17) foreign companies of the KWS Group. The production and distribution activities of this segment relate to corn for grain and silage corn, and to oil and ﬁ eld seed. 100 % 100 % GLH SEEDS INC. 2 Shakopee, MN/U.S. KWS SAATFINANZ GMBH Einbeck RAGIS KARTOFFELZUCHT- UND HANDELSGESELL- SCHAFT MBH Einbeck 100 % 100 % KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH 100 % 100 % 100 % 100 % 100 % 100 % 100 % Northeim-Wiebrechtshausen EURO-HYBRID GESELL- SCHAFT FÜR GETRE- IDEZÜCHTUNG MBH Einbeck KWS SEMENTES BRASIL PARTICIPACOES LTDA. 19 São Paulo/Brazil KWS BRASIL PARTICIPACOES LTDA. 20 São Paulo/Brazil KWS GATEWAY RESEARCH CENTER LLC. 2 St. Louis, MO/U.S. KWS SERVICES DEUTSCHLAND GMBH Einbeck KWS SERVICES EAST GMBH Vienna/Austria KWS SERVICES NORTH B.V. Rotterdam/Netherlands 100 % KWS SERVICES MEDITERRANEAN S.A.S. 3 100 % Roye/France KWS SERVICES MEDITERRANEAN S.L. Barcelona/Spain * Proportional consolidation ** Profit transfer agreement June 30, 2014 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, 17 (18) foreign subsidiaries and afﬁ liated companies and two (two) subsidiaries in Germany are active in this segment. Cereals The lead company of this segment, which essentially concerns the production and distribution of hybrid rye, wheat and barley, as well as oil and ﬁ eld seed, is KWS LOCHOW GMBH with its eight (eight) foreign subsidiar- ies and afﬁ liated 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 are reported in this segment. The segment 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 functions, which are not directly charged to the product segments or indirectly allocated to them by means of an appropriate cost formula. Segment information Segment sales contains both net sales from third parties (external sales) and net 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 revenues from genetically modiﬁ ed properties (“tech fees”) are paid as a per-unit royalty on the basis of the number of units sold, due to their grow- ing competitive importance.KWS is not dependent on any one external customer. 84 Notes Notes for the KWS Group 2013/2014 3. Segment reporting for the KWS Group in € thousand Corn Sugarbeet Cereals Corporate KWS Group Segment sales Internal sales External sales 2013/2014 714,968 351,488 108,435 15,012 Previous year 701,743 329,288 113,482 14,873 1,189,903 1,159,386 2013/2014 46 439 1,095 10,316 11,896 Previous year 35 713 1,828 9,575 2013/2014 714,922 351,049 107,340 4,696 Previous year 701,708 328,575 111,654 5,298 12,151 1,178,007 1,147,235 The Corporate Segment generates 68.7% (64.4%) of its sales from the other segments. The sales of this segment represents 0.4% (0.5%) of the Group’s external sales. The corn segment is the largest contributor of external sales, accounting for 60.7% (61.2%) of external sales, followed by sugarbeet with 29.8% (28.6%) and cereals with 9.1% (9.7%). External sales by region in € thousand Germany Europe (excluding Germany) thereof: France North and South America thereof: Brazil thereof: USA Rest of world KWS Group 2013/2014 Previous year 225,399 447,171 223,384 433,524 (105,310) (102,987) 448,120 (52,841) 435,787 (36,904) (363,438) (366,417) 57,317 54,540 1,178,007 1,147,235 The external net sales are broken down by sales region on the basis of the country where the customer is based. 57.1% (57.3%) of total sales are recorded in Europe (including Germany). in € thousand Corn Sugarbeet Cereals Corporate KWS Group 1 adjusted pursuant to IAS 19 (2011) Segment earnings Depreciation and amortization Other noncash items 2013/2014 100,859 70,172 17,125 Previous year1 92,150 73,939 26,917 – 49,724 – 40,878 2013/2014 16,555 16,159 4,351 8,727 Previous year 14,978 11,740 3,928 7,802 138,432 152,128 45,792 38,448 2013/2014 689 7,036 – 3,238 – 16,110 – 11,623 Previous year 9,885 6,818 1,284 – 7,283 10,704 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 attribut- able income and expenses. Items that are not directly attributable are allocated to the segments by means of an appropriate formula. Depreciation and amortization charges of €45,792 thou- sand (€38,448 thousand) allocated to the segments relate exclusively to intangible assets and property, plant, and equipment. The other noncash items recognized in the income statement relate to noncash changes in the allowances on inventories and receivables, and in provisions. Notes Notes for the KWS Group 2013/2014 3. Segment reporting for the KWS Group 85 Operating assets Operating liabilities 2013/2014 546,753 260,088 74,280 95,193 976,314 286,515 Previous year1 484,560 253,973 64,910 90,365 893,808 324,875 1,262,829 1,218,683 2013/2014 Previous year1 151,664 161,274 74,992 17,749 67,633 312,038 313,012 625,050 67,017 20,165 58,529 306,985 262,053 569,038 in € thousand Corn Sugarbeet Cereals Corporate Total segments Others KWS Group 1 adjusted pursuant to IAS 19 (2011) The operating assets of the segments are composed of intangible assets, property, plant, and equipment, inventories and all receivables, other assets, and prepaid expenses that can be charged directly to the segments or indirectly allocated to them by means of an appropri- ate formula. The operating liabilities attributable to the segments in- clude the borrowings reported on the balance sheet, less provisions 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. Capital expenditure on assets was increased year on year by 36.5% to €81,165 thousand (€59,449 thousand). Investments were intensiﬁ ed considerably in the Corn Seg- ment (€42,029 thousand; previous year: €23,626 thou- sand) and the Corporate Segment (€13,840 thousand; previous year: €6,082 thousand), while they were slightly below the level of the previous year in the Sugarbeet Segment (€18,535 thousand; previous year: €22,408 thousand) and at the Cereals Segment (€6,761 thousand; previous year: €7,333 thousand). 35.0% (37.3%) of the capital spending was made in North and South America. 33.7% (28.0%) was made in Europe (excluding Germany) and 28.8% (26.8%) in Germany. Investments in long-term assets by segment in € thousand Corn Sugarbeet Cereals Corporate KWS Group Investments in long-term assets by region in € thousand Germany Europe (excluding Germany) North and South America Rest of world KWS Group 2013/2014 Previous year 42,029 18,535 6,761 13,840 81,165 23,626 22,408 7,333 6,082 59,449 2013/2014 Previous year 23,394 27,381 28,377 2,013 81,165 15,933 16,637 22,174 4,705 59,449 86 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Operating assets by region in € thousand Germany Europe (excluding Germany) thereof: France North and South America thereof: Brazil thereof: USA Rest of world KWS Group 1 adjusted pursuant to IAS 19 (2011) 4. Notes to the balance sheet 2013/2014 Previous year1 251,641 289,625 (53,314) 402,648 (95,492) 253,020 260,911 (41,612) 352,040 (81,649) (274,332) (237,801) 32,400 976,314 27,837 893,808 (1) Assets The statement of changes in ﬁ xed assets contains a breakdown of assets summarized in the balance sheet and shows how they changed in ﬁ scal 2013/2014. Capital expenditure on assets was €82,603 thousand (€65,195 thousand). The Management Report de- scribes the signiﬁ cant additions to assets. Deprecia- tion and amortization amounted to €45,792 thousand (€38,448 thousand). (2) Intangible assets This item includes purchased varieties, rights to variet- ies and distribution rights, software licenses for elec- tronic data processing, and goodwill. The additions of €8,456 thousand (€4,406 thousand) related to software licenses and patents to an amount of €7,957 thousand (€4,406 thousand). Amortization of intangible assets amounted to €15,093 thousand (€11,674 thousand), of which €6,286 thousand (€2,420 thousand) were value impairments. This charge is included in the relevant func- tional costs and the other operating expenses, depend- ing on the operational use of the intangible assets. The capitalized goodwill relates mainly to the Bra- zilian companies RIBER KWS SEMENTES S.A. – €21,686 thousand (€21,686 thousand) – and KWS MELHORAMENTO E SEMENTES LTDA. – €4,115 thou- sand (€4,115 thousand) – and the joint ventures AGRELIANT GENETICS LLC. – €17,655 thousand (€17,584 thousand) and GENECTIVE S.A. – €4,888 thousand (€0 thousand) – in the Corn Segment. In the previous year the goodwill for GENECTIVE S.A. was measured at equity. In the Cereals Segment, the goodwill of KWS UK LTD. is recognized to the same amount, namely €1,693 thousand (€1,693 thousand). In order to meet the requirements of IFRS 3 in combi- nation with IAS 36 and to determine any impairment of goodwill, cash-generating units have been deﬁ ned in line with internal reporting guidelines. At the KWS Group, these are the legal entities, with the excep- tion of our potato unit, which as a whole represents the cash-generating unit. To test for impairment, the carrying amount of each entity is determined by al- locating the assets and liabilities, including attributable goodwill and intangible assets. An impairment loss is recognized if the recoverable amount of an entity is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use of a cash generating unit. The impairment test uses the expected future cash ﬂ ows on which the medium-term plans of the companies are based; these plans, which cover a period of four years, have been approved by the Executive Board. They are based on historical patterns and expectations about future market development. For the European and American markets, the key as- sumptions on which corporate planning is based include assumptions about price trends for seed, in addition to the development of market shares and the regula- tory framework. Company-internal projections take the assumptions of industry-speciﬁ c market analyses and company-related growth perspectives into account. A standard discount rate of 5.1% (5.3%) 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 inﬂ ation rate. The impairment test for KWS POTATO B.V. revealed the need for a write-down, which was reﬂ ected by the capitalized goodwill and intangible assets being reduced by €6,286 thousand. This value impairment has to be charged to the Sug- arbeet Segment. Tests provided evidence that all the other goodwill recognized in the consolidated balance sheet and determined for the cash-generating units is not impaired. Possible changes in the ﬁ gures reported in the balance sheet result from currency translation at the balance sheet date. Sensitivity analyses were carried out in the ﬁ scal year for all cash-generating units to which goodwill is allocated. In our opinion, realistic changes in the basic assumptions would not result in the need to recognize an impairment loss at any cash-generating unit whose goodwill is sig- niﬁ cant relative to the total carrying amount of goodwill. (7) Inventories and biological assets in € thousand Raw materials and consumables Work in progress Immature biological assets Finished goods Total Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 87 (3) Property, plant, and equipment Capital expenditure amounted to €72,709 thousand (€55,043 thousand) and depreciation amounted to €30,699 thousand (€26,774 thousand). The latter in- cludes value impairments of €587 thousand (€0 thou- sand) due to a shorter service life for buildings: they were charged to the Corporate Segment. The Management Report describes the signiﬁ cant capital expenditure. (4) Financial assets Investments in non-consolidated subsidiaries and as- sociated companies and shares in cooperatives and GmbHs that are of minor signiﬁ cance, are reported in principle at their amortized cost totaling €707 thou- sand (€5,807 thousand) since the fair value cannot be reliably determined. The change from the previous year is primarily due to the fact that our joint venture GENECTIVE S.A. has been proportionately consolidated for the ﬁ rst time. Listed shares are carried at fair value of €88 thousand (€141 thousand). This account also includes other interest-bearing loans totaling €572 thou- sand (€118 thousand). (5) Noncurrent tax assets This mainly relates to the present value of the corporate income tax credit balance of the German group compa- nies, which was last determined at December 31, 2006, and has been paid in ten equal annual amounts since September 30, 2008. (6) Deferred tax assets Under IAS 12, deferred tax assets are calculated as the difference between the IFRS balance sheet amount and the tax base and on the basis of loss carryfor- wards. They are reported on a gross basis and total €48,056 thousand (€44,949 thousand), of which €5,210 thousand (€2,887 thousand) will be carried forward for the future use of tax losses. 06/30/2014 Previous year 18,690 48,984 12,568 112,746 192,988 15,961 47,124 11,316 70,051 144,452 88 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 89 Inventories increased by €48,536 thousand, or 33.6%, net of impairment losses totaling €55,703 thousand (€53,556 thousand). Immature biological assets relate to living plants in the process of growing (before harvest). The ﬁ eld inventories of the previous year have been har- vested in full and the ﬁ elds have been newly tilled in the year under review. Public subsidies of €1,455 thousand (€1,528 thousand), for which all requirements were met at the balance sheet date, were granted for the total area under cultivation of 4,326 (4,434) ha and were recognized in income. Future subsidies depend on the further devel- opment of European agricultural policy. (8) Current receivables in € thousand Trade receivables Current tax assets Other current ﬁ nancial assets Other current assets Total Trade receivables were €361,576 thousand following €359,867 thousand in the previous year. This amount includes €2,852 thousand (€2,618 thousand) in receiv- ables from related parties. 06/30/2014 Previous year 361,576 359,867 45,609 15,881 15,033 24,385 26,587 13,535 438,099 424,374 in € thousand 06/30/2014 Trade receivables Other current ﬁ nancial assets Other current assets Previous year Trade receivables Other current ﬁ nancial assets Other current assets Carrying amount 361,576 15,881 10,116 387,573 359,867 26,587 7,955 394,409 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 1 – 90 days 91 – 180 days 181 – 360 days > 360 days Of which: written down and not overdue on the balance sheet date 329,136 18,916 1,540 3,459 1,257 15,278 10,116 0 0 0 0 1 0 215 0 354,530 18,916 1,540 3,460 1,472 311,686 29,405 3,987 2,251 1,435 26,148 7,955 0 0 0 0 0 0 0 0 345,789 29,405 3,987 2,251 1,435 4,209 289 0 4,498 6,260 343 0 6,603 The already overdue trade receivables that have been partly written down amount to €3,060 thousand (€4,843 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 payment obligations. The following allowances have mainly been made for possible risks of non-payment of trade receivables: in € thousand 2013/2014 2012/2013 07/01 28,642 29,098 Addition Disposal Reversal 8,608 7,865 2,993 1,779 5,561 6,542 06/30 28,696 28,642 The receivables include an amount of €796 thousand (€345 thousand) due after more than one year. The capital reserves essentially comprise the premium obtained as part of share issues. (9) Securities Securities amounting to €76,712 thousand (€100,878 thou- sand) relate primarily to short-term liabilities securities and fund shares. (10) Cash and cash equivalents Cash of €78,261 thousand (€101,517 thousand) con- sists of balances with banks and cash on hand. The cash ﬂ ow statement explains the change in this item compared with the previous year, together with the change in securities. (11) Equity The fully paid-up subscribed capital of KWS SAAT AG is still €19,800,000.00. The no-par bearer shares are certiﬁ cated by a global certiﬁ cate for 6,600,000 shares. The company does not hold any shares of its own. The net retained proﬁ t, the differences from currency translation and the reserve for available-for-sale ﬁ nan- cial assets, as well as the reserve for revaluation of net liabilities/assets from deﬁ ned beneﬁ t plans, are grouped in the item “Retained earnings” in the consolidated bal- ance sheet. The revenue reserves essentially comprise the net income generated in the past by the compa- nies included in the consolidated ﬁ nancial statements, minus dividends paid to shareholders. Differences from translation of the functional currency of foreign business operations into the currency used by the group in report- ing (euro) are essentially carried in the item “Adjustments from currency translation”. The item “Revaluation of net liabilities/assets from deﬁ ned beneﬁ t plans” includes the actuarial gains and losses from pensions and other employee beneﬁ ts. Equity (including minority interest) fell by €11,866 thou- sand to €637,779 thousand (€649,645 thousand). For details, see the statement of changes in equity. 90 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 91 The tax effects on other comprehensive income are as follows: The trade payables and other long-term liabilities are due for payment in between one and ﬁ ve (one and ﬁ ve) years. Other comprehensive income Long-term provisions 2013/2014 2012/2013 Before taxes Tax effect After taxes Before taxes Tax effect After taxes –19,407 –209 48 48 –19,359 –13,375 –17 –13,392 –161 103 –17 86 Pension provisions Tax provisions Other provisions Total Changes in the con- solidated group, currency –473 106 –116 –483 07/01/20131 81,549 1,533 7,307 90,389 Addition 13,183 1,452 1,752 16,387 Consump- tion 4,388 1,073 1,190 6,651 Reversal 06/30/2014 0 0 8 8 89,871 2,018 7,745 99,634 –19,198 0 –19,198 –13,478 0 –13,478 1 adjusted pursuant to IAS 19 (2011) Items to be reclassiﬁ ed as proﬁ t or loss in subsequent periods Revaluation of available-for-sale ﬁ nancial assets Currency translation difference for economically independent foreign units Items to be reclassiﬁ ed as proﬁ t or loss in subsequent periods Revaluation of net liabilities/assets from deﬁ ned beneﬁ t plans Other comprehensive income –8,232 2,354 –5,878 –2,337 520 –1,817 –8,232 –27,639 2,354 2,402 –5,878 –2,337 –25,237 –15,712 520 503 –1,817 –15,209 KWS’ long-term capital base reﬂ ects the company’s strategy and accords with the interests of shareholders, employees and other stakeholders. The dividend distrib- uted is therefore geared to the earnings strength of the KWS Group in order to ensure adequate internal ﬁ nancing of further business expansion in the long term. Consoli- dated income for ﬁ scal 2013/2014 (after taxes and minor- ity interests) is €77,124 thousand (€88,901 thousand). It was reduced by the dividend payout of €19,800 thou- sand (€18,480 thousand) in December 2013 and effects not recognized in the income statement, such as from currency translation. As a result, equity fell year on year by €11,866 thousand (previous year: an increase of €63,649 thousand) and the equity ratio to 50.5% com- pared with 53.3% the previous year. Noncurrent liabilities increased by €24,838 thousand. That is mainly attributable to the increase in long-term ﬁ nancial borrowings from banks totaling €15,294 thousand. (12) Noncurrent liabilities in € thousand Long-term provisions Long-term borrowings Trade payables Deferred tax liabilities Other long-term liabilities Total 1 adjusted pursuant to IAS 19 (2011) The pension provisions are based on deﬁ ned beneﬁ t obligations, determined by years of service and pension- able compensation. They are measured using the project unit credit method under IAS 19 (2011), on the basis of assumptions about future development. The assump- tions in detail are that wages and salaries in Germany will increase by 3.00% (3.00%) annually and abroad by 3.75% (3.75%) annually. An annual increase in pen- sions of 2.00% (2.00%) is assumed. The discount rate in Germany was 2.90% compared with 3.50% the year before and averaged 4.40% abroad following 4.85% the previous year. The following mortality tables were used at June 30, 2014: • In Germany: The 2005 G mortality table of Klaus Heubeck • Abroad: RP-2000 Mortality Table Scale AA A retirement age of 63 years is imputed in Germany, while a retirement age of 65 years is imputed in the U.S. For beneﬁ t obligations backed by a guarantee by an in- surance company toward three former members of the Executive Board, the planned assets of €9,275 thou- sand (€9,058 thousand) correspond to the present value of the obligation. In accordance with IAS 19 (2011), the pension provisions are netted off against the corre- sponding assets (planned assets). Abroad The deﬁ ned beneﬁ t obligations abroad mainly relate to pension commitments in the U.S. For the most part, stock funds and bonds were invested in to cover them. All employees who have reached the age of 21 are en- titled to beneﬁ ts. In addition, each employee must have worked at least one year and at least 1,000 working hours to earn an entitlement. The following beneﬁ ts are granted from the pension plan: • An old-age pension at the age of 65 • An early retirement pension before the age of 65 – to be eligible, the employee must be at least 55 and the minimum vesting period must be 5 years • A pro-rata pension if the employee reaches the minimum vesting period of 5 years, but is below 55 The pension plans are largely subject to the following risks: Investment and return The present value of the deﬁ ned beneﬁ t obligation from the pension plan is calculated using a discount rate deﬁ ned on the basis of the returns on high-quality ﬁ xed-income corporate bonds. If the income from the planned assets is below this rate of interest, the result is a shortfall in the plan. An external fund manager selects the corporate bonds and stock funds to ensure risk diversiﬁ cation and manages them. 06/30/2014 Previous year1 Nature and scope of the pension beneﬁ ts 99,634 113,754 1,470 26,332 12,964 90,389 98,460 1,697 29,695 9,075 254,154 229,316 In Germany The following beneﬁ ts are provided under a company agreement relating to the company retirement pension program: • An old-age pension at the age of 65 • An early retirement pension before the age of 65, coupled with beneﬁ ts from the early retirement pension from the statutory pension insurance program • An invalidity pension for persons who suffer from occupational disability or incapacity to work as deﬁ ned by the statutory pension insurance program, and • A widow’s or widower’s pension 92 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 93 Change in interest rates The fall in the returns on corporate bonds and thus the discount rate will result in an increase in obligations, which is only partly compensated for by a change in the value of the planned assets. Wage increases The present value of the deﬁ ned beneﬁ t obligation from the plan is calculated on the basis of future salaries. Consequently, increases in the salary of the entitled em- ployees results in an increase in the plan liabilities. In order to allow reconciliation with the ﬁ gures in the bal- ance sheet, the accrued beneﬁ t must be netted off with the planned assets. Reconciliation with the balance sheet values for pensions Life expectancy The present value of the deﬁ ned beneﬁ t obligation from the plan is calculated on the basis of the best-possible estimate using mortality tables. An increase in the life expectancy of the entitled employees results in an increase in the plan liabilities. In previous years, KWS countered the usual risks of direct obligations by converting the pension obligations from deﬁ ned beneﬁ t to deﬁ ned contribution plans. As a result, subsequent beneﬁ ts will be provided by a provi- dent fund backed by a guarantee. The existing obliga- tions, which are partly covered by planned assets, are funded from the operating cash ﬂ ow and are subject to the familiar measurement risks. The tables below show the changes in the accrued beneﬁ t and planned assets: Changes in accrued beneﬁ t entitlements in € thousand Germany Abroad Total Germany Abroad Total 2013/2014 2012/20131 Accrued beneﬁ t entitlements from retirement obligations on July 1 Service cost Interest expense Actuarial gains (–) / losses (+) of which due to a change in ﬁ nancial assumptions used for calculation of which due to experience adjustments Pension payments made Exchange rate changes Other changes in value Accrued beneﬁ t entitlements from retirement obligations on June 30 1 adjusted pursuant to IAS 19 (2011) Change in planned assets 88,122 11,985 100,107 84,144 12,253 96,397 647 3,003 8,691 7,712 979 1,418 528 1,218 1,058 160 2,065 3,531 9,909 8,770 1,139 696 3,111 4,681 3,550 1,131 706 474 – 741 – 1,100 359 1,402 3,585 3,940 2,450 1,490 – 4,521 – 837 – 5,358 – 4,510 – 692 – 5,202 18 – 428 18 – 428 – 13 – 2 – 13 – 2 95,942 13,902 109,844 88,122 11,985 100,107 2013/2014 2012/20131 in € thousand Germany Abroad Total Germany Abroad Total Accrued beneﬁ t entitlements from retirement obligations on June 30 95,942 13,902 109,844 88,122 11,985 100,107 Fair value of the planned assets on June 30 9,275 10,698 19,973 9,058 9,500 18,558 Balance sheet values on June 30 86,667 3,204 89,871 79,064 2,485 81,549 of which pension provisions of which planned assets 1 adjusted pursuant to IAS 19 (2011) 95,942 13,902 109,844 88,122 11,985 100,107 9,275 10,698 19,973 9,058 9,500 18,558 The following amounts were recognized in the state- ment of comprehensive income: Effects on statement of comprehensive income 2013/2014 2012/20131 in € thousand Service cost Net interest expense (+)/income (–) Amounts recognized in the income statement Gains (–)/losses (+) from revaluation of the planned assets (excluding amounts already recognized as interest income) Actuarial gains (–)/losses (+) due to a change in ﬁ nancial assumptions used for calculation Actuarial gains (–)/losses (+) due to experience adjustments Amounts recognized in other comprehensive income Total (amounts recognized in the statement of comprehensive income) Germany Abroad 647 2,697 1,418 77 Total 2,065 2,774 696 2,795 Germany Abroad 3,344 1,495 4,839 3,491 706 110 815 Total 1,402 2,904 4,306 –490 –1,136 –1,626 –702 –831 –1,533 7,712 1,007 8,719 3,550 –1,170 2,380 979 160 1,139 1,131 359 1,490 8,201 31 8,232 3,979 –1,642 2,337 11,545 1,526 13,071 7,470 –827 6,643 2013/2014 2012/20131 1 adjusted pursuant to IAS 19 (2011) in € thousand Germany Abroad Total Germany Abroad Total Fair value of the planned assets on July 1 Interest income Income from planned assets excluding amounts already recognized as interest income Pension payments made Exchange rate changes 9,058 307 490 –580 0 9,500 18,558 450 757 1,136 –388 0 1,626 –968 0 8,599 316 702 –559 0 8,689 17,288 364 680 831 –385 1 1,533 –944 1 Fair value of the planned assets on June 30 9,275 10,698 19,973 9,058 9,500 18,558 1 adjusted pursuant to IAS 19 (2011) The service cost is allocated by means of an appropri- ate formula and recognized in operating income in the respective functional areas. Net interest expenses and income are carried in the interest result. 94 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet The fair value of the planned assets was split over the following investment categories: Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 95 The following undiscounted payments for pensions (with their due dates) are expected in the following years: The weighted average time at which the pension obliga- tions are due is 14.9 years in Germany and 15.5 years abroad. Breakdown of the planned assets by investment category Anticipated payments for pensions 2013/2014 2012/20131 2013/2014 in € thousand Corporate bonds Equity funds Consumer industry Finance Industry Technology Healthcare Other Cash and cash equivalents Reinsurance policies Planned assets on June 30 1 adjusted pursuant to IAS 19 (2011) Germany Abroad 3,043 7,173 1,722 889 746 1,169 1,040 1,607 482 9,275 9,275 Total 3,043 7,173 482 9,275 Germany Abroad 2,749 6,199 1,513 893 682 899 769 1,443 552 9,058 9,058 Total 2,749 6,199 552 9,058 10,698 19,973 9,500 18,558 The planned assets abroad relate solely to the U.S. jected unit credit method used to calculate the balance sheet values was also used in the sensitivity analysis. There is no active market for the reinsurance policies in Germany. There is an active market for the other planned assets: the fair value can be derived from their stock market prices. 83.8% (previous year: 82.0%) of the corporate bonds and the cash and cash equivalents have a AAA rating. The following sensitivity analysis at June 30, 2014, shows how the present value of the obligation would change given a change in the actuarial assumptions. No correlations between the individual assumptions were taken into account in this, i.e. if an assumption varies, the other assumptions were kept constant. The pro- Sensitivity analysis in € thousand Discount rate Anticipated annual pay increases Anticipated annual pension increase Life expectancy Effect on obligation Change in assumption +/– 100 base points +/– 50 base points +/– 25 base points +/– 1 year Decrease Increase 17,602 –13,852 –508 533 –2,471 –3,006 2,578 3,067 in € thousand Germany Abroad Apart from the above-described pension obligations, there are other old-age pension systems. However, no provisions have to be set up for them, since there are no further obligations above and beyond payment of the contributions (deﬁ ned contribution plans). These comprise beneﬁ ts that are funded solely by the em- ployer and allowances for conversion of earnings by employees. Total 5,192 5,100 5,031 5,065 5,105 4,784 4,681 4,595 4,577 4,566 408 419 436 488 539 23,260 3,224 26,484 The total pension costs for ﬁ scal 2013/2014 were as follows: 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 – 2023/2024 Pension costs 2013/2014 2012/20131 in € thousand Germany Abroad Total Germany Abroad Cost for deﬁ ned contribution plans Service cost for the deﬁ ned beneﬁ t obligations Pension costs 1 adjusted pursuant to IAS 19 (2011) 1,728 647 2,375 2,026 1,418 3,444 3,754 2,065 5,819 1,480 696 2,176 2,350 706 3,056 Total 3,830 1,402 5,232 In addition, contributions of €11,676 thousand (previous year: €10,200 thousand) were paid to statutory pension insurance institutions. the present value of the obligation of €3,724 thousand (€3,641 thousand) (deﬁ ned contribution plan). The costs for deﬁ ned contribution plans mainly related to the provident fund backed by a guarantee. The contri- butions to this pension program were €1,330 thousand (€1,099 thousand). The return and income from the planned assets depend on the reinsurance policy, which yields guaranteed interest of between 1.75% and 2.25%. In addition, the beneﬁ t obligation from salary conver- sion was backed by a guarantee that exactly matches The long-term ﬁ nancial borrowings include loans from banks amounting to €79,056 thousand (€64,834 thou- sand). They have remaining maturities through 2017. Under IAS 12, deferred tax liabilities are calculated as the difference between the IFRS balance sheet amount and the tax base. They are reported on a gross basis and total €26,332 thousand (€29,695 thousand). The com- position of the deferred tax liabilities is explained in more detail under (22) Taxes. 96 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet (13) Current liabilities in € thousand Short-term provisions Current liabilities to banks Current liabilities to afﬁ liates Other current ﬁ nancial liabilities Short-term borrowings Trade payables to afﬁ liates Other trade payables Trade payables Tax liabilities Other current ﬁ nancial liabilities Other liabilities Short-term provisions 06/30/2014 Previous year 131,841 41,905 301 11,151 53,357 0 81,111 81,111 35,467 12,191 56,929 131,350 26,975 292 5,992 33,259 7 82,739 82,746 31,929 11,833 48,605 in € thousand 07/01/2013 Changes in the consoli- dated group, currency Addition Consumption Reversal 06/30/2014 Obligations from sales transaction Obligations from purchase transaction Other obligations 107,615 –4,110 103,407 96,028 8,673 102,211 16,859 6,876 131,350 –128 –744 17,305 11,062 10,990 3,653 –4,982 131,774 110,671 6,882 75 15,630 16,164 13,466 131,841 The tax liabilities of €35,467 thousand (€31,929 thou- sand) include amounts for the year under review and the period not yet concluded by the external tax audit. (14) Derivative ﬁ nancial instruments in € thousand Currency hedges Interest-rate hedges Commodity hedges Total Nominal volume 52,873 54,500 13,280 120,653 06/30/2014 Carrying amounts 272 26 0 298 06/30/2013 Market values Nominal volume Carrying amounts Market values 272 26 0 298 58,124 55,100 19,828 –207 –207 73 0 73 0 133,052 –134 –134 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 97 Of the currency hedges, €4,408 thousand (€11,041 thou- sand) have remaining maturities of between one and ﬁ ve years. Of the interest-rate derivatives, hedges with a nominal volume of €39,500 thousand (€600 thousand) will mature within one year and hedges with a nominal value of €15,000 thousand (€15,000 thousand) will ma- ture in more than ﬁ ve years. The commodity hedges have remaining maturities of less than one (one) year. the liability, after taking into account transaction costs, is used. These are active and accessible markets for identi- cal assets and liabilities, where the fair value results from quoted prices that are observable (level 1 input factors). At the KWS Group, this relates to securities in the cat- egory “available-for-sale ﬁ nancial assets,” as well as fund shares at banks and other ﬁ nancial assets whose price is likewise quoted in active markets. (15) Financial instruments In general, the fair values of ﬁ nancial assets and liabilities are calculated on the basis of the market data available on the balance sheet date and are assigned to one of the three hierarchy levels in accordance with IFRS 13. The principal market, i.e. the market with the largest volume of trading and the greatest business activity, is used to calculate the fair value. If this market does not exist for the asset or liabilities in question, the market that maxi- mizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer The level 2 input factors relate to derivative ﬁ nancial instruments that are not designated hedging instruments and have been concluded between KWS companies and banks. The prices can thus be derived indirectly from active market prices for similar assets and liabilities. The level 3 input factors cannot be derived from observable market information. The carrying amounts and fair values of the ﬁ nancial assets (ﬁ nancial instruments), split into the measurement categories in accordance with IAS 39, are as follows: 06/30/2014 Financial instruments in € thousand Financial assets Financial assets Trade receivables Securities Cash and cash equivalents Other current ﬁ nancial assets of which derivative ﬁ nancial instruments Fair values Carrying amounts Loans and receivables Financial assets held for trading Available- for-sale ﬁ nancial assets Total carrying amount 2,774 0 361,576 361,576 76,712 78,261 15,881 (879) 0 78,261 15,002 (0) 0 0 0 0 879 (879) 879 2,774 2,774 0 361,576 76,712 0 0 (0) 76,712 78,261 15,881 (879) 79,486 535,204 Total 535,204 454,839 98 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 99 Previous year 1 Financial instruments 06/30/2014 Financial instruments in € thousand Financial assets Financial assets Trade receivables Securities Cash and cash equivalents Other current ﬁ nancial assets of which derivative ﬁ nancial instruments Total 1 adjusted pursuant to IAS 19 (2011) Fair values Carrying amounts Loans and receivables Financial assets held for trading 7,305 359,867 100,878 101,517 26,587 (812) 0 359,867 0 101,517 25,775 (0) 596,154 487,159 0 0 0 0 812 (812) 812 Available- for-sale ﬁ nancial assets 7,305 0 100,878 0 0 (0) Total carrying amount 7,305 359,867 100,878 101,517 26,587 (812) 108,183 596,154 The fair value of ﬁ nancial assets (equity instruments) measured at amortized costs cannot be reliably deter- mined because there are no active markets. These as- sets relate to shares in unconsolidated subsidiaries and associated companies. It is assumed that the carrying amounts are the same as the fair values. In addition, the ﬁ nancial assets include securities classiﬁ ed as noncur- rent assets, whose fair value is measured by their prices on the stock market (level 1). The fair values of securities classiﬁ ed as current as- sets are based on the price for them quoted on active markets (level 1). The fair value of derivative ﬁ nancial instruments is the present values of the payments related to these balance sheet items. These instruments are mainly forward exchange deals. They are measured on the basis of quoted exchange rates and yield curves available from market data and allowing for counterparty risks (level 2). The fair value of trade receivables, other current ﬁ nancial assets and cash and cash equivalents is the same as the carrying amounts as a result of the short time in which these instruments are due. The carrying amounts and fair values of the ﬁ nancial lia- bilities (ﬁ nancial instruments), split into the measurement categories in accordance with IAS 39, are as follows: in € thousand Financial liabilities Long-term borrowings of which outstanding purchase price obligations for consolidated subsidiaries Long-term trade payables Short-term borrowings Short-term trade payables Other current ﬁ nancial liabilities of which derivative ﬁ nancial instruments Fair values Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading Disclosure in acc. with IFRS 7 Total carrying amount 113,754 79,056 (34,698) 1,470 53,357 81,111 12,191 (581) (0) 1,470 53,357 81,111 11,610 (0) 0 (0) 0 0 0 581 (581) 581 34,698 113,754 (34,698) (34,698) 0 0 0 0 (0) 1,470 53,357 81,111 12,191 (581) 34,698 261,883 Total 261,883 226,604 Previous year Financial instruments in € thousand Financial liabilities Long-term borrowings of which outstanding purchase price obligations for consolidated subsidiaries Long-term trade payables Short-term borrowings Short-term trade payables Other current ﬁ nancial liabilities of which derivative ﬁ nancial instruments Fair values Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading Disclosure in acc. with IFRS 7 Total carrying amount 98,460 66,199 (32,261) 1,697 33,259 82,746 11,833 (946) (0) 1,697 33,259 82,746 10,887 (0) 0 (0) 0 0 0 946 (946) 946 32,261 98,460 (32,261) (32,261) 0 0 0 0 (0) 1,697 33,259 82,746 11,833 (946) 32,261 227,995 Total 227,995 194,788 Financial liabilities are measured at amortized cost and using the effective interest method in accordance with when they are due. The carrying amount is approxi- mately the market value, since the ﬁ nancial liabilities have a variable rate of interest on them. The ﬁ xed inter- est rate loans have a rate of interest approximately that of the market rate. The outstanding purchase price obligation for consoli- dated subsidiaries must be carried at the present value of the anticipated future purchase price payments for minority interests. This is derived from the anticipated operating income of the subsidiary and a risk-adjusted discount rate (level 3). 100 Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet Notes Notes for the KWS Group 2013/2014 4. Notes to the balance sheet 101 Due to the mainly short times in which trade payables are due, it is assumed that their carrying amounts are equal to the fair value. None of the reported ﬁ nancial instruments will be held to maturity. The method of calculating the fair values of derivative ﬁ nancial instruments is presented above under the com- ments on ﬁ nancial assets. The table below shows the ﬁ nancial assets and liabilities measured at fair value: 06/30/2014 Previous year in € thousand Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivative ﬁ nancial instruments not part of a hedge under IAS 39 Available-for-sale ﬁ nancial assets Financial assets Derivative ﬁ nancial instruments not part of a hedge under IAS 39 Financial liabilities 0 79,011 79,011 0 0 879 0 879 581 581 0 0 0 0 0 879 0 79,011 101,864 79,890 101,864 581 581 0 0 812 0 812 946 946 0 0 0 0 0 812 101,864 102,677 946 946 The derivative ﬁ nancial instruments mainly consists of forward exchange deals, whose fair value is derived from the forward exchange rates and the use of option pricing models (level 2). The table below presents the net gains/losses carried in the income statement for ﬁ nancial instruments in each measurement category: in € thousand Available-for-sale ﬁ nancial assets Financial assets held for trading Loans and receivables Financial liabilities measured at amortized cost Financial liabilities held for trading 06/30/2014 Previous year 125 81 –658 –10,729 985 123 –250 –335 –11,879 –2,655 The net income from ﬁ nancial assets includes income and expenses from the measurement of ﬁ nancial assets. The net gain/loss from loans and receivables mainly includes effects from changes in the allowances for impairment. The net gains from ﬁ nancial assets held for trading and ﬁ nancial liabilities held for trading mainly comprise changes in the market value of derivative ﬁ nancial instruments. The net losses from ﬁ nancial liabilities measured at am- ortized cost mainly result from interest expense. Liquidity is managed in the euro zone by the central Treasury unit using a cash pooling system. Liquidity requirements are determined by means of cash plan- ning and are covered by cash and promised credit lines. There is a credit line of €200 million under a syndicated loan, which was extended by a further year and runs until November 2018. The table below shows the KWS Group’s liquidity analy- sis for non-derivative and derivative ﬁ nancial liabilities. The table is based on contractually agreed, undiscount- ed payment ﬂ ows: in € thousand Book value Cash ﬂ ows Liquidity analysis of ﬁ nancial liabilities Financial liabilities Trade payables Other ﬁ nancial liabilities 06/30/2014 06/30/2014 Total Due in < 1 year 167,111 185,894 82,581 11,610 82,581 11,610 60,611 81,111 11,610 Due in > 1 year and < 5 years 125,090 1,470 Due in > 5 years 193 Non-derivative ﬁ nancial liabilities 261,302 280,085 153,332 126,560 193 Payment claim Payment obligation Derivative ﬁ nancial liabilities 581 22,531 23,221 690 22,531 23,221 690 The cash ﬂ ows of the derivative ﬁ nancial liabilities mainly relate to forward exchange deals and include both inter- est payments and redemption payments. These deriva- tive ﬁ nancial instruments are settled in gross. Interest income from ﬁ nancial assets that are not mea- sured at fair value and recognized in the income state- ment was €1,777 thousand (€1,552 thousand). Interest expenses for ﬁ nancial borrowings were €10,729 thou- sand (€11,879 thousand). In order to assess the risk of exchange rate changes, the sensitivity of a currency to ﬂ uctuations was deter- mined. After the euro, the US dollar is the most impor- tant currency in the KWS Group. All other currencies are of minor importance. The average exchange rate in the ﬁ scal year was 1.36 (1.30) USD/€. If the US dollar depreciated by 10%, the ﬁ nancial instruments would have a value of €144 thousand (€184 thousand). If the US dollar appreciated by 10%, the ﬁ nancial instruments would have a value of €176 thousand (€225 thousand). The net income for the year and equity would change accordingly. to the interest result (previous year: reduction of €0.5 mil- lion); equity would improve by €0.1 million (previous year: a drop of €0.3 million). A reduction in the rate of interest to 0 percentage points would add a further €1.3 million (€1.3 million) to the interest result. Equity would increase by €0.8 million (€0.9 million) in the event of such a change in the rate of interest. In order to assess the risk of changes in commodity prices, the sensitivity of commodity prices to ﬂ uctua- tions was determined. A 10% increase in commod- ity prices would increase the cost of sales by around €1.3 million (€2.0 million); a decrease would reduce it by around €1.3 million (€2.0 million). In the Management Report possible risks resulting from agreements regarding ﬁ nancial dependencies are ad- dressed. (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. In order to assess the risk of interest rate changes, the sensitivity of interest rates to ﬂ uctuations was deter- mined. The average rate of interest in the ﬁ scal year was 0.26% (0.29%). An increase in the rate of interest of 1 percentage point would add a further €0.2 million (17) Other ﬁ nancial obligations There was a €10,159 thousand (€5,588 thousand) ob- ligation from uncompleted capital expenditure projects. The increase is mainly the result of spending on new software licenses totaling €1.7 million. Obligations under rental agreements and leases in € thousand Due within one year Due between 1 and 5 years Due after 5 years 06/30/2014 Previous year 14,854 19,354 7,124 41,332 13,968 17,439 3,576 34,983 102 Notes Notes for the KWS Group 2013/2014 5. Notes to the income statement The leases relate primarily to full-service agreements for IT equipment and ﬂ eet vehicles, which also include ser- vices for which a total of €1,300 thousand (€2,139 thou- sand) was paid in the year under review. The main leasehold obligations relate to land under cultivation. 5. Notes to the income statement Income statement of the KWS Group for the period July 1, 2013 through June 30, 2014 in € millions Net sales Cost of sales Gross proﬁ t on sales Selling expenses Research and development expenses General and administrative expenses Other operating income Other operating expenses Operating income 2013/2014 % of sales Previous year 1 % of sales 1,178.0 614.5 563.5 204.0 148.8 76.8 60.7 56.2 138.4 100.0 52.2 47.8 17.3 12.6 6.5 5.2 4.8 11.7 1,147.2 607.0 540.2 190.5 140.4 69.0 61.9 50.1 152.1 100.0 52.9 47.1 16.6 12.2 6.0 5.4 4.4 13.3 Net ﬁ nancial income/expenses –12.5 –1.1 –10.3 –0.9 Result of ordinary activities 125.9 10.7 141.8 12.4 Taxes Net income for the year Shares of minority interest Net income after minority interest 1 adjusted pursuant to IAS 19 (2011) (18) Net sales and function costs By product category in € thousand Certiﬁ ed seed sales Royalties income Basic seed sales Services fee income Other sales 45.6 80.3 3.2 77.1 3.9 6.8 0.3 6.5 49.5 92.3 3.4 88.9 4.3 8.0 0.3 7.7 2013/2014 Previous year 1,068,263 1,047,039 63,922 14,694 8,784 22,344 57,806 16,931 5,637 19,822 1,178,007 1,147,235 By region in € thousand Germany Europe North and South America Rest of world Notes Notes for the KWS Group 2013/2014 5. Notes to the income statement 103 2013/2014 225,399 447,171 448,120 57,317 Previous year 223,385 433,524 435,787 54,539 1,178,007 1,147,235 For further details of sales, see segment reporting. Sales are recognized when the agreed goods or ser- vices have been supplied and risk and title pass to the buyer. Any rebates or discounts are taken into account. The cost of sales increased by 1.2% to €614,528 thou- sand (€607,027 thousand), or 52.2% (52.9%) of sales. The total cost of goods sold was €336,361 thousand (€351,442 thousand). Allowances on inventories totaling €2,147 thousand more (previous year: €2,220 thousand more) were required. The allowances were lower by €275 thou- sand (€553 thousand) for the Cereals Segment, while they were higher by €514 thousand for the Sugar- beet Segment (previous year: lower by €150 thou- sand). Additional allowances totaling €1,908 thousand (€4,864 thousand) were required in the Corn Segment. (19) Other operating income The €13,404 thousand increase in selling expenses to €203,952 thousand (€190,548 thousand) is attributable to the creation and expansion of distribution structures. This is 17.3% of net sales, up from 16.6% the year before. Research and development is recognized as an ex- pense in the year it is incurred; in the year under review, this amounted to €148,821 thousand (€140,371 thou- sand the year before). Development costs for new vari- eties are not recognized as an asset because evidence of future economic beneﬁ t can only be provided after the variety has been ofﬁ cially certiﬁ ed. General and administrative expenses increased by €7,698 thousand to €76,741 thousand, representing 6.5% of sales, after 6.0% the year before. in € thousand Income from sales of ﬁ xed assets 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 The other operating income mainly comprises foreign exchange gains and income from interest rate hedges, as well as income from the reversal of provisions and miscellaneous other operating income. 2013/2014 416 15,638 13,582 5,561 5,548 6,466 191 13,270 60,672 Previous year 836 10,763 14,757 6,542 6,204 6,773 580 15,488 61,943 104 Notes Notes for the KWS Group 2013/2014 5. Notes to the income statement (20) Other operating expenses in € thousand Legal form expenses Allowances on receivables Counterparty default 2013/2014 1,056 8,216 392 Previous year 1,263 7,865 352 Exchange rate losses and losses on currency and interest rate hedges 22,289 16,428 Losses from sales of ﬁ xed assets Expenses relating to previous periods Expense from remeasurement of intangible assets Other expenses 269 1,099 2,366 20,518 56,205 636 1,027 72 22,418 50,061 In the year under review, allowances for receivables of €4,596 thousand (€3,414 thousand) were recognized as an expense at the Corn Segment, €3,504 thousand (€4,400 thousand) at the Sugarbeet Segment, €52 thou- sand (€48 thousand) at the Cereals Segment and €64 thousand (€3 thousand) at the Corporate Segment. (21) Net ﬁ nancial income/expenses in € thousand Interest income Interest expenses Income from other ﬁ nancial assets Write-down on securities Interest expenses from pension provisions Interest expense for other long-term provisions Net interest expense Net income from subsidiaries and joint ventures Net income from participations Net income from write-ups on subsidiaries, joint ventures and participations Net income from equity investments 2013/2014 Previous year 1,791 11,515 119 0 2,774 179 1,641 8,227 78 1 2,904 948 –12,558 –10,361 0 6 1 7 38 6 1 45 Net ﬁ nancial income/expenses –12,551 –10,316 Net ﬁ nancial income/expenses fell by a total of €2,235 thousand to €–12,551 thousand as a result of higher interest expenses. Net interest expense was €–12,558 thousand compared with €–10,361 thousand the year before. Net income from equity investments likewise fell by €38 thousand to €7 thousand. The inter- est effects from pension provisions comprise interest expenses (compounding) and the planned income. (22) Taxes Income tax expense is computed as follows: in € thousand 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 1 adjusted pursuant to IAS 19 (2011) Notes Notes for the KWS Group 2013/2014 5. Notes to the income statement 105 2013/2014 15,824 34,513 50,337 (–6,829) –111 –4,631 –4,742 45,595 Previous year 1 26,453 39,967 66,420 (4,836) –6,231 –11,513 –17,744 49,528 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 proﬁ ts. In addition, municipal trade tax is payable on proﬁ ts generated in Germany. Trade income tax is applied at a weighted average rate of 13.3% (13.3%), resulting in a total tax rate of 29.1% (29.1%). The “Law on Tax Measures Accompanying Introduc- tion of the Societas Europaea and Amending Further Tax Regulations” (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 German Group companies carried these claims as assets at their present value totaling €4,933 thousand (€6,123 thousand) at June 30, 2014. €1,190 thousand (€1,235 thousand) was recovered in the year under review and recognized directly in equity. Under German tax law, both German and foreign divi- dends are 95% tax exempt. The proﬁ ts generated by Group companies outside Germany are taxed at the rates applicable in the country in which they are based. For the German Group companies, deferred tax was calculated at 29.1% (29.1%). For foreign Group com- panies, deferred tax was calculated using the tax rates applicable in the country in which they are based. Deferred taxes result from the following: Deferred tax assets Deferred tax liabilities 2013/2014 Previous year 1 Change 2013/2014 in € thousand Intangible assets Property, plant and equipment Financial assets Inventories Current assets Noncurrent liabilities Current liabilities Tax loss carryforward Other consolidation transactions 12 284 1,529 9,527 2,376 14,327 14,403 5,210 388 5 220 2,479 8,516 3,957 10,413 16,146 2,887 326 7 64 –950 1,011 –1,581 3,914 –1,743 2,323 62 3,107 Previous year 1 12,754 14,083 662 201 428 1,042 521 0 4 Change –3,323 –96 –28 –35 772 –154 –505 0 6 9,431 13,987 634 166 1,200 888 16 0 10 Deferred taxes recognized 48,056 44,949 1 adjusted pursuant to IAS 19 (2011) 26,332 29,695 –3,363 106 Notes Notes for the KWS Group 2013/2014 5. Notes to the income statement Notes Notes for the KWS Group 2013/2014 6. Notes to the cash ﬂ ow statement 107 The other comprehensive income includes exchange rate- related changes to the deferred taxes of €–674 thousand (€194 thousand), which were directly credited to equity, without recognition in proﬁ t or loss. panies 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. Tax loss carryforwards of €23,154 thousand (€5,359 thou- sand) were regarded 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 proﬁ ts projected in the medium-term plans of the com- The following schedule reconciles the expected income tax expense to the reported income tax expense. The calculation assumes an expected tax expense, applying the German tax rate to the proﬁ t before tax of the entire Group: in € thousand Earnings before income taxes Expected income tax expense 2 Difference in income tax liability outside Germany Tax portion for: Tax-free income Expenses not deductible for tax purposes Temporary differences and losses for which no deferred taxes have been recognized Tax credits Taxes relating to previous years Other tax effects Reported income tax expense Effective tax rate 1 adjusted pursuant to IAS 19 (2011) 2 Tax rate in Germany: 29.1% 2013/2014 125,881 36,631 13,120 110 3,010 143 –75 –6,829 –515 45,595 36.2% Previous year 1 141,812 41,267 1,562 –517 1,591 0 –279 4,836 1,068 49,528 34.9% This increase in the effective tax rate in the year under review was due to tax expenses from previous periods following ﬁ eld audits and strong income growth in coun- tries with higher tax rates. Other taxes, primarily real estate tax, are allocated to the relevant functions. (23) Personnel costs/employees in € thousand 2013/2014 Previous year 1 Wages and salaries 180,255 167,433 Social security contributions, expenses for pension plans and beneﬁ ts 1 adjusted pursuant to IAS 19 (2011) 45,552 42,502 225,807 209,935 Personnel costs went up by €15,872 thousand to €225,807 thousand, an increase of 7.6%. The number of employees increased by 404 to 4,847 or by 9.1%. Compensation increased by 7.7% from €167,433 thou- sand in the previous year to €180,255 thousand. Social security contributions, expenses for pension plans and beneﬁ ts were €3,050 thousand higher than in the previous year. Employees 1 in € thousand Germany Rest of Europe (without Germany) North and South America Rest of world Total 1 Annual average 2013/2014 1,763 1,223 1,711 150 4,847 Previous year 1,676 1,139 1,505 123 4,443 Of the above number, 700 (713) employees are in- cluded according to the percentage of equity held in the companies that employ them. 61 (59) of them were in Europe and 639 (654) in North and South America.1,401 (1,428) employees are employed by now eight (seven) proportionately consolidated investees. If these persons are included in full, the workforce total is 5,549 (5,158). The reported number of employees is greatly inﬂ uenced by seasonal labor. (24) Net income for the year Net income for the year was reduced by net ﬁ nancial income/expenses of €–12,551 thousand (€–10,316 thou- sand) and a higher tax rate and fell by €11,998 thousand to €80,286 thousand, representing a return on sales of 6.8%, down from 8.0% in the previous year. Net income for the year after minority interest is €77,124 thousand. Earnings per share are thus €11.69 (€13.47). The share of net income of minority interests also in- cludes the shares that accrued to shareholders who have left the company up to the time they left. 6. Notes to the cash ﬂ ow statement The cash ﬂ ow statement, which has been prepared ac- cording to IAS 7 (indirect method), shows the changes in cash and cash equivalents of the KWS Group in the three categories of operating activities, investing activi- ties, and ﬁ nancing activities. The effects of exchange rate changes and changes in the consolidated group have been eliminated from the respective balance sheet items, except those affecting cash and cash equivalents. (1) Net cash from operating activities The cash proceeds from operating activities are substantially determined by cash earnings. They were €110,400 thousand (€109,485 thousand), slightly high- er than the previous year. The proportion of cash earn- ings included in sales was 9.4% (9.5%). Capital tie-up amounted to €49,382 thousand (€24,907 thousand), mainly due to an increase in assets not attributable to ﬁ nancing or investing activity. The cash proceeds from operating activities also include interest income of €1,648 thousand (€1,498 thousand) and dividend income of €6 thousand (€44 thousand) as well as inter- est expense of €7,779 thousand (€5,017 thousand). Income tax payments amounted to €68,023 thousand (€56,972 thousand). 108 Notes Notes for the KWS Group 2013/2014 7. Other notes (2) Net cash from investing activities A net total of €75,421 thousand (€88,942 thousand) was required to ﬁ nance investing activities. An amount of €74,992 thousand (€62,145 thousand) was paid for intangible and tangible assets and an amount of €1,901 thousand (€5,745 thousand) for ﬁ nancial assets. There were total cash receipts of €1,472 thousand (€1,918 thousand) for disposals of assets. €0 thousand (€22,970 thousand) was paid to acquire shares in con- solidated companies. (3) Net cash from ﬁ nancing activities Financing activities resulted in cash payments of €31,523 thousand (previous year: cash proceeds of €27,222 thousand). The dividend payments to par- ent shareholders and other shareholders related to the dividends of €19,800 thousand (€18,480 thousand) paid to the shareholders of KWS SAAT AG, as well as proﬁ t distributions paid to other shareholders of and at fully consolidated subsidiaries of €1,328 thousand (€664 thousand) and the acquisition of the remaining shares of other shareholders in KWS LOCHOW GMBH. In addition, net borrowings totaling €35,392 thousand (€40,650 thousand) were raised. (4) Supplementary information on the cash ﬂ ow statement The changes in cash and cash equivalents due to exchange rate, consolidated group, and measurement changes were attributable to an amount of €–3,990 thou- sand (€–3,348 thousand) to exchange rate-related adjust- ments. The other changes mainly result in an amount of €2,494 thousand (€–83 thousand) from ﬁ rst-time partial consolidation of the joint venture GENECTIVE S.A. As in previous years, cash and cash equivalents are composed of cash (on hand and balances with banks) and current available-for-sale securities. Cash and cash equivalents includes €32,708 thousand (€46,582 thousand) from partially consolidated companies. 7. Other notes Proposal for the appropriation of net retained proﬁ ts KWS SAAT AG posted operating income of €–14,331 thousand compared with €11,768 thousand for the previ- ous year. Allowing for net ﬁ nancial income/expenses of €37,911 thousand (€35,512 thousand) and income taxes totaling €–265 thousand €11,549 thousand), net income in accordance with the German commercial law regula- tions was €23,845 thousand (€35,731 thousand). Adding the net proﬁ t of €154 thousand (€223 thousand) brought forward from the previous year and the allocation to the revenue reserves of €4,000 thousand (€16,000 thou- sand), a net retained proﬁ t of €19,999 thousand is avail- able for distribution. A proposal will be made to the Annual Shareholders’ Meeting that an amount of €19,800 thousand of KWS SAAT AG’s net retained proﬁ t should be distri- buted as a dividend of €3.00 (€3.00) for each of the 6,600,000 shares. The balance of €199 thousand (€154 thousand) is to be carried forward to the new account. Total remuneration of the Supervisory Board and the Executive Board and of former members of the Supervisory Board and the Executive Board of KWS SAAT AG The compensation of the members of the Supervisory Board consists of a ﬁ xed and a variable component, with the variable component being limited to the level of the ﬁ xed compensation. As in the previous year, the total compensation for members of Supervisory Board amounts to €516 thousand (€516 thousand), excluding value-added tax. €238 thousand (€238 thousand) of the total compensation is performance-related. Notes Notes for the KWS Group 2013/2014 Audit of the annual ﬁ nancial statements | Compliance Declaration with the German Corporate Governance Code 109 In ﬁ scal year 2013/2014, total Executive Board com- pensation amounted to €3,481 thousand (€4,072 thou- sand). Variable compensation of €1,884 thousand (€2,124 thousand), calculated on the basis of the net proﬁ t for the period of the KWS Group, includes com- pensation of €33 thousand (€38 thousand) for duties performed in subsidiaries. Compensation of former members of the Executive Board and their surviving dependents amounted to €1,476 thousand (€1,097 thousand). Pension provisions recognized for this group of persons amounted to €7,018 thousand (€3,155 thousand) as of June 30, 2014, before being netted off with the relevant planned assets. Shareholdings of members of the Supervisory Board and the Executive Board (as of August 31, 2014) Dr. Arend Oetker indirectly holds a total of 1,650,010 (1,650,010) shares and Dr. Andreas J. Büchting 108,030 (108,030) shares in KWS SAAT AG. All together, the members of the Supervisory Board hold 1,758,725 (1,758,718) shares in KWS SAAT AG. The members of the Executive Board hold 14,699 (12,059) shares in KWS SAAT AG. Related party disclosures As part of its operations, KWS procures goods and services worldwide from a large number of business partners, including companies in which KWS has an interest. Business dealings with these companies are always conducted on an arm’s length basis; from the KWS Group’s perspective, these dealings have not been material. As part of Group ﬁ nancing, 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 allocations, they respectively hold a total of more than 50% of the voting rights. The Execu- tive Board, the Supervisory Board and the families of their members were also deﬁ ned as related parties. There were no business transactions or legal transac- tions that required reporting for this group of persons in ﬁ scal 2013/2014. The compensation that has to be disclosed in accordance with IAS 24 for management in key positions at the Group comprises remuneration for the active Executive Board and the Supervisory Board. It is presented in the Group Management Report. No other related parties have been identiﬁ ed for whom there is a special reporting requirement under IAS 24. There are lease agreements with an annual lease of €132 thousand (€86 thousand) between Hans-Joachim Tessner and KWS SAAT AG. Audit of the annual ﬁ nancial statements On December 19, 2013, the Annual Shareholders’ Meeting of KWS SAAT AG elected the accounting ﬁ rm Deloitte & Touche GmbH, Hanover, to be the Group’s auditors for ﬁ scal year 2013/2014. Fee paid to the external auditors under Section 314 (1) No. 9 of the HGB in € thousand 2013/2014 a) Audit of the consolidated ﬁ nancial statements b) Other certiﬁ cation services c) Tax consulting d) Other services Total fee paid 710 2 0 45 757 Previous year 683 5 0 54 742 For ﬁ scal year 2014/2015, fees for consulting services (excluding auditing) of up to €75 thousand are expected. Compliance Declaration with the German Corporate Governance Code KWS SAAT AG has issued the Compliance Declaration with the German Corporate Governance Code required by section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) and made it accessible to its share- holders on the company’s home page at www.kws.com. 110 Notes Notes for the KWS Group 2013/2014 Supervisory and Executive Boards of KWS SAAT AG Supervisory and Executive Boards of KWS SAAT AG Supervisory Board Dr. Drs. h.c. Andreas J. Büchting Einbeck Agricultural Biologist/Economist Chairman of the Supervisory Board of KWS SAAT AG 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 Kommandit gesellschaft Dr. Arend Oetker Vermögensverwaltungsgesellschaft mbH & Co, Berlin Deputy Chairman of the Supervisory Board of KWS SAAT AG 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: • Leipziger Messe GmbH, Leipzig • Berliner Philharmonie gGmbH, Berlin (Chairman) Hubertus von Baumbach Ingelheim am Rhein Businessman Member of Management of Boehringer Ingelheim, 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. Berthold Niehoff Einbeck Agricultural Scientist Employee Representative Notes Notes for the KWS Group 2013/2014 8. Declaration by legal representatives 111 8. Declaration by legal representatives We declare to the best of our knowledge that the con- solidated ﬁ nancial statements give a true and fair view of the assets, ﬁ nancial position and earnings of the Group in compliance with the generally accepted standards of consolidated accounting, and that an accurate picture of the course of business, including business results, and the Group’s situation is conveyed by the Group Manage- ment Report, and that it describes the main opportunities and risks of the Group’s anticipated development. Einbeck, October 1, 2014 KWS SAAT AG The Executive Board P. von dem Bussche L. Broers H. Duenbostel E. Kienle Executive Board Philip von dem Bussche Einbeck (CEO) Corporate Development & Communications, Human Resources Dr. Léon Broers Einbeck, D/Heythuysen, NL Research and Breeding Dr. Hagen Duenbostel Einbeck Corn, Investor Relations Membership of comparable German and foreign oversight boards: • Hero AG, Lenzburg, CH (Member of the Board of Administration) Dr. Peter Hofmann (since October 1, 2014) Einbeck Sugarbeet, Cereals, Marketing Eva Kienle Göttingen Finance, Controlling, Global Services, IT, Legal P. Hofmann 112 Notes Notes for the KWS Group 2013/2014 Auditors’ Report Auditors’ Report We have audited the annual ﬁ nancial statements of the KWS Group – consisting of the Balance Sheet, the State- ment of Comprehensive Income, the Notes, the Cash Flow Statement, Segment Reporting and the Statement of Changes in Equity – and the Group Management Report for the ﬁ scal year from July 1, 2013, to June 30, 2014, all of which were prepared by KWS SAAT AG, Einbeck. The preparation of the consolidated ﬁ nancial statements and the Group Management Report according to the Interna- tional 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 (German Commercial Code), is the responsibil- ity 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 ﬁ nancial statements and the Group Management Report. We conducted our audit of the annual ﬁ nancial state- ments in accordance with Section 317 HGB and the generally accepted standards for the audit of ﬁ nancial statements promulgated by the Institut der Wirtschafts- prüfer (German Institute of Certiﬁ ed Public Accoun- tants). According to these standards, the audit must be planned and executed in such a way that misstatements and violations materially affecting the presentation of the view of the assets, ﬁ nancial position and earnings conveyed by the consolidated ﬁ nancial statements, taking into account the applicable regulations on orderly accounting, and by the Group Management Report are detected with reasonable certainty. Knowledge of the business activities and the economic and legal operating environment of the Group and evaluations of possible errors are taken into account. The effectiveness of the internal accounting control system and the evidence supporting the disclosures in the consolidated ﬁ nancial statements and the Group Management Report are evaluated mainly on the basis of test samples within the framework of the audit. The audit includes the assessment of the annual ﬁ nancial statements of the companies included in the consolidated ﬁ nancial state- ments, the deﬁ nition of the companies consolidated, the accounting and consolidation principles used and any signiﬁ cant estimates made by the Executive Board, as well as the evaluation of the overall presentation of the consolidated ﬁ nancial statements and the Group Management Report. We believe that our audit provides a reasonable basis for our opinion. On the basis of our audit, we have no reservations to note. In our opinion pursuant to the ﬁ ndings gained during the audit, the consolidated ﬁ nancial statements of KWS SAAT AG, Einbeck, comply with the IFRS as applicable in the EU, and in addition with the commer- cial 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 assets, ﬁ nancial position and earnings of the Group, taking into account these regulations. The Group Management Report accords with the consolidated ﬁ nancial statements, conveys overall an accurate view of the Group’s position and accurately presents the opportunities and risks of future development. Hanover, October 1, 2014 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft (Kompenhans) (KKKKompenhans) Auditor (Bukowski) (Bukowski) Auditor Notes Notes for the KWS Group 2013/2014 Auditors’ Report 113 Financial calendar November 26, 2014 Report on the 1st quarter of 2014/2015 December 18, 2014 Annual Shareholders’ Meeting in Einbeck February 25, 2015 Report on the 2nd quarter of 2014/2015 May 27, 2015 Report on the 3rd quarter of 2014/2015 October 15, 2015 Publication of 2014/2015 ﬁ nancial statements, Annual press and analyst conference in Frankfurt December 17, 2015 Annual Shareholders’ Meeting Key data of KWS SAAT AG Securities identiﬁ cation number 707400 ISIN DE0007074007 Stock exchange identiﬁ er KWS Transparency level Index Share class Prime Standard SDAX Individual share certiﬁ cates Number of shares 6,600,000 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: Jan Eric Euler • Eberhard Franke • Frank Stefan Kimmel • Dominik Obertreis • Jan Schmitt • KWS Group archive 114 Annual ﬁ nancial statements Auditors’ Report

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