KWS Group
Annual Report 2015

Plain-text annual report

Annual Report 2015 | 2016 KWS in Figures The KWS Group (in € millions) Net sales and income Net sales R&D intensity in % EBIT as a % of net sales (EBIT margin) Net financial income/expenses Net income for the year Key figures on the financial position and assets Capital expenditure Depreciation and amortization Equity Equity ratio in % Return on equity in % Return on assets in % Net debt1 Total assets Capital employed (avg.)2 ROCE (avg.) in %3 Cash flow from operating activities Employees Number of employees (avg.)4 Personnel expenses Key figures for the share Earnings per share Dividend per share Segments (in € millions) 2015/2016 2014/2015 2013/2014 1,036.8 17.6 112.8 10.9 14.8 85.3 99.6 48.2 767.9 53.5 11.9 7.0 87.9 1,436.6 906.9 12.4 125.9 4,843 232.2 12.92 3.00 986.0 17.7 113.4 11.5 16.7 84.0 132.5 45.9 738.7 55.2 13.6 7.8 105.9 1,337.1 851.0 13.3 48.1 4,691 216.9 12.53 3.00 923.5 16.2 118.3 12.8 7.5 80.3 69.4 41.2 637.8 54.7 12.8 7.8 31.6 1,165.0 737.5 16.0 76.0 4,150 189.9 11.69 3.00 Corn Sugarbeet Cereals Corporate +5.4% 795 754 +12.5% 440 391 –24.5% 84 64 +27.5% 119 93 +6.0% 111 118 –25.0% 12 9 Net sales EBIT Net sales EBIT Net sales EBIT 2014/2015 2015/2016 Reconciliation (in € millions) Net sales EBIT 1 Short-term + long-term borrowings – cash and cash equivalents – securities 2 Total capital employed at the end of the quarters (intangible assets + property, plant and equipment + inventories + trade receivables – trade payables) / 4 3 EBIT / capital employed (avg.) 4 Average number of employees in the year under review –2.4% 4 4 Net sales EBIT –51 –50 +2.1% Segments Reconciliation KWS Group 1,356.8 141.1 –320.0 –28.3 1,036.8 112.8 l s r e d o h e r a h S r u o o T Contents 3 To our Shareholders 3 5 12 14 18 Foreword of the Executive Board Report of the Supervisory Board The KWS Share Corporate Sustainability Spotlight Topic 21 Combined Management Report 22 32 35 49 49 56 60 70 Fundamentals of the KWS Group Employees Economic Report Report on Events after the Balance Sheet Date Opportunity and Risk Report Forecast Report Corporate Governance KWS SAAT SE (Explanations in Accordance to the HGB) 73 Annual Financial Statements Hagen Duenbostel (CEO) Corn, Corporate Development & Communications, Compliance Peter Hofmann Sugarbeet, Cereals, Marketing Eva Kienle Finance, Controlling, Global Services, IT, Legal, Human Resources Léon Broers Research & Breeding To our Share­ holders Foreword of the Executive Board Seed is a matter of trust, and we continue to strengthen our customers’ trust in the performance of our products – year after year. Systematic en- hancement of our varieties’ yields, the quality of the seed itself and expert support in cultivation through close personal contacts are what make KWS unique and successful over the long term. These qualities are all the more important in times when the agri- cultural industry faces major and lasting challenges. Low consumer prices, declining cultivation areas for important crops and negative exchange rate influ- ences again shaped KWS’ economic environment in international markets. Exceptional efforts were needed for us to achieve our mission of ensuring that KWS still grew profitably under these circumstances. Thanks to our well-diversified product portfolio and our independence as a family-owned company, we have been able to continue to implement our long-term strategy. That included expanding our research and breeding programs in particular. We obtained around 400 new marketing approvals in fiscal 2015/2016 and again reaped the fruit of our many years of work. Foreword of the Executive Board | To our Shareholders 3 KWS Group | Annual Report 2015/2016The global seed market’s potential fell in 2015 by We are optimistic about the future. We still expect around 8% to approximately €37 billion US dollars. to achieve net sales growth of more than 5% and Total cultivation area hardly declined at all. However, at least a double-digit EBIT return in the medium to intensive competition, greater use of farm-saved long term. In the short term, we do not anticipate any seed for growing cereals and a switch to crops with easing in the economic environment. In all likelihood, lower seed prices, such as soybean or rapeseed, we will not quite achieve our medium-term target of had a negative impact. at least 5% growth in net sales in fiscal 2016/2017. However, we expect to improve our profitability (EBIT The pesticide and seed sector overall is still under- margin). You can find more information on that on going a process of consolidation and integration. pages 56 to 57. Several large takeovers or mergers of agrochemical companies are currently on the agenda. With a busi- Research and development and closeness to our ness model that specializes in plant breeding, KWS customers remain vital to KWS, even in its 160th is largely unaffected by these developments. We year. That is why we will keep focusing our efforts on have more than doubled net sales and profits in the these fields in the future. Finally, I would like to thank past ten years by our own efforts and remain one of our employees, shareholders, partners and custom- the world’s leading companies in the field of variety ers for the business success we achieved last year. development. We look forward to a successful future together. Seed is at the start of the food supply chain. In more With best regards from Einbeck on behalf of the developed economic regions, food has become a entire Executive Board. question of individual lifestyle. People define them- selves more and more by what they eat: flexitarian, vegetarian, vegan, food combining or low-carb – the range of diets is diverse. Some abstain from eating Dr. Hagen Duenbostel meat, while others avoid cereals or dairy products. Chief Executive Officer Yet whatever diet is preferred, modern agriculture produces crops to meet that demand. With their knowledge, good ideas and cutting-edge technolo- gies, farmers ensure that we consumers will continue to be offered high-quality food now and in the future. As part of that, they always work with an eye to using resources efficiently – out of economic and ecologi- cal considerations. As a plant breeding company, KWS is part of this modern agriculture. Our focal objective is always to help farmers to be successful. The two-page photo spreads and Spotlight Topic in this Annual Report reflect what counts: closeness and trust. 4 To our Shareholders | Foreword of the Executive Board Annual Report 2015/2016 | KWS GroupReport of the Supervisory Board In what was, all in all, a turbulent economic climate velopment of the various businesses, market trends in the agricultural sector, numerous intended acqui- and the competitive environment, research and sitions in the pesticide and seed industry were the breeding and, along with important individual proj- subject of public debate in fiscal 2015/2016. They are ects, risk management at the KWS Group were the expected to result in changes in KWS’ competitive subject of detailed discussions. The Chairman of the environment. In this connection, KWS was neither a Supervisory Board continued the bilateral discus- takeover target, nor do we currently aim to make any sions with the Chief Executive Officer and individual acquisitions of our own. Preserving our company’s members of the Executive Board in regular talks independence remains a key concern of the family outside the meetings of the Supervisory Board. In shareholders. In particular, the long-term product de- addition, there were monthly meetings between the velopment cycles in plant breeding require a stable Chairman of the Supervisory Board and the Execu- base and strategic planning security. In this spirit, the tive Board as a whole, where the company’s current Supervisory Board and Executive Board once again business development and, in particular, its strategy, cooperated successfully in the past fiscal year. occurrences of special importance and individual aspects were dealt with. The Chairman of the Super- The Supervisory Board discharged the duties incum- visory Board informed the Supervisory Board of the bent on it in accordance with the law, the company’s results of these meetings. The Supervisory Board Articles of Association and the bylaws, regularly did not make use of its right to conduct an examina- advised and monitored the Executive Board in its tion granted by Section 111 (2) AktG (German Stock activities and satisfied itself that the company was Corporation Act) since the reporting by the Executive run properly and in compliance with the law and that Board meant there was no reason to do so. it was organized efficiently and cost-effectively. The Supervisory Board decided on all significant busi- Focal areas of deliberations ness transactions requiring its consent and carefully The full Supervisory Board held six meetings in fis- accompanied the Executive Board in all fundamen- cal 2015/2016. All members participated in all of tal decisions of importance to the company. The the meetings, with the exception of the meeting on Supervisory Board discussed the information and June 22, 2016, where one member was excused and assessments that influenced its decisions together not in attendance. In a special meeting on Septem- with the Executive Board. Both boards continued ber 22, 2015, the Supervisory Board dealt with the their constructive and trusted cooperation as in the subject of licensing in genetically improved traits for past. Among other things, this was demonstrated by corn. In order to strengthen the technology platforms the fact that, as is customary, the Supervisory Board of KWS and Vilmorin & Cie (a listed company of was involved in all decisions of vital importance to Limagrain), long-term agreements with a leading trait the company at an early stage. The Supervisory and seed producer were then concluded. KWS and Board was provided with the necessary informa- Vilmorin have since been authorized to make world- tion in written and oral form regularly, promptly and wide commercial use of all current and future corn comprehensively. This included all key information traits from its portfolio. Along with the existing trait on relevant questions of strategy, planning, the busi- agreements, this one enabled KWS to successfully ness performance and the situation of the company complement and expand its trait portfolio in the future. and the KWS Group, including the risk situation, risk management and compliance. Business transactions The meeting of the Supervisory Board to discuss requiring consent were submitted to, and discussed the financial statements on October 14, 2015, was and approved by, the Supervisory Board in compli- devoted to examining and approving the financial ance with the bylaws for the Executive Board. The statements of KWS SAAT SE and the consoli- company’s business policy, corporate and financial dated financial statements of the KWS Group as planning, profitability and situation, the general de- of June 30, 2015. The Supervisory Board also Report of the Supervisory Board | To our Shareholders 5 KWS Group | Annual Report 2015/2016 discussed any impacts of the intended acquisitions by the Executive Board and the Supervisory Board in the industry on KWS. in accordance with Section 161 AktG (German The meetings on December 16 and 17, 2015, focused Commission for the Corporate Governance Code” on strategic planning covering a ten-year time frame, (cf. Clause 7.2.3 (2) of the German Corporate Gover- Stock Corporation Act) with respect to the “German as well as the regulatory framework in Europe, in nance Code). particular for new plant breeding technologies. The Supervisory Board also approved acquisition of the The Supervisory Board received and discussed remaining stake in the Brazilian corn company RIBER the financial statements of KWS SAAT SE and the KWS. The meeting additionally adopted a resolution consolidated financial statements and Combined to sell the seed potato operations to the Dutch com- Management Report of KWS SAAT SE and the KWS pany Stet Holland B.V. In its meeting on March 16, Group, along with the report by the independent au- 2016, the Supervisory Board heard detailed reports ditor of KWS SAAT SE and the KWS Group and the on the progress of product development. In addition, proposal on utilization of the net profit for the year a resolution was adopted to conduct a public tender- made by KWS SAAT SE, in due time. Comprehen- ing process as part of appointment of an indepen- sive documents and drafts were submitted to the dent auditor. members of the Supervisory Board as preparation. For example, all of them were provided with the an- On June 22, 2016, the agenda as usual includ- nual financial statements, Combined Management ed adoption of the corporate planning for fiscal Report, audit reports by the independent auditors, 2016/2017, including medium-term planning up to corporate governance report, compensation report 2019/2020. At the meeting, the Supervisory Board and the proposal by the Executive Board on the ap- also discussed the results of its efficiency review and propriation of the profits. The Supervisory Board also conducted the survey of the Supervisory Board with held detailed discussions of questions on the agenda the aim of avoiding and identifying fraud. The Super- at its meeting to discuss the financial statements on visory Board is not aware of any relevant acts. October 24, 2016. The auditor took part in the meet- ing. It reported on the main results of the audit and Annual and consolidated financial statements was also available to answer additional questions and auditing and provide further information for the Supervisory Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Board. According to the report of the independent Hanover, the independent auditor chosen at the An- auditor, there were no material weaknesses in the nual Shareholders’ Meeting on December 17, 2015, internal control and risk management system in re- and commissioned by the Audit Committee, has lation to the accounting process. There were also no audited the financial statements of KWS SAAT SE circumstances that might indicate a lack of impartial- that were presented by the Executive Board and pre- ity on the part of the independent auditor. The small pared in accordance with the provisions of the Ger- extent of services additionally provided by the inde- man Commercial Code (HGB) for fiscal 2015/2016 pendent auditor can be seen from the Notes. and the financial statements of the KWS Group (IFRS consolidated financial statements), as well as the In accordance with the final results of its own exam- Combined Management Report of KWS SAAT SE ination, the Supervisory Board endorsed the results and the KWS Group Management Report, includ- of the audit, among other things as a result of the ing the accounting reports, and awarded them its preliminary examination by the Audit Committee, and unquali fied audit certificate. In addition, the auditor did not raise any objections. The Supervisory Board concluded that the audit of the financial statements gave its consent to the annual financial statements did not reveal any facts that might indicate a mis- of KWS SAAT SE, which were prepared by the Exec- statement in the declaration of compliance issued utive Board, and to the consolidated financial state- 6 To our Shareholders | Report of the Supervisory Board Annual Report 2015/2016 | KWS Groupments of the KWS Group, along with the Combined The Supervisory Board regularly addressed the Management Report of KWS SAAT SE and the question of any conflicts of interest on the part of KWS Group. The financial statements are thereby its members and those of the Executive Board. In approved. The Supervisory Board also endorses the year under review, there were no such conflicts the proposal by the Executive Board to the Annual of interests that had to be disclosed immediately to Shareholders’ Meeting on the appropriation of the the Supervisory Board and reported to the Annual net retained profit of KWS SAAT SE after having Shareholders’ Meeting. examined it. Supervisory Board Committees Corporate Governance The Audit Committee convened for three joint The Supervisory Board conducted its efficiency re- meetings in fiscal 2015/2016. It also held three tele- view in accordance with Clause 5.6 of the German phone conferences – on all occasions with all its Corporate Governance Code for fiscal 2014/2015 and members in attendance, with the exception of the 2015/2016, accompanied and supported by Ernst telephone conference on November 19, 2015, where & Young GmbH Wirtschaftsprüfungsgesellschaft. one member was excused and not in attendance. In According to the final report by Ernst & Young, the its meeting on September 28, 2015, the Audit Com- results of the evaluation of the Supervisory Board of mittee discussed the annual financial statements KWS SAAT SE meet the benchmark; no fundamental and accounting of KWS SAAT SE and consolidated weaknesses were identified by the persons ques- financial statements of the KWS Group for the fiscal tioned. year 2014/2015. The annual compliance report, risk manage ment and the results of the auditing projects The Supervisory Board discussed compliance with were on the agenda at its meeting on March 16, the recommendations of the “German Commission 2016. The audit plan for fiscal 2016/2017 was also for the Corporate Governance Code.” As regards discussed and adopted. The subjects discussed setting a limit on the length of time members can at the meeting on June 22, 2016, included the new serve on the Supervisory Board of KWS SAAT SE in quarterly reporting standards and the results of the accordance with Clause 5.4.1 of the German Corpo- Supervisory Board’s efficiency review. The quar- rate Governance Code, the Supervisory Board stuck terly reports and the semiannual report for fiscal by its decision to continue not to comply with these 2015/2016 were discussed in detail in three tele- recommendations by the German Corporate Gover- phone conferences and their publication was ap- nance Code, since they would significantly restrict proved. the rights of a business with a tradition of family own- ership like KWS, whose family shareholders hold a majority stake. Supervisory Board Committees Committee Audit Committee Chairman 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-Mühlhäuser Arend Oetker Cathrina Claas-Mühlhäuser Report of the Supervisory Board | To our Shareholders 7 KWS Group | Annual Report 2015/2016The Audit Committee convened on September 22, candidate also named by the Audit Committee – was 2016, to discuss the current annual financial state- confirmed and resolved by the Supervisory Board. ments of KWS SAAT SE and KWS’ consolidated financial statements and accounting. The indepen- The Committee for Executive Board Affairs re- dent auditor explained the results of its audit of the viewed the compensation paid to members of the 2015/2016 financial statements and pointed out that Executive Board in the year under review. As part of – in its opinion – there were no circumstances that that, it proposed increasing the fixed compensation could have led to a lack of impartiality on its part. of Dr. Peter Hofmann to the level of the other Exec- The Audit Committee also dealt with the proposal by utive Board members. Peter Hofmann has served the Executive Board on the appropriation of the net on the Executive Board of KWS SAAT SE since retained profit of KWS SAAT SE and recommended October 1, 2014, but has been responsible since that the Supervisory Board approve it. It addition- 2005 for the Sugarbeet Segment, which has recently ally dealt with the results of the examination of the held its own very well in a tough market environment. 2014/2015 financial statements by the German Finan- In view of that and his many years of successful work cial Reporting Enforcement Panel (FREP), which was for the company, the committee proposed converting based on spot checks and produced no objections. the contract of Peter Hofmann – before the end of its existing term and with effect January 1, 2016 – into In addition, the Audit Committee obtained the state- a five-year contract with the same terms and condi- ment of independence from the auditor in accor- tions for variable compensation as for the other ordi- dance with Clause 7.2.1 of the German Corporate nary members of the Executive Board. The Supervi- Governance Code, ascertained and monitored the sory Board endorsed the committee’s proposals. auditor’s independence, examined its qualifications and defined the focal areas of the audit. The Audit In October 2015, Dr. Arend Oetker informed KWS Committee also satisfied itself that the regulations on that he had transferred his shares in KWS to the next internal rotation were observed by the independent generation of his family as part of an anticipated auditor and dealt with the services rendered addi- inheritance. At the same time, he transferred entre- tionally by the independent auditor. preneurial responsibility for the stake in KWS held by the Oetker family to his daughter Dr. Marie Theres In addition, the Audit Committee dealt in its meetings Schnell, Munich. In addition, the Deputy Chairman of with preparing the resolution on the appointment of the Supervisory Board considered resigning his seat the independent auditor for fiscal year 2016/2017 to on the Supervisory Board of KWS SAAT SE at the be proposed to the Annual Shareholders’ Meeting on end of 2016. The Nominating Committee convened December 15, 2016. In order to select the independent on May 28, 2016, and discussed filling the post that auditor to be proposed to the Annual Shareholders’ was likely to become vacant. The shareholder fam- Meeting, the Audit Committee conducted a tendering ilies Büchting/Oetker had proposed Marie Theres process in the period from March 31, 2016, to Septem- Schnell as the representative of the family of Arend ber 22, 2016, in accordance with the provisions of the Oetker. new EU Regulation on independent auditors that has been in force since June 17, 2016. After the documents After completing secondary school, Marie Theres submitted by a total of nine auditing firms were inten- Schnell (born in 1976) studied communications in sively discussed and assessed, the Audit Committee Salzburg and Gothenburg and completed her uni- recommended to the Supervisory Board that Ernst & versity education by gaining a doctorate in Zurich in Young GmbH Wirtschaftsprü fungs gesellschaft, 2007. She gained professional experience as assis- Hanover, be proposed to the Annual Shareholders’ tant to the board of management at a large digital Meeting for appointment as the independent auditor. publishing house and as part of a trainee program At its meeting of October 24, 2016, this recommen- in the food industry in Spain. She then worked as a dation – following consideration of an alternative freelance media consultant. In addition to this inter- 8 To our Shareholders | Report of the Supervisory Board Annual Report 2015/2016 | KWS GroupAndreas J. Büchting, Chairman of the Supervisory Board national activity, she was able to gain diverse expe- Schnell. The Nominating Committee arrived at the rience at the companies of the Arend Oetker Group, conclusion that Marie Theres Schnell was qualified to not only in the fields of agriculture, retailing and food, hold a position on the Supervisory Board and would but also in her work on various shareholder bodies. be an excellent enrichment for it. On September 20, Coming from a family with a long tradition of entre- 2016, Dr. Arend Oetker informed the Chairman of the preneurship, she contributes experience, a sense of Supervisory Board that he would resign as a member responsibility, vision and sound judgment. of the Supervisory Board of KWS SAAT SE effec- tive the end of the Annual Shareholders’ Meeting The Nominating Committee examined her candidacy, on December 15, 2016. The Nominating Committee taking into account the relevant regulations of the then recommended in accordance with Clause 5.3.3 German Corporate Governance Code. Accordingly, of the German Corporate Governance Code that the committee satisfied itself that Ms. Schnell also Dr. Marie Theres Schnell be proposed as a candidate had the time expected for her to discharge her du- for election of his successor to the Annual Share- ties on the board. In addition, the Supervisory Board holders’ Meeting on December 15, 2016. aims to ensure that half of its shareholder represen- tatives are independent within the meaning of the The Supervisory Board expresses its thanks to the German Corporate Governance Code. The departure Executive Board and all employees of KWS SAAT SE of Arend Oetker and election of Marie Theres Schnell and its subsidiaries for their great commitment and in his place would mean that the situation on the efforts yet again in helping KWS continue its gratify- board would remain the same in this respect. The ing development. Board would thus still meet the target it has set itself. The aspect of diversity should be taken into account Einbeck, October 24, 2016 in filling posts on the Supervisory Board. In this con- text, the Supervisory Board decided in accordance with Section 111 (5) AktG (German Stock Corporation Act) that the ratio of female members on the Supervi- Dr. Drs. h.c. Andreas J. Büchting sory Board of KWS SAAT SE should not be less than Chairman of the Supervisory Board 16.6% by June 20, 2017. That figure would increase to 33.3% overall and 50% in terms of shareholder representatives with the appointment of Marie Theres Report of the Supervisory Board | To our Shareholders 9 KWS Group | Annual Report 2015/2016Companions Personal Consulting Seed is a matter of trust. That is why personal consulting and close contact between our seed experts and farmers in their region is very near to our heart. Choosing the variety adapted to the location in question lays the foundation for successful cultivation. However, our consultants’ work is by no means done once a variety is select- ed – on the contrary. Throughout the entire vegetation period, they are a reliable partner, maintaining close contact with their farmers and discussing agricultural matters with them: from tilling methods, the right time for sowing, the use of pesticides and fertilizers to the ideal time to harvest crops and suitable storage conditions. As a result, we live up to our responsibility at the beginning of the value chain even after selling our seed. The KWS Share Performance: Greater volatility – share for the year. KWS’ share recovered strongly after that performs strongly long-term to close at almost the same level of the previous year While KWS was able to expand its business activity at the end of the fiscal year (€297.80; –0.6%). That in the year under review, the agricultural sector is is a very good performance for the industry. Almost again confronted by a surplus supply of agricultural all listed competitors fared worse in the same peri- raw materials, low commodity prices and regional od – despite major consolidation projects with prices adjustments in the cultivation area, as well as polit- well above the stock market values for the affected ical and economic uncertainties. The nervousness companies. The DAX fell by around 14% and the of capital market players is reflected in the volatility EURO STOXX 50 index by even approximately 18% of KWS’ share price. It rose sharply year on year, in this period, although there were slight gains for the although the average daily fluctuation between the MDAX (around 2%) and SDAX (around 1%). Looking highest and lowest price (on a small trading volume) at the share’s performance over the past five years was €5.62 (4.33)1 – despite KWS’ solid business (July 1, 2011, to June 30, 2016), the KWS share price performance. The share reached an all-time high at increased by 93%. The SDAX rose by 61% and the €313.55 in July 2015. The general stock market slump DAX by around 31% in the same period. in January 2016 meant its price fell to a low of €235.10 The KWS share’s performance over 5 years 250 % 200 % 150 % 100 % 50 % +93% +61% +31% July 1, 2011 KWS SDAX DAX June 30, 2016 Listing: KWS still in a mid-range position in Stock program: KWS employees take the the SDAX opportunity to participate in their company The share still occupies a mid-range position in the For more than 40 years KWS has offered its employ- SDAX, Germany’s index for small caps. Measured in ees the chance to become a shareholder in the com- terms of free float market capitalization at the relevant pany and thus share in its success and identify more key date of June 30, 2016, the KWS share ranked 18th strongly with it. The content of our Employee Share (18th) in the index, which comprises 50 companies, Program remained unchanged in the year under and 39th (35th) in terms of trading volume over the review. Our employees were able to buy up to 500 period under review. KWS SAAT SE’s market capital- KWS shares at a price of €217.60 (214.40), including a ization was €1,964 (1,970) million or, solely on the basis 20% discount, which the individual employees must of the proportion of free float, €565 (569) million. pay tax on. A total of 395 (401) employees in ten 1 If not otherwise specified, the figures in parentheses give the previous year’s figure. 12 To our Shareholders | The KWS Share Annual Report 2015/2016 | KWS GroupShareholder structure at September 27, 2016 Free float 32.1% Tessner Beteiligungs GmbH 15.4% 52.5% Families Büchting, Arend Oetker (nine) Euro pean countries took up this offer and pur- KWS SAAT SE’s shareholders. With a dividend pay- chased a total of 7,541 (9,878) shares, corresponding out ratio of 23.2% (23.6%) of the KWS Group’s net to an average stake per employee of 19 (25) shares. income for the year, the company would stick to its The acquired shares are subject to a lock-up period earnings-oriented dividend policy of a payout in the of four years. They cannot be sold, transferred or long-term target range of 20% to 25%. pledged during this period. As in previous years, the shares used for the Employee Share Program were acquired in accordance with Section 71 (1) No. 2 of the German Stock Corporation Act (AktG). A total of €1.9 (2.7) million was used to buy back the compa- ny’s own shares, giving an average purchase price per share of €258.85 (271.73). Planned appropriation of profits: Proposed dividend stable at €3.00 Key figures for the KWS share ISIN Number of shares Closing price June 30, 2016 June 30, 2015 DE0007074007 6,600,000 in € 297.80 298.50 Trading volume (avg.) in shares/day The KWS Group increased its net sales last fiscal year by 5.2% to €1,036.8 (986.0) million. In what was, all in all, a turbulent economic environment in the 2015/2016 2014/2015 2,068 2,211 agricultural sector, among other things with declining Market capitalization in € millions cultivation areas and higher costs of sales as well as non-recurring costs, EBIT was €112.8 (113.4) million, June 30, 2016 June 30, 2015 1,965 1,970 almost at the level of the previous year, although it was impacted by positive exchange rate effects. Net finan- cial income/expenses fell; that and a lower tax rate meant that net income for the year was €85.3 (84.0) million. The return on sales after tax fell to 8.2% (8.5%), although it would have been lower had it not been for the positive exchange rate effects. The Executive Board and Supervisory Board will therefore propose payment of an unchanged dividend of €3.00 (3.00) for fiscal year 2015/2016 to the Annual Shareholders’ Meeting on December 15, 2016. Some €19.8 (19.8) million would thus again be distributed to The KWS Share | To our Shareholders 13 KWS Group | Annual Report 2015/2016Generations trust in a brand – that is the result of continuous breeding progress and personal customer care and support. Corporate Sustainability Corporate sustainability means orientation to the Dialogue with stakeholders future in what we do, i.e., striving to create lasting We intend to keep on systematizing the process for value and economic success – true to our 160-year determining the key issues relating to our long-term tradition as a family business. corporate development. To enable that, we plan to expand our dialogue with stakeholders, which The prime goal of our corporate strategy is to en- has been conducted to date at our headquarters in sure KWS’ independence, which is why it is geared Einbeck, and make it more international in the com- toward profitable growth. Proactive planning and ing years. In this way, we obtain feedback from the action is vital to achieve that strategy and is thus a various markets and can also discuss critical issues core principle of our corporate governance. Plant with the relevant local stakeholders and gain knowl- breeding is a costly and time-consuming business: edge to enable our company’s further development. It takes up to ten years for each new variety to be developed. That means we have to carefully address Sustainability reporting the economic, ecological and social challenges of to- The latest sustainability report for fiscal year day and tomorrow so as to identify and anticipate the 2015/2016 is based on the international reporting resultant opportunities and risks. We align our com- specifications of the Global Reporting Initiative (GRI pany strategically and operationally on that basis. G4) and is available on the company’s Internet site at www.kws.com/ir. We are currently working to interna- tionalize our sustainability reporting, with the objective of expanding it so that it covers the main aspects of sustainability for the entire KWS Group and integrating it fully in the Annual Report in the medium term. 14 To our Shareholders | Corporate Sustainability Annual Report 2015/2016 | KWS GroupCore sustainability issues Economy and products Governance ■■ Economic success: Key factors in our economic ■■ Employment, social and environmental stan- success are the clear focus on our core business – dards: As a responsible, internationally growing i.e., breeding new, high-yielding varieties to enable company we have to establish values, rules, guide- resource-sparing, efficient agriculture – coupled lines and standards in the fields of employment, with rigorous customer orientation, profitable protection of the environment and social welfare, growth, financial independence and sufficient and ensure they are put into practice at all subsid- liquidity. iaries. We must also define them for our business ■■ Product innovations: Our research and develop- partners in the supply chain and prevent violations ment focuses on new varieties that address global of them. trends such as climate change and the limited ■■ Compliance: We support observance of the law availability of natural resources (such as soil and and company requirements by means of effective water), as well as the occurrence of plant diseas- compliance management. es and pests. ■■ Modern breeding methods: The use of modern Employees breeding methods is indispensable to enable Our company’s success is founded on the achieve- goal- oriented, efficient plant breeding. Apart from ments of all our employees. We make intensive ef- traditional methods, KWS therefore uses biotech- forts to recruit good employees and have introduced nology methods such as genome editing methods a process to identify and further develop our junior or genetic transfer. staffers. ■■ Seed quality and safety: KWS seed is quality seed that enables plants’ genetic potential to be Work safety and protection of the environment fully leveraged after sowing in the field. We ensure We strive to surpass statutory requirements relating that our seed is safe for people and the environ- to work safety and environmental protection, as well ment by means of technical and organizational as to the efficient use of resources, such as water, measures and furnish proof of that in extensive energy and pesticides, as far as our influence allows. tests and analyses in compliance with official re- quirements – whether it is ecological, conventional Social commitment or genetically improved seed. We are particularly committed to strengthening the ■■ Protection of intellectual property: Protecting regional and local attractiveness of our locations intellectual property is vital for us to recoup our on the cultural and social planes. We support both high expenditure on research and development. young academicians (through Deutschlandstipen- Variety protection is a tried-and-tested instrument dien and interships) and top-flight researchers. We for protecting our plant varieties and, thanks to the encourage our people to get involved in their own breeder’s exemption, safeguards access to plant social areas. Many KWS employees have become genetic resources for further breeding. We also wel- actively involved in aid for refugees, for example. come patent protection to protect our investments in state-of-the-art technologies. We believe it is important to have unhindered access to biological starting material as well as protection of our intellec- tual property in the form of innovative plant varieties and new breeding technologies. Corporate Sustainability | To our Shareholders 15 KWS Group | Annual Report 2015/2016Ground personnel Field Days The 2016 Field Days held by the German Agricultural Society (DLG) in the town of Hassfurt, in Lower Franconia, attracted 21,632 visitors over its three days. After ten months of preparation for this event, KWS showcased its entire portfolio there. Sugarbeet, corn, cereals, rapeseed, catch crops, organic seed – almost 60 varieties were exhibited on the demonstration plots, offering farmers, consultants and other interested persons a good opportunity to learn more about KWS’ broad range of services and varieties directly at the plants’ location. Many took this chance to discuss the latest trends and developments in plant breeding and modern agriculture with KWS’ experts on the spot. In the evening, we welcomed more than 1,000 guests to our CultiVent party. Spotlight Topic To harvest or to wait? KWS’ consulting is based on knowledge transfer and trust Leonard Dempfle has a problem. The farmer from the German Allgäu region planted corn as feed for his 70 cows on an area of about 20 hectares, and now it is fully mature – in mid-September, almost two weeks before the normal time for harvesting. The long dry spell this summer sped up the maturing process. Should he harvest it now or wait a while? To help him decide, Dempfle picks a few corn plants by hand from different spots and takes these samples to his regional KWS consultant in the village of Burtenbach, 25 kilometers away. He wants to have the consultant determine the current dry matter content of his corn plants. Ernst-Arthur Bommer, head of KWS’ consult- ing office for Bavaria and Württemberg, has his hands full. In his area of responsibility alone, he and his team analyze some 1,000 corn samples a week before the harvest between mid-August and the beginning of October. “Dry matter monitoring enables us to deter- mine the corn’s maturity precisely and recommend an ideal time to harvest it,” explains Bommer. If the dry matter content is between 32% and 35%, it is time to bring in the corn. Bommer relies on close dry matter monitoring at many locations for his region, which has very different soil and climatic conditions and thus large differences in ripening times. KWS not only offers this service in southern Germany, but also at more than 250 loca- tions nationwide for the most important corn varieties. All farmers who are registered with CultiVent, KWS’ of up to €500 a hectare,” says Bommer in describing digital consulting platform, regularly receive the re- the economic consequences of late harvesting, which sults of dry matter monitoring and harvesting recom- may even threaten a farmer’s livelihood. Just a few mendations tailored precisely to their cultivation area minutes later, Leonard Dempfle has the results for by e-mail. his samples in his hands and now knows that he will begin chopping his corn the next day. In the case of silage corn for dairy cattle, which Dempfle grows, it is especially important to harvest Dry matter monitoring is just one example of the wide it at the ideal time. “Tastiness and starch content are range of consulting and services KWS offers. Personal vital. If the corn is too old, lower fresh weight yield contact with the farmer and customized advice are from the field means that the basic feed intake of the also of great importance in consulting on varieties and cattle is reduced and farmers have to use more of the cultivation of all other crops from KWS’ product port- expensive concentrate feed. That can mean losses folio, such as sugarbeet, cereals or rapeseed. Trust 18 To our Shareholders | Spotlight Topic Annual Report 2015/2016 | KWS Groupis a vital component of the relationship between the seed producer, dealers and farmers. The foundations for creating extensive value added are laid by consulting with farmers on choosing the right variety for different regional and climatic de- mands. With its above-average expenditure on contin- uously developing new varieties, KWS strives to live up to its special responsibility of providing farmers with the best-possible seed for the crops in its portfolio. Breeding progress in practice is enabled by delivering varieties that produce higher and higher yields and are adapted to very different climatic and soil conditions. A mature performance – the KWS consultant and farmer together determine the best time to pick corn so that all the farmer’s efforts are rewarded with a good yield. The vitality of a particular era does not so much depend on the harvest, but more on the seed it sows. Ludwig Börne (1786–1837), journalist and literary critic Spotlight Topic | To our Shareholders 19 KWS Group | Annual Report 2015/2016What factors impact a harvest? Environmental influences Tilling Crop rotation Variety selection Time of sowing Seed quality Pesticides Use of fertilizer Harvest Storage KWS accompanies farmers from sowing to harvesting As the example of dry matter monitoring shows, KWS The sharing of diverse knowledge and experience in a does much more than advise farmers on choosing the spirit of trust between KWS’ consultants and farmers right varieties for their individual needs. Just over a not only creates the basis for reliable yields that safe- quarter of our approximately 4,800 employees world- guard the farmer’s livelihood. This initial interface in wide take care of the needs and worries of our cus- the value chain of modern agriculture and nutrition is tomers in their sales work. A closely knit regional net- also the foundation for the high quality of the food we work of KWS consultants also provides farmers with love to eat at the end of that chain. support in agricultural matters – from tilling, sowing, pesticide and harvesting, through to storage. Only in that way can the yield potential inherent in the seed’s genetic makeup be leveraged as much as possible. Cooking and eating are no longer just That means we work hand in hand with farmers to about nourishment, but have long reliably ensure increases in yield and quality. since become an expression of our personal lifestyle. Modern agriculture, In addition to personal one-on-one contact, we con- with its diverse products, ensures that tinuously gather the latest pioneering findings on key everyone can eat to suit their taste. questions of modern agriculture for our customers. But how exactly does it do that? A We share our knowledge at diverse information and new website www.moderne-land- educational events, some of which are seen on the wirtschaft.de provides a vivid and two-page photo spreads in this report. They include entertaining look at this subject – and Agricultural Forums that KWS regularly holds nation- at who does what (German only). wide and the biennial Field Days held by the German Agricultural Society (DLG). 20 To our Shareholders | Spotlight Topic Annual Report 2015/2016 | KWS Group22 Fundamentals of the KWS Group 22 24 25 27 Group Structure and Business Activity Objectives and Strategies Control System Research and Development 32 Employees 35 Economic Report 35 37 Business Performance Earnings, Financial Position and Assets 37 38 40 Earnings Financial Situation Assets 41 Segment Reports 41 42 44 46 48 Reconciliation with the KWS Group Corn Segment Sugarbeet Segment Cereals Segment Corporate Segment 49 Report on Events after the Balance Sheet Date 49 Opportunity and Risk Report 56 Forecast Report 60 Corporate Governance 60 60 61 66 Corporate Governance Report and Declaration on Corporate Governance Compliance Declaration in Accordance with Section 161 AktG (German Stock Corporation Act) Compensation Report Disclosures in Accordance with Sections 289 (4) and 315 (4) of the German Commercial Code (HGB) and the Explanatory Report of the Executive Board 70 KWS SAAT SE (Explanations in Accordance to the HGB) t r o p e R t n e m e g a n a M d e n b m o C i Combined Management Report Combined Management Report Compared with the previous year, there have not been any significant changes in the fundamentals of the KWS Group as presented in the following. Fundamentals of the KWS Group Group Structure and Business Activity soybean, sunflower and sorghum. Its operating per- Since it was founded in 1856, KWS has specialized in formance depends significantly on the spring sowing developing, producing and distributing high-quality season in the northern hemisphere. That means seed for agriculture. From our beginnings in sugar- most of the segment’s net sales are generated in the beet breeding, we have evolved into an innovative second half of the fiscal year (January to June). The and international supplier with an extensive portfolio segment generates a lower share of its revenue in of crops. We cover the complete value chain of a the first two quarters, mainly from winter rapeseed in modern seed producer – from breeding of new va- Europe and corn varieties in South America. rieties, multiplication and processing, to marketing of the seed and consulting for farmers. KWS’ core The Sugarbeet Segment comprises sugarbeet seed competence lies in breeding new, high-performance production and distribution. Our high-quality sugar- varieties that are adapted to regional needs, such as beet varieties are some of the highest-yielding in the climatic and soil conditions. Every new variety deliv- industry, which is why we are the leader in the field of ers added value for the farmer. Our business model sugarbeet seed with a global market share of 55%. is based on this added value – which is ultimately at- Our main sales markets are North America, a region tributable to breeding progress, optimization of seed where genetically improved, herbicide-tolerant sugar- quality and consulting founded on a spirit of trust. beet varieties are used almost exclusively, and the EU, where KWS likewise has a very good market position Organization and segments of the KWS Group with conventionally bred, multiple-resistant varieties. KWS SAAT SE is the parent company and holding Sugarbeet is sown in the spring, which means that net company of the KWS Group. It is responsible for sales in this segment are largely generated in the sec- strategic management and, among other things, ond half of our fiscal year (January to June). multiplies and distributes sugarbeet and corn seed. It finances basic research and breeding of the main The Cereals Segment includes production and dis- range of varieties at the KWS Group and provides tribution of seed for rye, wheat, barley and rapeseed. its subsidiaries with new varieties every year for the Hybrid rye accounts for the largest share of revenue purpose of multiplication and distribution. An over- from cereals (more than 40%), followed by wheat and view of the subsidiaries and associated companies barley (each around 20%). We generate the remain- included in the consolidated financial statements of der from other crops such as rapeseed or triticales. the KWS Group is provided in the Notes on pages In our core markets for cereal seed (Germany, Po- 86 to 87. land, the UK and France), farmers predominantly sow their crops in the fall. Consequently, we generate The KWS Group’s operational business is conducted most of our revenue in this segment in the first half of in the three product segments corn, sugarbeet and our fiscal year (July to December). cereals: The Corn Segment is the KWS Group’s largest segments with research and development activities division in terms of net sales. It covers production and provides central functions for controlling the and distribution of corn seed, as well as rapeseed, group. Its relatively low net sales come from the The Corporate Segment supports the operating 22 Combined Management Report | Fundamentals of the KWS Group Annual Report 2015/2016 | KWS Group revenue from our own farms. Since all cross-seg- ment function costs and research expenditure is charged to this segment, its income at the end of the fiscal year is usually negative to a significant extent. Information on the net sales and income contributed by the segments, including our joint ventures, can be found in our segment reports starting on page 41. Locations and sales markets KWS SAAT SE’s headquarters are located in Einbeck, Lower Saxony. We have 62 subsidiaries and associated companies at present, operating in more than 70 countries, largely in the moderate climatic zone. You can find a detailed breakdown of net sales by region on page 37. KWS employees are not stuck indoors all the time. They get to know our products personally. Products and consulting on varieties new variety. Thanks to our large network of breeding We offer our customers – farmers – a broad range of and trial stations in all the world’s key markets, we agricultural crops that have been adapted by breed- can test the individual candidates under a wide range ing to the conditions of their specific location. These of climatic and local conditions to determine whether crops include corn, sugarbeet, the cereals rye, wheat the varieties are suitable for cultivation. In many mar- and barley, oil plants such as sunflower, soybean kets, variety development ends in an official approval and rapeseed as well as catch crops. The varieties process in which candidates have to meet high qual- are mainly adapted to the moderate climatic zones. ity standards, usually for at least three years. Only Since we entered the Brazilian market in 2012, variet- then can we distribute the varieties to our customers ies for subtropical regions have also been part of our via the various channels. portfolio. In addition to selling seed, our field staff is also on hand to offer farmers free consulting on External factors that impact our business choosing and cultivating varieties. Our breeding and seed multiplication activities are subject to weather influences that cannot always Breeding is the essential business process be quickly compensated for with countermeasures. KWS’ breeding processes are geared toward exploit- Economic policy decisions in the agricultural indus- ing plants’ potential as much as possible and lever- try, which is strongly regulated worldwide, may also aging it to handle the challenges of modern, sustain- impact our business. You can find more details on able agriculture. Whether it is plants for producing these external factors in our opportunity and risk food, fodder or energy, conventional, organic or gen- report on pages 49 to 55. etically improved, we offer farmers the ideal variety for their purposes. It takes up to ten years to breed a Fundamentals of the KWS Group | Combined Management Report 23 KWS Group | Annual Report 2015/2016Significant changes in the KWS Group’s Objectives and Strategies composition Our strategic planning is the foundation of the KWS We sold our conventional seed potato business Group’s further development. It defines strategic to Stet Holland B.V. in the year under review. An objectives, initiatives and core measures for existing agreement to this effect was signed on April 11, activities and for potential new fields of business. 2016. The business generated net sales of around The planning is based on a long-term horizon (ten €28 million and was run in the Sugarbeet Segment. years) and includes an analysis and assessment of market trends, competitors and the KWS Group’s In line with the planned expansion of our business position. Strategic planning is carried out every activities, we took over all the remaining shares in our three years on a rolling basis. We believe that stra- Brazilian subsidiary RIBER KWS SEMENTES at the tegic success factors are, in particular, our intensive end of the calendar year 2015. It had already been research, breeding of new, high-yielding varieties fully consolidated in the Corn Segment before the and continuous expansion of our global footprint so purchase option was exercised. that we are on the ground in regional markets with their special climatic conditions. As announced in the last Annual Report, KWS MAIS GMBH was merged with KWS SAAT SE effective Corporate objectives of the KWS Group July 1, 2015. The company’s reintegration marked one Due to the fact that the equity method (IFRS 11) of several planned steps in simplifying the Group’s was applied to our joint ventures for the first time structure. The merger will also enable us to make in- last year, we have adjusted our key indicator “R&D ternal processes more efficient and reduce our admi n- intensity,” which is measured relative to net sales. istrative overhead. The structure and controlling of our This change was necessary because the earnings segments will not be affected by this measure. contributed by the equity-accounted joint ventures are now only allowed to be included in net financial income/expenses at the Group level. We have retained the other objectives without any changes. The KWS Group’s medium- and long-term objectives Objectives Profitable growth Research and development Internationalization Sustainability ■■ Increase in consolidated net sales by an average of 5% to 10% p.a. ■■ EBIT margin ≥10% ■■ R&D intensity of around 17% of consolidated net sales ■■ 1% to 2% progress in yields p.a. for our customers and development of tolerances and resistances ■■ Expansion of the portfolios of varieties for subtropical markets ■■ Integration of international subsidiaries in KWS’ sustainability reporting Dividend ■■ A dividend payout ratio of 20% to 25% of the KWS Group’s net income for the year 24 Combined Management Report | Fundamentals of the KWS Group Annual Report 2015/2016 | KWS GroupOur investments and expenditure for research and mance over the past years, we have been able to pay development are the foundation for profitable our shareholders an annual dividend of 20% to 25% growth. We aim to increase the KWS Group’s net of the KWS Group’s net income for the year. This sales by an average of 5% to 10% p.a. and achieve policy is to be retained in the future. an EBIT margin of at least 10%. In line with the prin- ciples of our long-term corporate strategy, we use Developments in 2015/2016 our earnings strength to expand research and devel- In the past fiscal year, our business performance opment in particular, as well as for our distribution was in line with the above-mentioned medium- to operations. As a result, we bolster the KWS Group’s long-term objectives. Our net sales growth was in potential and lay the foundation for future growth. the desired range, as was the EBIT margin and R&D intensity. We continued to increase our foreign sales, The objective of our research and development is including in our subtropical market Brazil. We plan to to obtain new varieties that are tailored to different expand our sustainability reporting to all significant needs and changing agricultural requirements. Our international subsidiaries and associated companies most important objectives across all crops are to by fiscal 2017/2018. Preparations for that were com- increase yield, breed resistance to plant diseases menced in the year under review. The dividend ratio and pests and improve plants’ quality of processing. of the payout in December 2015 was 23.6% and thus Conservation of plant genetic resources is also a key within our target range. concern of ours. Expressed in hard and fast figures, the new varieties we supply to our customers deliver Control System an average yield progress of 1% to 2% a year. Detailed annual and medium-term operational plans, which also include our joint ventures pro- We will push further ahead with internationalization portionately, are used to control the Group and the of our company. Our commitment in the subtropical three segments corn, sugarbeet and cereals. The market of Brazil as well as the joint venture with our medium-term plan covers the time frame of the an- partner Kenfeng in China are part of that. Markets nual plan plus the three subsequent fiscal years. In such as Brazil, with multiple harvests a year, not only turn, the medium-term plan is derived from our stra- offer attractive sales potential – especially for our tegic corporate planning, which covers a timescale corn business – but also enable us to cushion the of ten years. highly seasonal nature of our business in the medium to long term. The targets set in the annual and medium-term planning are arrived at on the basis of the strategic KWS’ business model is geared toward sustainable planning, regional economic and legal situation, success. We are currently working to internationalize anticipated market trends and assessments of the our sustainability reporting, with the objective of company’s position in the market and the potential expanding it so that it covers the entire KWS Group product performance. In a subsequent bottom-up by fiscal 2017/2018. You can find more information on process, which also includes the development of the current reporting on pages 14 to 15. our joint ventures, we use these premises to define figures for sales volumes and net sales, production The KWS Group’s profitable growth is the basis of capacities and quantities, the allocation of resources our dividend policy. Thanks to our successful perfor- (including capital spending and personnel), the level Fundamentals of the KWS Group | Combined Management Report 25 KWS Group | Annual Report 2015/2016Just how does that work? Around 100 participants in the “KWS Showcase on Modern Sugarbeet Breeding” learned more about successful breeding methods directly in the field. of material costs and internal charge allocation and units. The main indicators for the KWS Group are net the resultant balance sheet data, along with the fi- sales, operating profitability (EBIT margin) and R&D nancial budget. In principle, part of the planning doc- intensity. KWS’ product segments, which are divided umentation is also an opportunity/risk assessment into Business Units, are in turn geared toward the that every manager must conduct for his or her unit. main indicators of net sales and EBIT margin. The planning is compared every quarter with the com- Management and control pany’s actual business performance and the updated KWS SAAT SE has a system of dual management and estimates of the underlying general conditions. If nec- supervision, consisting of the Executive Board and the essary, we initiate suitable countermeasures and make Supervisory Board. Both bodies have strictly sepa- adjustments. We update the forecast for the current rated responsibilities and different members. While fiscal year at the end of each quarter. At the end of the Executive Board manages the company, the Su- each fiscal year, all the units conduct a detailed vari- pervisory Board supervises and advises the Executive ance analysis of the budgeted and actual results. That Board. These responsibilities have also been retained serves to optimize our internal planning processes. following the company’s conversion into a European Stock Corporation (Societas Europaea/SE). The dec- Controlling is responsible for coordinating and doc- laration on corporate governance in accordance with umenting all planning processes and our current Section 289a of the German Commercial Code (HGB) expectations. It monitors compliance with adopted contains detailed information on the extensive and budgets and analyzes the efficiency and cost-effec- close cooperation between the Executive Board and tiveness of business processes and measures. The the Supervisory Board and has been published at Controlling team also advises decision-makers on www.kws.com/ir. economic optimization measures. In particular the heads of the three product segments, the regional Guidelines for the companies’ day-to-day work directors and the heads of research and development Our guiding principles define the framework for our activities and the central functions are responsible for goal of creating sustainable and profitable growth the content of the planning and current forecasts. for our customers, employees and investors. Our The Executive Board uses various indicators for tional business are guided by the following company strategic decisions and day-to-day actions in opera- planning, controlling and monitoring the business principles: performance of the KWS Group and its operating 26 Combined Management Report | Fundamentals of the KWS Group Annual Report 2015/2016 | KWS Group■■ We increase genetic potential through outstanding ensure a continuous increase in yield. To enable that, research and first-class breeding programs. we continue to invest in expanding our research and ■■ We supply our farmers with seed of the very best breeding capacities. In fiscal 2015/2016 alone, our quality. R&D expenditure totaled €182.4 million. The result ■■ We aim to be a strong partner who earns the trust was that new KWS varieties were awarded around of our customers. 400 marketing approvals. ■■ We create entrepreneurial freedom and help people unfold their talents. Plant breeding is a very research-intensive and long-term business. Promising parent lines have to The KWS Group owes its innovativeness and suc- be crossed for each new variety and their progeny cess to a growing workforce worldwide. With our examined and selected with regard to the desired central policy framework – Rules, Guidelines and traits over a period of several years. At the end of the Procedures ( RGPs) – we create a common under- development process come variety tests in which the standing of the freedoms and decision-making traits of new varieties are determined and compared processes within KWS. The RGPs are continuously with standard varieties. An average of ten years improved by means of constant monitoring and elapse between the first crossing and the actual mar- feedback. They complement our existing guiding keting of a variety. principles, with the objective of preserving KWS’ unmistakable profile, also against the backdrop of To develop new varieties, we maintain our own long- the Group’s increasing internationalization. term breeding programs organized in a crop-specific Research and Development global network of various breeding and trial stations. The objective of our research and development work That means candidate varieties can be tested un- is to create high-performance varieties that meet var- der the location-specific conditions in their target ious environmental and application requirements and markets. structure. Our breeders are assisted in that by a Breeding and distribution activities in over 70 countries Breeding stations Test locations for trial cultivation Fundamentals of the KWS Group | Combined Management Report 27 KWS Group | Annual Report 2015/2016The long road to a new variety Determination of suitable parent lines Crossing, selection and examination at different locations Official variety testing From the whole genetic variation Repeated over about 4 to 6 years: Crossing, testing of progeny in the lab and in different environments, and selection of the best plants Variety approval and variety protection New variety Number of trial candidates about 10 years As part of our own research activities, scientists at New licensing agreement for corn breeding KWS continuously work on new molecular biology, KWS carries out breeding work in countries where IT or technical approaches that enable us to develop genetically modified traits are vital to the successful new, improved product traits and further optimize market launch of commercial varieties. A long-term our breeding methods. So that the latest scientific licensing agreement now ensures that KWS has findings and methods can be integrated faster in our worldwide access to the portfolio of such traits from breeding work, we also complement our research a leading provider for its corn breeding work. activities with partnerships with public research insti- tutes and private enterprises. By integrating these traits in our own breeding ma- Activities in the past fiscal year for the North and South American markets in the Nagoya Protocol: Implementation of national Argentina, where we already have commercial varie- requirements at KWS ties under an earlier agreement. medium term. We have made very good progress in terial, we hope to obtain new, competitive varieties The new statutory regulations under the Nagoya Protocol came into effect last fall. KWS supports the Progress in developing products to combat Nagoya Protocol, whose goals are the sustainable weeds use and fair sharing of the benefits from plant genetic The herbicide-tolerant CONVISO® SMART sugarbeet resources. We have undertaken great efforts to im- we developed for conventional cultivation in coopera- plement the complex provisions of the Nagoya Pro- tion with Bayer CropScience has achieved an important tocol. To enable that, we have implemented a system milestone on the path to market launch. Various varie- that provides us with efficient access to plant genetic ties were registered for the official performance tests in resources in compliance with guidelines and enables the markets of relevance to us, such as the European our scientists worldwide to document the origin of all Union, Eastern Europe or Turkey, in 2016. The cho- genetic material for their product development work. sen varieties are adapted to the specific conditions However, we are also committed to expanding and of the countries and bring together not only the new strengthening the proven “International Treaty on technol ogy for herbicide tolerance, but also various Plant Genetic Resources for Food and Agriculture”. resistances to plant diseases and pests, such as rhizo- It is an efficient and pragmatic instrument governing mania, rhizoc tonia, cercospora and nematodes. As a the use of plant genetic resources. result, we are ideally prepared to enter the market when the first CONVISO® SMART varieties obtain approval. 28 Combined Management Report | Fundamentals of the KWS Group Annual Report 2015/2016 | KWS GroupIn the U.S. sugarbeet market, there is increasing de- In order to drive development of technology and se- mand for genetically modified varieties that have mul- cure access to important technology components, tiple tolerance to herbicides. To address this trend and we also launched a cooperation in the year under maintain our excellent market position, we are develop- review with a research group that is a world leader in ing a successor product to the successful ROUNDUP the field of genome editing at the Chinese Academy READY® sugarbeet. The second generation of herbi- of Sciences in Beijing. cide-tolerant sugarbeets will have threefold tolerance to the active substances glyphosate, glufosinate and Rye breeding program established for Russia dicamba, and will be ready for the market in the middle Rye is grown on 5 million hectares throughout the of the next decade. world. Some 1.5 million hectares of that figure are in Russia. Hybrid varieties adapted specifically to the New breeding technologies at KWS region’s severe winters and short vegetation periods KWS always strives to apply innovative approaches are required in most of the country. and technologies in order to improve breeding meth- ods and the quality of its varieties. The past years So as to develop hybrid varieties for this challenging have seen the development of several precise, molec- region, we began establishing a breeding program at ular biology methods that open up new prospects for KWS’ station in Doktorovo near Lipetsk in 2008. In the plant breeding and are growing in importance for us. meantime, the testing network has been expanded to Some of these methods can be used to develop plant include several more locations and the selection capac- varieties with desired traits very precisely and in a far ities have thus been significantly improved. The test in- shorter time. The results are nature-identical and the frastructure is also supplemented by a selection system plants do not differ from conventionally bred ones in for tolerance to frost and snow mold under controlled terms of their genetic makeup or traits. conditions at our German breeding station in Petkus. We have therefore identified “new breeding technol- While establishing the infrastructure, we were able to ogies” and, in particular, genome editing methods as set up a product development program that enables a field of research that is important to us and are in- faster development of varieties. The first winter-hardy vesting in their application and further development. KWS candidates are already undergoing assessment and in the first year exhibited a higher yield compared to local standards varieties. We expect to market initial varieties with superior winter hardiness in fiscal year 2019/2020. in % in € millions in % 2015/2016 2014/2015 1,830 38.0 182.4 17.6 397 1,777 38.0 174.6 17.7 429 +/– +3.0% +4.5% –7.5% Key figures for research & development R&D employees1 Ratio of R&D employees R&D expenditure R&D intensity2 Marketing approvals for new varieties 1 Average number of employees 2 In % of net sales Fundamentals of the KWS Group | Combined Management Report 29 KWS Group | Annual Report 2015/2016Field patrol AgroService Advice on varieties tailored to the farmer’s individual needs is effective only if our consultants know what varieties produce the best performance under what local conditions. For the past 25 years, our AgroService has worked to find the answer to that and pass along its knowledge. It is the link between sales, science and breeding, and creates on the basis of scientific findings and its own trials the foundation for professionally sound advising. The AgroService Corn visits the trial locations throughout Germany several times a year, for example. That means our employees travel in pairs to more than 35,000 plots a year. All the information they obtain helps further increase value added for farmers. Employees For 160 years, KWS’ employees have been renowned training at the local level, above all to help them for their innovative thinking and pioneering ideas.  enhance their professional expertise. Consistent They keep on setting higher standards in all our parameters for the performance and career devel- markets and developing sustainable solutions to the op ment review ensure continuous dialogue between challenges of today and tomorrow. employee and manager throughout the company. KWS’ work culture of respect is key to that achieve- The “Sparring Circles” and “KWS on Board” are ment. The strong roots of our family business provide proven development programs for all executives at secure support. They also give every employee the the KWS Group. Sparring Circles enable a profitable opportunity and latitude to unfold their individual sharing of ideas, while KWS on Board provides an potential and enjoy entrepreneurial freedom. At the extensive insight into our corporate strategy, culture same time, we demand a high degree of personal and values, and shows what we expect from an initiative from every employee. Flat hierarchies, open executive at KWS. doors and quick, direct communication ensure that we achieve our goal together: Seeding the Future. The current focus of our activities is on successor and talent management at KWS. The Group-wide Seeding the Future in a pioneering spirit: process has been expanded significantly on the Integrated employee development basis of our strategic alignment and shared values. Global growth and regional markets mean that a Thanks to the intensive commitment of executives high degree of adaptivity is always required. In order from all areas of the company, potential experts and to help employees purposefully tackle the diverse managers can now be identified early on across all requirements in this market environment, KWS has locations, segments and functions and pinpointed established an integrated development environment. development measures can be initiated for them. Challenging tasks enable our employees to develop the personal and professional skills they need and to Our Orientation Center is a development program unfold their individual potential to the full. that enables us to verify individual potential and offer effective development plans. For its part, the Inter- Throughout the group, we offer our employees the national Development Program offers experts and chance to take part in an extensive range of further executives an additional opportunity to enhance their Our employees are the key to our success. Creative and committed people keep coming up with innovations to generate new growth. 32 Combined Management Report | Employees Annual Report 2015/2016 | KWS GroupEmployees by region1 Germany Europe (excluding Germany) Americas Rest of world Total 1 Average number of employees. 2015/2016 2014/2015 1,908 1,449 1,280 206 4,843 1,868 1,401 1,234 188 4,691 +/– 2.1% 3.4% 3.7% 9.6% 3.2% personal and professional strengths in the interna- an attractive employer in the eyes of potential employ- tional environment. ees. We nurture intensive contacts with professional groups of importance to us and have an extensive Seeding the Future in a motivating spirit: network. Targeted development of junior employees Good training for our employees is a basic necessity We continue to pursue a rigorous policy of developing so that KWS can remain successful in the future. In junior staffers at an early stage. School pupils and stu- fiscal 2015/2016, KWS employed 97 young people in dents can learn more about the various task areas and six business administration, agricultural technological the company KWS in internships or on excursions, for science and industrial vocations in Germany. Nine example. We have intensified our commitment in the instructors and around 120 training officers ensure area of scholarships. Apart from various Deutschland- a high quality of training. We offer university gradu- stipendien and the KWS UK scholarship, we started ates two introductory programs: There is very great awarding the Ferdinand von Lochow scholarship at demand for our tried-and-tested internal Trainee the agricultural departments of three German universi- Program and for the “Breeders Academy,” which is ties this fiscal year. tailored specifically to plant breeding. We give all career starters at KWS extensive insight close and trusted cooperation, team spirit and per- into our globalized, highly networked business pro- sonal responsibility, dependability and vision. Our cesses. We also attach particular importance to employees can rely on these cornerstones of how we developing professional qualifications as well as interact. Flextime models are family-friendly and a firm As an employer, KWS stands for qualities such as personal skills. part of our working world. As part of our Employee Share Program, we help employees acquire shares in Seeding the Future in a sustainable spirit: An their own company. attractive employer for everyone – externally and internally Our employees know that we care about their well-be- We have an international presence on the labor market ing. We promote their health extensively with our with our employer brand. Our clear positioning and the “KWS Healthy Working World” initiative. There are authentic way we address our target groups make us activities tailored to the needs of the various locations, Employees by function Number of employees 4,843 Administration 14% Production 26% 38% Research & Development 22% Distribution Employees | Combined Management Report 33 KWS Group | Annual Report 2015/2016dis advantaged families in the U.S. and seriously ill children in Russia. We attach importance to our aid being geared to local needs. Seeding the Future in a cosmopolitan manner: A colorful mix KWS operates in more than 70 countries. This inter- national range means more than that a variety of dif- ferent languages are spoken at KWS. Different cul- tures, disciplines and personal backgrounds join to enrich our working climate. We value this individuality and give it our appreciation, support and respect. KWS also implements the statutory requirements on equal participation of women and men in manage- ment positions. Teamwork and creativity are needed – in the NEWCOMER project, KWS trainees have taken over joint responsibility for the KWS Art Lounge that was opened in 2015. such as medical checkups, dietary advice, sports Seeding the Future in a spirit of partnership: courses and support in stress management. In Sep- Constructive dialogue with the Works Committees tember 2015, KWS SAAT SE was presented with the The working relationship with our Works Committees Corporate Health Award, which is under the patron- is close and trusted. In meetings with management, age of the German Ministry of Health, in the category issues are discussed openly and common solutions “Excellence”: Our company was cited as “exemplary are found constructively. in how it is committed to promoting the health, fitness and capabilities of its employees and in the proactive, KWS has had a new employee representative body sustainable HR policy it pursues.” since this fiscal year: the European Employee Com- We also support our employees in their involve- affecting the relevant rights and obligations of em- ment in non-profit organizations or work for social ployees from at least two EU counties are discussed. causes. Among other things, the projects aim to That reflects the greater internationalization of KWS help refugees in Germany, the homeless or socially and the legal form of our company. mittee. It always becomes actively involved if matters Key figures for employees (in Germany) Number of employees in Germany1 of which part-time employees Ratio of men Ratio of women Number of trainees Trainee ratio Average age (in years) Length of service (in years) 1 Average number of employees. 2015/2016 2014/2015 1,908 1,868 392 50.9 49.1 97 5.1 40.5 13.2 367 50.9 49.1 100 5.3 40.4 13.0 in % in % in % +/– 2.1% 6.8% –3% 1.5% 34 Combined Management Report | Employees Annual Report 2015/2016 | KWS GroupEconomic Report Business Performance final result was mainly attributable to the very good performance of the Sugarbeet Segment, as well General developments and business as positive effects from measurement of balance performance of the KWS Group sheet items denominated in foreign currency on the In some cases, sharp declines in cultivation area in reporting date, a factor that is difficult to anticipate. the regions, volatile exchange rates and prices for The EBIT margin was 10.9%. As a result, the KWS agricultural raw materials that remained at a low lev- Group turned in a successful business performance el defined the economic climate in fiscal 2015/2016. for the year as a whole – and bucked the in part Nevertheless, KWS increased its net sales within lower trend for net sales in the industry in the same the forecast range by 5.2% to €1,036.8 (986.0) mil- period. lion, mainly thanks to the success of the Sugarbeet Segment. All in all, the performance of the Brazilian General developments and business real and the Russia ruble had a particularly negative performance of the segments impact on net sales. Research and development KWS regularly generates around 20% of its annu- expenditure rose slightly and was thus in line with al net sales in the first and second quarters (July our forecast, with R&D intensity coming in as ex- to December). The fall sowing season for cereals pected at 17.6% (17.7%). The KWS Group’s earnings mainly determines its business performance in this strength remained virtually constant with EBIT at period. Demand for high-quality cereal varieties re- the level of the previous year. We had assumed a mained low throughout the industry in the year under much lower EBIT in the third quarterly report. The review, which had a negative impact on the Cereal Seeds industry – sales development Growth rates per quarter (compared with previous-year’s level, effective) 45% 30% 15% 0% –15% Q1 2013 KWS Bayer CropScience, Dow AgScience, DuPont (Pioneer), Monsanto, Syngenta Q2 2016 Economic Report | Combined Management Report 35 KWS Group | Annual Report 2015/2016 Segment’s net sales and income. However, we had largely taken that into account in our guidance, so we did not have to make any significant changes to it during the year. We generate most of our annual net sales in the third and fourth quarters (January to June), mainly from our hybrid corn and sugarbeet crops. The net sales predominantly come from re- gions in the moderate climatic zone, such as North America, Europe and China. The biggest increases in net sales at the Corn Segment in the year under re- view were in North and South America. However, our performance in Europe was weaker than anticipated. Gains in market share only partially compensated for declining cultivation areas and low demand for corn. In addition, special effects that are difficult to fore- see, such as negative exchange rate effects – includ- ing the devaluation of the Brazilian real – reduced the segment’s growth in net sales. These developments during the course of the year were the main reasons why we reduced our guidance for the Corn Segment during the year. However, demand in the Sugarbeet Segment was higher than anticipated – and so our business performance in all regions significantly We invest over 17% of our net sales in research and development. That’s where the foundations for our company’s future are laid. surpassed our expectations, leading us to raise our many countries. In the Corporate Segment, there guidance for this segment during the year. We were were positive exchange rate effects on the reporting helped by the positive performance of the US dollar date and lower expenditures for individual central and unexpected increases in cultivation area in the functions. EBIT was thus more positive than antici- EU. We expanded our already high market shares in pated in May 2016. Guidance versus actual business performance of the KWS Group Results for 2014/2015 Guidance for 2015/2016 Adjustments to the guidance during the year Results for 2015/2016 Annual Report (10/15/2015) 1st Quarterly Report (11/24/2015) 2nd Quarterly Report (02/25/2016) 3rd Quarterly Report (05/26/2016) Net sales R&D intensity EBIT margin €986.0 million +5 to 10% 17.7% Around 17% – – 11.5% ≥ 10.5% ≥10.0% – – – – €1,036.8 million; +5.2% – – 17.6% 10.9% 36 Combined Management Report | Economic Report Annual Report 2015/2016 | KWS Group Earnings, Financial Position and Assets Earnings Increase in net sales this increase. The higher net sales from sugarbeet seed were mainly from our business activity in North America, Northern and Eastern Europe and The KWS Group successfully expanded its busi- the Middle East (Turkey). Significant factors in that ness activity in the year under review. Although the were increased market share, expanded cultivation market environment remained volatile and challeng- areas and the advantageous performance of the ing and was characterized by exchange rate fluctu- US dollar. The increase in net sales from corn seed ations and low prices for agricultural raw materials, was achieved in particular in Brazil. As expect- net sales rose by €50.8 million to €1,036.8 (986.0) ed, however, our revenue from cereals grew only million, an increase of 5.2%. After adjustment for slightly due to low cereal prices and the generally exchange rate effects, net sales would have been low demand for high-quality cereal seed. The fall €1,070.7 million. All product segments, but mainly in demand for hybrid rye seed also had a negative sugarbeet and corn seed business, contributed to impact. Net sales by region 2015/2016 Total net sales €1,036.8 million Rest of world 8% North and South America 27% 22% Germany 43% Europe (excluding Germany) Operating income at the level of the previous year (174.6) million. General and administrative expenses The cost of sales rose by 6.0% to €480.9 (453.5) increased less than proportionately rela tive to net million in the year under review. This figure includes sales by 2.1% to €76.4 million. The balance of other higher material costs due to poor weather conditions operating income and other operating expenses was for seed multiplication, as well as costs from amorti- €12.5 (19.3) million. It thus fell 35.2% year on year as zation of the genetically modified traits we acquired. a result of low reversals of allowances on receivables The gross margin in the year under review was thus and lower other operating income. The related indi- 53.6% (54.0%). We increased our distribution activ- vidual items are explained in detail in the Notes on ities in order to further expand and strengthen our pages 114 to 115. All in all, the KWS Group posted business activity, in particular in growth regions. EBIT of €112.8 (113.4) million, almost at the same lev- Consequently, our selling expenses in the past fiscal el as the previous year. The EBIT margin was 10.9% year increased by 4.1% to €196.8 million, giving a (11.5%). selling expense ratio of 19.0% (19.2%). Research and development expenditure rose by 4.5% to €182.4 Earnings, Financial Position and Assets | Combined Management Report 37 KWS Group | Annual Report 2015/2016Joint ventures increase contributions to and thus a one time gain from revaluation of the exist- earnings – net income for the year slightly up ing shares was included in the previous fiscal year. A from the previous year further component of net financial income/expenses Income from equity-accounted financial assets is is the interest result, which fell to € –11.7 (–10.8) million, part of the net income from equity investments. It in- among other things because a new borrower’s note creased to €26.5 (23.7) million in the year under review loan of €70 million was raised. Net financial income/ – due to the fact that our joint ventures in North Amer- expenses was thus €14.8 (16.7) million. Earnings ica expanded their business activity and initial income before taxes were €127.6 (130.1) million and income was generated by our Chinese joint venture KEN- taxes totaled €42.3 (46.1) million, meaning that the FENG – KWS SEEDS CO., LTD. – and was thus 11.5% tax rate fell to 33.1% (35.4%). The KWS Group’s net above the level of the previous year. Other net income income for the year was €85.3 (84.0) million. Earnings from equity investments fell, since SOCIETE DE per share consequently rose to €12.92 (12.53). MARTINVAL was acquired in full in September 2014 Abridged income statement Net sales Operating income Net financial income/expenses Result of ordinary activities Income taxes Net income for the year Earnings per share EBIT margin 2015/2016 2014/2015 in € millions 1,036.8 986.0 113.4 16.7 130.1 46.1 84.0 +/– 5.2% –0.5% –11.4% –1.9% –8.2% 1.5% 112.8 14.8 127.6 42.3 85.3 12.92 12.53 3.1% 10.9 11.5 in € millions in € millions in € millions in € millions in € millions in € in % Financial Situation KWS Group is run from headquarters in Einbeck. The task of financial management at the KWS This central controlling increases transparency and Group is to secure the company’s financial assets helps minimize risks. The KWS Group uses financ- long-term and ensure adequate earnings strength. ing, investment and hedging instruments as part of Only then is KWS Group always able to operate with financial management. Derivatives are used primar- financial independence as well as flexibly shape ily to hedge the risk of interest rate changes and its growth activities. Financial management at the currency risks. Total capital expenditure by segment Cereals 9.2% Corporate 14.6% Sugarbeet 17.3% 58.9% Corn 38 Combined Management Report | Earnings, Financial Position and Assets Annual Report 2015/2016 | KWS Group Total capital expenditure by region North and South America 15.6% Rest of world 2.8% 49.2% Germany 32.4% Europe (excluding Germany) Cash earnings were €107.3 (92.1) million and thus higher than in the previous year, due to the higher net income for the year before depreciation and amor- tization and lower other non-cash income. The far lower capital tie-up year on year as a result of a re- duction in trade receivables was a major factor in the fact that net cash from operating activities rose to €125.9 (48.1) million. The net cash from investing ac- tivities totaled € –92.2 (–123.8) million. In September 2014, the acquisition of SOCIETE DE MARTINVAL resulted in higher payments. The figure for the pre- vious year was consequently higher. We success- fully issued a borrower’s note loan of €70 million in December 2015. Due to lower borrowings overall, the net cash from financing activities fell slightly to The KWS family is growing and becoming more and more international. Around 60% of our employees now work outside Germany. €21.4 (48.4) million. The KWS Group’s cash funds at Total capital spending fell by 24.9% year on year June 30, 2016, rose sharply to €163.9 (108.2) million. and was €99.6 (132.5) million in fiscal 2015/2016. The biggest single investments related to the already men- A syndicated loan with a total volume of €200 mil- tioned licensing agreement for corn trait technology lion and running until October 2020 still exists with and expansion of our production and breeding ca- KWS SAAT SE’s principal bankers to finance operat- pacities. Our investments in Germany included a new ing resources during the year. breeding station and a new greenhouse complex. De- preciation and amortization were €48.2 (45.9) million. Selected key figures on the financial situation Cash and cash equivalents Net cash from operating activities Net cash from investing activities Net cash from financing activities in € millions in € millions in € millions in € millions 2015/2016 2014/2015 163.9 125.9 –92.2 21.4 108.2 48.1 –123.8 48.4 +/– 51.5% >100.0% 25.5% –55.8% Earnings, Financial Position and Assets | Combined Management Report 39 KWS Group | Annual Report 2015/2016100% attention to their “plant children” by our employees is a mainstay of our commercial success. Assets management. As a result, net borrowings at the end of The KWS Group’s total assets increased by 7.4% in the fiscal year fell to €87.9 (105.9) million, despite the fiscal 2015/2016 to €1,436.6 (1,337.1) million. Non- additional borrower’s note loan of €70 million. current assets rose to €667.9 (633.0) million, mainly due to planned investments in new production plants On the other side of the balance sheet, equity rose and research and development capacities. Current by 4.0% to €767.9 (738.7) million, mainly due to the assets at the balance sheet date were €768.7 (704.1) increase in retained earnings. As a result, noncurrent million. This increase was attributable, in particular, to assets were fully covered by equity. Raising of the much higher cash and cash equivalents, which were borrower’s note loan in December 2015 meant that impacted by the reversal of securities positions and noncurrent liabilities rose to €393.6 (316.7) million. earlier receipts of payments. The earlier receipts of As a result, the KWS Group’s equity ratio is 53.5% payment were also the reason for the decline in trade (55.2%). The balance sheet thus reflects a solid fi- receivables. The increase in inventories was not as nancing structure. We also do not plan to make any sharp as in the previous year thanks to intensive stock significant changes to our financial policy in the future. Abridged balance sheet Assets Noncurrent assets Current assets Equity and liabilities Equity Noncurrent liabilities Current liabilities 06/30/2016 06/30/2015 +/– in € millions in € millions in € millions in € millions in € millions 667.9 768.7 767.9 393.6 275.1 633.0 704.1 738.7 316.7 281.7 5.5% 9.2% 4.0% 24.3% –2.3% Total assets in € millions 1,436.6 1,337.1 7.4% 40 Combined Management Report | Earnings, Financial Position and Assets Annual Report 2015/2016 | KWS GroupSegment Reports Reconciliation with the KWS Group and EBIT are lower than the total for the segments. The KWS Group’s consolidated financial state­ The earnings contributed by the joint ventures are ments are prepared in accordance with the Inter­ instead included under net financial income/ex­ national Financial Reporting Standards (IFRS). penses. In addition, their assets are included in the The segments are presented in the Management KWS Group’s balance sheet as equity­accounted Report in line with our internal corporate con trol­ financial assets. So as to retain transparency on ling structure in accordance with GAS 20. The our operational development, the joint ventures are main difference is that we can no longer carry the included in the segment reports. The difference revenues and costs of our joint ventures in the from the KWS Group’s statement of comprehensive statement of comprehensive income (in accor­ income is summarized for a number of key indica­ dance with IFRS 11), so the KWS Group’s net sales tors in the reconciliation table: Reconciliation table Disclosures Net sales EBIT Number of employees Capital expenditure Total assets in € millions in € millions avg. in € millions in € millions Segments Reconciliation KWS Group 1,356.8 –320.0 1,036.8 141.1 5,472 159.7 –28.3 –629 –60.1 112.8 4,843 99.6 1,563.2 –126.6 1,436.6 The reconciliation between the KWS Group’s state­ America, which also affected the reconciliation. The ment of comprehensive income and the reporting by Chinese joint venture KENFENG – KWS SEEDS CO., segments in fiscal 2015/2016 is impacted by our joint LTD. was awarded its business license in the year ventures in the North American and Chinese corn under review, so it was able to generate net sales markets. That applies to all key figures in the above for the first time and was carried at equity in the table, with the main influences coming from North KWS Group’s annual financial statements. America. Net sales and EBIT increased in North Segment Reports | Combined Management Report 41 KWS Group | Annual Report 2015/2016Corn Segment Key figures Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) in € millions in € millions in % in € millions in € millions in % 2015/2016 2014/2015 795.2 63.6 8.0 119.1 654.4 9.7 754.4 84.2 11.2 44.5 585.4 14.4 +/– 5.4% –24.5% >100.0% 11.8% The segment’s performance: Net sales grown – corn cultivation areas: The area increased in North earnings impacted by the eco nomic climate and South America, but declined in Europe and Asia, We grew the Corn Segment’s operational busi­ in some cases in important cultivation regions. ness and increased its net sales by 5.4% to €795.2 (754.4) million. The growth in net sales in The regions: Net sales grow in North and South North and South America offset the slight decline in America – area in Europe declines Europe. With the exception of the US dollar, most for­ The corn cultivation area in the U.S. was roughly eign currencies, such as the Russian ruble, Ukrainian 38.1 million hectares, one of the highest­ever figures. hryvnia, Brazilian real and Argentinean peso, fell in Our 50:50 joint ventures there with the French com­ value against the euro, which had a nega tive impact pany Vilmorin & Cie (a listed company of Limagrain) overall in view of the contributions these countries expanded their business activity in the year under make to net sales. After adjustment for exchange review. As a result, pro­rata net sales from North rate effects, the segment’s net sales would have ris­ America increased by 14.7% to €312.1 (272.1) million. en by around 7.4% to €810.0 million. The performance of the US dollar also had a positive impact on net sales. We accomplished our main research and develop­ ment projects as planned in the year under review. In Brazil, we pressed ahead with changing the port­ We also expanded our distribution activities further. folio over to our own varieties. Revenue from corn The additional expenses for that totaled €9.5 million. seed rose despite the devaluation of the Brazilian The negative impact of the weather on seed produc­ real, and KWS’ market share increased by almost tion resulted in quality and volume­related problems 2%. We also increased our market share in Argentina and thus ultimately in higher cost of sales. In addition, by around 3%, despite the fact that cultivation area amortization of the acquired trait technology reduced there fell. the segment’s earnings. All in all, the segment’s EBIT fell sharply by 24.5% to €63.6 (84.2) million. The EBIT Low commodity prices not only put pressure on the margin was thus 8.0% (11.2%). cultivation area for grain corn in Europe, but also resulted in restrictions to the area used for growing Economic environment: Agricultural markets silage corn in some regions. These effects could not remain turbulent be offset everywhere by gains in market share and The economic climate did not change compared to so there were slight declines in net sales. the previous year and was still characterized by in­ tense competition. Global stocks of agricultural raw The pace of growth in China was a little lower than materials were still at the high levels of the previous last year, also due to a decline in cultivation area, year. Consumer prices for corn therefore remained especially in the northeast of the country. We ex­ low and volatile. There were differing trends regarding panded our local business structures. For the first 42 Combined Management Report | Segment Reports Annual Report 2015/2016 | KWS GroupCorn time, our joint venture KENFENG – KWS SEEDS CO., LTD. prepared complete annual financial statements, which were included proportionately in the seg­ ment’s results. Oil seed business in Europe increases net sales – capital expenditure increases due to licensing agreement The oil and field seed business in the Corn Segment includes soybeans, winter rapeseed, sunflowers and sorghum. Revenue from this business rose by a total of 6.3% to €94.2 (88.6) million. Our European winter rapeseed business went very well, increasing by 18.2%. Other oil seed business – primarily North and South American soybean revenue – grew by 5%. The segment’s capital expenditure amounted to €119.1 (44.5) million. The biggest single investment related to the licensing agreement for new corn tech­ nology concluded in October 2015. Capital expendi­ ture on property, plant and equipment mainly related to construction or expansion of production plants, such as in Ukraine and China. In North America, we also acquired the corn and sorghum business of Golden Acres together with Vilmorin & Cie. Mighty corn – one hectare of silage corn supplies the basic feed needed for three to four cows per year and in its growth phase “recycles” the CO2 emitted by a car driving 60,000 km. KWS Group | Annual Report 2015/2016Sugarbeet Segment Key figures Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) in € millions in € millions in % in € millions in € millions in % 2015/2016 2014/2015 439.5 118.6 27.0 17.2 242.9 48.8 390.5 93.0 23.8 24.0 236.1 39.4 +/– 12.5% 27.5% –28.3% 2.9% The segment’s performance: KWS expands inventories were lower than in previous years. The its market leadership segment ultimately posted a sharp increase in EBIT KWS specializes in breeding regionally adapted of 27.5% to €118.6 (93.0) million. sugarbeet varieties and for years has provided its customers with varieties that turn in first­class perfor­ Economic environment: Demand for sugar mance. New high­performance varieties and streng­ outstrips supply thening of our sales teams in the segment’s growth Due to constantly growing demand, the global sugar regions were again the foundation for our successes price climbed to more than 550 US dollars per ton in the year under review. We grew our net sales from of white sugar in June 2016 – its highest level since sugarbeet seed in just about all regions, mainly on 2012. Cultivation areas in Europe and Asia increased the back of gains in market share. The growth was slightly, following declines in the previous year. The particularly significant in North Ameri ca, Northern exchange rate of currencies against the US dollar and Eastern Europe and the Middle East (Turkey). As had a positive impact for the segments. The eco­ a result, we were able to increase the segment’s net nomic climate in Russia and Ukraine remained tough, sales by 12.5% to €439.5 (390.5) million. Our good in particular because of their volatile currencies. performance was underpinned by positive exchange The Turkish lira also fell slightly in value. The sugar rate effects, all in all, and greater cultivation areas in market regime in the EU will no longer apply as of Europe and Asia. The negative exchange rate effects October 2017. The sugar production from the 2016 from Eastern Europe were more than compensated sugarbeet harvest, which will be marketed in the for, in particular by the performance of the US dollar. 2016/2017 sugar year, will thus be the last to be pro­ After adjustment for exchange rate effects, the seg­ duced under the existing market regime. Our expec­ ment’s net sales were €437.6 million. Overall, the tations for the segment can be found in the forecast segment achieved a glo bal share of 55% (53%) in the report on pages 56 to 57. sugarbeet seed market in the year under review. That means KWS remains the world’s clear market leader The regions: Increase in revenue in all main by far. cultivation regions Outside the EU 28, revenue from sugarbeet seed in­ The segment’s earnings rose, mainly as a result of creased sharply again, in particular in North America, expanded business and higher market share. We re­ Eastern Europe and the Middle East. We improved duced our selling expense ratio by means of targeted our very good market position further thanks to good cost management. Research and development ac­ variety performance and expansion of distribution tivities increased in line with our medium­term plan­ activities. On the back of stable market share, net ning, while administrative expenses again remained sales in North America benefited especially from stable. Thanks to improved stock management, the performance of the US dollar. Cultivation area in the expenses from writing down and destroying the EU 28 rose by approximately 8%, which had a 44 Combined Management Report | Segment Reports Annual Report 2015/2016 | KWS GroupSugarbeet positive impact on our business. We increased our net sales in the UK, the Netherlands, Sweden and Germany. There were also increases in cultivation area in Eastern Europe, a region with great growth potential for the segment. Here too, additional dis­ tribution activities and good variety performance helped us improve our market position. Improvement in the quality of seed – focus on hybrid potato breeding The segment’s capital expenditure totaled €17.2 (24.0) million. It mainly went to renovating seed pro­ duction plants. In North America, we completed modernization of our sugarbeet seed production plant in Tangent, Oregon, a project that took several years and in which we invested a total of more than €35 million. Apart from higher seed quality, we will also boost efficiency in the future. At the same time, the entire software landscape in North America was pooled and simplified. Other capital spending related to modernization of cold stores for breeding activ­ ities, construction of a greenhouse complex in the U.S. and development of a new technology for har­ vesting beet in trials. We will increase the capacity of the seed production and processing plants in Ein­ beck in the coming years, and also prepare them for being able to handle CONVISO® SMART sugarbeet. In the potato business segment, we will focus in the future on developing hybrid potatoes. We sold our conventional seed potato business to Stet Holland B.V. during the fiscal year. Seed potato business contributed net sales of €27.9 (26.1) million and nega­ tive income to the segment in the year under review. Sweet as sugar – one sugarbeet delivers an average of around 40 sugar cubes. KWS Group | Annual Report 2015/2016Cereals Segment Key figures Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) in € millions in € millions in % in € millions in € millions in % 2015/2016 2014/2015 118.0 9.0 7.6 9.2 120.7 7.5 111.3 12.0 10.8 44.4 109.0 11.0 +/– 6.0% –25.0% –79.3% 10.7% The segment’s performance: Net sales grow Eastern Europe, this resulted in low consumer prices as a result of acquisition for milk, meat and cereals. Farmers therefore suf­ The segment’s net sales increased year on year by fered perceptible reductions in their liquidity. Against 6.0% to €118.0 (111.3) million. This rise is attribut­ this backdrop, demand for high­quality cereal seed able to the acquisition of the remaining shares in also fell in the segment’s core regions. Farmers tend­ SOCIETE DE MARTINVAL (MOMONT) in France in ed to use farm­saved seed from the harvests of pre­ September 2014. MOMONT’s entire earnings were vious years. Low meat prices also led to a reduction recognized in the segment for the first time in the in livestock, which had a negative impact on demand year under review. Hybrid rye business, which is for cereals for fodder. In seed production, the good important for the Cereals Segment, declined as weather conditions and other factors resulted in high expected, in particular because the differences in inventories on a scale not planned. selling prices between rye and wheat were higher than in previous years. Moreover, weather­related The regions: KWS still has good market positions factors kept the advantages of hybrid rye from be­ Germany is the most important single market for our ing fully realized. Royalties from licensing of winter Cereals Segment. We generate around 40% of net wheat also declined. However, our net sales from cereal sales there, mainly from hybrid rye, wheat and barley varieties rose, among other things for malting barley. Domestic net sales declined slightly in the barley. The segment’s income was impacted in par­ year under review, in particular due to the difficult ticular by pinpointed expenditure on research and hybrid rye business. Nevertheless, KWS remained development and distribution, which was increased the clear market leader there, with a share of some by around €10.1 million. The decline in hybrid rye 60%. In addition, our product pipeline contains business entailed higher expenditure on inventories high­performance hybrid rye varieties that we expect and far lower contributions to earnings overall. The to be awarded market approval soon. segment’s EBIT thus fell to €9.0 (12.0) million. The EBIT margin was 7.6% (10.8%). We were able to grow net sales in our Northern Europe region, in particular in the Benelux countries, Economic environment: Prices for agricultural Scandinavia and the UK. It accounted for around raw materials remain low 30% of the segment’s net sales. The declines in Multiple factors had a negative impact on our cereal wheat licensing business were more than compen­ operations in the year under review. The consistently sated for by very good barley business. good weather and cultivation conditions ensured that there was still a strong supply of agricultural In France, we successfully completed integration raw materials. In conjunction with influences that of the MOMONT Group. The acquisition had a pos­ restrained demand, such as barriers to trade in itive impact on net sales in the region. However, 46 Combined Management Report | Segment Reports Annual Report 2015/2016 | KWS GroupCereals the increase was lower than expected. The main reasons for that were lower demand industry­wide for high­quality cereal seed and greater use of farm­ saved seed by farmers. In this climate, we were able to maintain our market position in the crops that are important in France, namely wheat, barley and rape­ seed. Net sales in the region were almost 10% of the segment’s net sales. Capital expenditure continued – strong variety pipeline for the near future The segment’s capital expenditure totaled €9.2 (44.4) million. We invested primarily in expanding and modernizing breeding stations and production plants in the year under review. These activities are in line with our long­term corporate planning and are intended to maintain or further improve the quality of our seed and varieties. Capital expenditure was high­ er in the previous year due to the acquisition of the remaining shares in MOMONT. Apart from the development of new varieties, our breeding activities include long­term research and development projects, such as establishment of hybrid breeding for barley and wheat. Another ob­ jective is to develop hybrid rye varieties that are adapted to growth conditions in Eastern Europe and North America. We are also working on alternative uses of rye for fodder, for example. These activi­ ties are intended to help us tap additional market potential in the medium term. In the short term, we expect to improve our competitive position with new high­performance varieties, in particular in the field of hybrid rye. Ear, ear – roughly 10,000 loaves of bread can be baked from the harvest of one hectare of wheat. KWS Group | Annual Report 2015/2016Corporate A real eye-catcher – the new company logo with claim on the KWS campus in Einbeck. Corporate Segment Key figures Net sales EBIT Capital expenditure in € millions in € millions in € millions 2015/2016 2014/2015 4.1 –50.1 14.3 4.2 –51.2 20.1 +/– –2.4% 2.1% –28.9% The Corporate Segment’s net sales are generated net sales cannot cover these expenses. As a result, from our farms in Germany. In the past fiscal year the segment’s income (EBIT) is always clearly neg­ they were €4.1 (4.2) million. All cross­segment costs ative. It was positively impacted by exchange rate are also allocated to the segment. They include ex­ effects on the reporting date and was € –50.1 (–51.2) penses for all central functions of the KWS Group million in the year under review. and for long­term research projects. The segment’s 48 Combined Management Report | Segment Reports Annual Report 2015/2016 | KWS GroupReport on Events after the Balance Sheet Date There were no events after June 30, 2016, that can be expected to have a significant impact on the KWS Group’s earnings, assets and financial position. Opportunity and Risk Report As an international seed company, the KWS Group So that we succeed in achieving sustainable, profit­ operates in a dynamically changing environment. able growth in the future as well, our prime goal must That results in risks as well as opportunities, which be to retain and increase our innovativeness. The we have to weigh as the foundation for our entrepre­ latter is expressed in seed business by continuous neurial decisions. Opportunities increases in the yields of new varieties. The plants’ yield potential can either be increased or their resis­ tance to detrimental influences, of what ever type, We define an opportunity as a development that could can be improved. Our target is to offer our customers have a positive impact on our earnings, financial posi­ an increase in yield of 1% to 2% per annum with our tion and assets. At the KWS Group, opportunity man­ new varieties. That is why we constantly expand our agement is an integral component of the established research and development activities. A measure of controlling system between the subsidiaries/associ­ our innovativeness is the number of newly approved ated companies and company management. Strate­ varieties. In the approval processes, our varieties are gic opportunities of major importance, such as joint compared directly with rival products in official per­ ventures and acquisitions, are handled by the KWS formance tests. Group’s Executive Board. Even though the strategic orientation is based on organic growth, acquisitions Market opportunities also result from our intensified also offer KWS opportunities. activities in subtropical regions. Our corn activities in Brazil and China will enable us to tap additional Operational opportunities are identified and exploit­ sales potential for the KWS Group in the medium to ed in the Business Units of the segments, since they long term, including in other subtropical markets, by have the most comprehensive knowledge of their developing varieties tailored precisely to their climatic markets and products. Targeted measures are for­ conditions. In particular in China, there is a good op­ mulated together with the Executive Board so that portunity to participate in the government’s declared strengths can be leveraged and strategic growth increase in performance in the corn market. potentials tapped. Extensive strategic planning covering a ten­year time frame is the basis for op­ Investing in the expansion of our production capaci­ portunity management. In keeping with our growth ties and modernization of our seed processing offers strategy, we exploit industry­specific and strategic additional opportunities to grow further. Further de­ opportunities by means of pinpointed investments velopment of our variety portfolio and expansion of in production capacities, research and development capacities are accompanied by expansion of our in­ activities, and expansion of distribution. ternational distribution structures to enable even more tailored and intensive information and advice for our We see diverse opportunities for the KWS Group to customers on the possible uses of our seed, and thus develop the company further in line with our strategy. allow us to leverage further sales potential. In  addition, Report on Events after the Balance Sheet Date | Opportunity and Risk Report | Combined Management Report 49 KWS Group | Annual Report 2015/2016 continuous optimization of processes offers the Structure of the risk management system KWS Group the opportunity to increase productivity The Executive Board is responsible for risk man­ and optimize cost structures. agement. The Group functions Corporate Finance, Risks Corporate Compliance Office, Corporate Develop­ ment & Communications and Corporate Controlling We define a risk as a potential future event that might share the tasks (see the table). In addition, the Cor­ have a negative impact on our business. porate Management Circle (first and second man­ agement levels) form the Risk Committee of KWS. Objectives and strategies in risk management A vital aspect of risk management at KWS is to Our risk management system is based on the inter­ include all employees, who assess and are respon­ nationally recognized COSO II model (Committee sible for risks on the ground. This enables risks to of Sponsoring Organizations of the Treadway Com­ be identified, assessed, controlled and reported on mission). The principles of risk management are promptly. The risk management system supports and enshrined in our group­wide “Rules, Guidelines & monitors this process. With proactive strategies, we Procedures.” Core contents of it define the scope reduce or avoid negative impacts on our business so of application, responsibilities and reporting lines. that we can survive and thrive on the world market. Structure of risk management at the KWS Group Corporate Finance Corporate Controlling Corporate Development & Communications Corporate Compliance Office Tasks ■■ Early detection of risks ■■ Risk management ■■ Interest and currency management ■■ Insurance ■■ Loan management ■■ Damage prevention ■■ Auditing ■■ Planning/budget ■■ Current expectation ■■ Integrated Management System ■■ Rules, Guidelines & Procedures (RGPs) ■■ Internal audits ■■ Excellence Through Stewardship (ETS) ■■ Compliance Management System ■■ Compliance Risk Assessment ■■ Compliance training ■■ External audits ■■ Examinations 50 Combined Management Report | Opportunity and Risk Report Annual Report 2015/2016 | KWS GroupAs part of its audit of the annual financial state­ Corporate Finance reports to the Risk Committee ments for fiscal year 2015/2016, Deloitte GmbH on the current risk situation at the KWS Group and Wirtschaftsprüfungsgesellschaft confirmed that our the business segments every quarter. The Risk system for early detection of risks complies with the Committee then uses this report as the basis for requirements under the German Stock Corporation discussing how risks will develop in the future. Act. It also enables early identification of risks that jeopardize the company’s existence. Identified weak­ Risk management and the internal control nesses are reported to the Executive Board and the system in the accounting process Supervisory Board and rectified in the continuous The risk management and internal control system improvement process. comprises structures and processes designed to make sure that business transactions are included Risk management process in accounting promptly, consistently and correctly. The risk management process at KWS consists of The following are examined regularly: the complete­ the phases of identification, assessment, control and ness of financial reporting, the Group’s uniform monitoring of risks and risk reporting. By risk iden­ accounting, measurement and account allocation tification, we mean that the persons responsible for stipulations, and the authorization and access a risk process and area record the potential risks in regulations for IT systems used in accounting. an electronic platform for sharing information. The Intra­Group transactions are consolidated appropri­ identified risks are plausibilized and summarized in a ately and in full. risk control matrix. Our risk inventory currently con­ tains around 100 risks and almost as many control The Group functions Corporate Finance, Group activities. Accounting and Corporate Controlling are respon­ sible for consolidated accounting at KWS. The As part of risk assessment, the risks are first ana­ Group’s own service centers help the subsidiaries in lyzed. They are measured after the countermeasures preparing their annual financial statements. A uniform have been concluded. The risks are classified by system tool subject to the Group’s regulations on their likelihood of occurrence and extent of damage accounting makes it easier to ensure that the consoli­ and prioritized according to a traffic light system. The dated financial statements comply with the rules. “expected damage rating” resulting from the likeli­ hood of occurrence and extent of damage is relevant for assessing a risk’s materiality. Risk controlling comprises instruments with which we aim to reduce risks. It comprises measures to reduce risks, constant monitoring of risks and risk transfer. Systematic reviews are conducted to de­ termine whether controlling is effective; they are documented with the internal control system (ICS). The persons in charge of the processes examine the controls at least once a year to determine that they are effective. In addition, experienced indepen­ dent auditors examine compliance with the controls using a risk­based approach. A report on the ICS’ effectiveness is given to the Audit Committee of the Supervisory Board every year. We talk to each other – open communication is vital to identifying risks at an early stage. Opportunity and Risk Report | Combined Management Report 51 KWS Group | Annual Report 2015/2016Risk categories “Product risks.” The overview and subsequent We divide our risks into nine categories, which explanation give a more detailed description of the have been expanded compared with the previous categories whose expected damage rating is at year. For example, we have created a new category: least “significant.” Assessment of the risk categories Risk category Market risks ■■ Political instability ■■ Fall in sales volumes and/or prices ■■ Barriers to market access ■■ Currency depreciation ■■ Change in interest rates ■■ Consolidation in the industry Production risks ■■ Influence of the weather on multiplication in the field ■■ Outage of production systems ■■ Product liability Procurement risks Product risks ■■ Adverse effects in connec­ tion with genetic engineering ■■ Lack of access to technologies ■■ Lack of patent protection for traits Environmental risks Liquidity risks Legal risks ■■ Breaches of contract ■■ Antitrust proceedings ■■ Corruption ■■ Violation of data protection ■■ Violation of the law ■■ Changes to the law ■■ Infringement of intellectual property rights Personnel risks IT risks ■■ Non­availability of IT  systems ■■ Hacking ■■ Data theft ■■ Authorization conflicts Likelihood of occurrence1 Extent of damage2 Expected damage rating3 Possible Substantial Significant Possible Substantial Significant Possible Low Moderate Unlikely Existential Significant Unlikely Unlikely Low Moderate Moderate Moderate Likely Moderate Significant Unlikely Low Moderate Possible Substantial Significant 1 Rarely: 1–5%; unlikely: 5–15%; possible: 15–30%; likely: 30–60%; almost certainly: 60–99% 2 Immaterial: < €250,000; low: €250,000 to €500,000; moderate: €0.5 to €4.5 million; substantial: €4.5 to €15 million; critical: ≥ €15 million 3 Moderate: < €1 million; significant: €1 to €4.5 million; existential: ≥ €4.5 million 52 Combined Management Report | Opportunity and Risk Report Annual Report 2015/2016 | KWS GroupDrawing from natural resources to the fullest – but always responsibly. Market risks on our net sales and income. We address these chal­ KWS faces political risks in the strongly regulated in­ lenges with systematic analyses of the market and ternational agricultural industry. For example, uncer­ the competition and by developing high­quality seed tainty continues in Ukraine and the sanctions against all over the world. Russia are still in place. Both of these factors have the potential to negatively impact our business ac­ Currency risks arise from fluctuations in exchange tivities there. We generated net sales totaling €59.9 rates, in particular for receivables and liabilities de­ (59.5) million in the two countries in fiscal 2015/2016. nominated in foreign currency. There are interest Other growth countries of importance for us, such as rate risks as a result of potential changes to market Brazil and China, are currently grappling with eco­ interest rates. The interest payable on financial obli­ nomic and political difficulties. The economic impact gations with a variable rate of interest may increase. of the United Kingdom’s decision to leave the EU We address currency risks and the risk of interest (Brexit) in the recent referendum is not significant for rate changes to a reasonable extent through the our business as far as can be seen at present. usual hedging instruments, such as derivatives and forward exchange deals, to reduce the influence on Our business success depends, among other things, the KWS Group’s earnings and assets situation. In on the type of market access, our own variety per­ fiscal 2015/2016, we hedged our research and devel­ formance and the competitive environment. How­ opment expenditure and inter­company loans almost ever, the global economy has an indirect influence completely in order to avoid exchange rate risks. Opportunity and Risk Report | Combined Management Report 53 KWS Group | Annual Report 2015/2016We counter the outage of seed processing plants by means of regular maintenance, risk inspections and organizational and technical damage prevention pro­ grams. To cover economic loss, we have Group­wide property and business interruption insurance. We have established checks and tests to determine the performance and quality of our seed. Quality controls, such as germination and sprouting strength tests, are conducted at all stages of production. The aim of that is to avoid claims for damages due to product liability. Product risks Our quality controls include an examination of con­ ventional seed, among other things to determine that it is free of GMOs. Strict requirements must be met regarding handling of genetically modified products, in particular, to prevent GMOs becoming mixed with conventional seed. In the absence of a standardized legal threshold value, a number of European coun­ tries practice a policy of zero tolerance. KWS is a member of the “Excellence Through Stewardship” (ETS) initiative. This is an internationally standardized quality management program relating to the use of Experts in dialog – quality is a hallmark of our seed, but also of our consulting. The outcome of the current process of consolidation genetically modified plant material throughout the in the agricultural industry is still open at present. We product life cycle. By becoming a member, we signal do not expect any negative impact on our business our clear commitment to the responsible use of in the short term. There are opportunities and risks transgenic plant material. from market consolidation in the medium to long term. For example, market opportunities may arise The acquisition or licensing of technologies is cus­ for KWS as a result of carve­outs and divestments tomary and necessary in the industry. We reduce by the new groups for antitrust reasons. the related risks by developing our own innovations, which may also be attractive to competitors. Production risks Seed production is dependent on the weather. We Legal risks reduce the effects of crop failures by multiplying KWS faces risks from official proceedings and legal seed in separate locations and regions in Europe, disputes. Legal disputes are possible, in particular, North and South America and Asia. We can carry out with suppliers, customers, employees, lenders and contra­seasonal multiplication in the winter half­year investors, and may result in payments or other obliga­ in the southern hemisphere if there are bottlenecks tions. There were no significant legal proceedings in in the volume of seed produced. fiscal 2015/2016. 54 Combined Management Report | Opportunity and Risk Report Annual Report 2015/2016 | KWS GroupUnder our compliance policy and the Code of Busi­ constantly examine our IT security and system ness Ethics, we obligate our employees to undertake authorizations in order to perform an objective risk to act in accordance with laws, contracts, internal assessment and provide recommendations for optimi­ guidelines and our corporate values. In addition, zation measures. we regularly hold international compliance training courses. IT risks Overall statement on the risk situation by the Executive Board Our risk situation increased slightly in fiscal 2015/2016. The KWS Group’s business and production pro­ The most important risks are still related to products cesses, as well as its internal and external commu­ and the market. The increasing share of our business nications, are run on globally networked IT systems. in emerging countries and in foreign currency harbors Any outages in them can result in a significant in­ additional political and currency risks. However, they terruption to business operations here and there. In do not jeopardize the existence of the KWS Group, addition, theft of sensitive data can entail a loss of neither individually nor in their entirety. reputation for us. We feel sure that, thanks to our global footprint, in­ On the basis of our IT security policies, our IT secu­ novative strength and the quality of our products, rity organization monitors and controls access to we can seize opportunities and successfully count­ sensitive company data. Firewall and antivirus and er risks as they arise. However, we cannot rule out software programs are kept up to date and are de­ the possibility that further factors that are currently signed to avoid losses and damage as a result of unknown or which are not assessed as significant hacking and malware. There is also an extensive may jeopardize the continued existence of the KWS authorization concept. External IT service providers Group in the future. Contraception by paper bag prevents uncontrolled pollination. Breeding progress requires maximum care in every work step. Opportunity and Risk Report | Combined Management Report 55 KWS Group | Annual Report 2015/2016Research and development is a must, since the future belongs to innovative varieties that are resistant to pests and offer high yields. Forecast Report The expectations of management outlined here are Forecast for the KWS Group’s statement of based on our corporate planning and the informa­ comprehensive income tion it takes into account, including market expec­ The high stocks of agricultural raw materials world­ tations, strategic decisions, regulatory measures wide suggest that no recovery in the agricultural or exchange rate trends. They are subject to the industry’s economic situation can be expected in the same premises as the consolidated financial state­ coming fiscal year. Moreover, it looks like there will ments and forecast our business performance up to be a record corn harvest in North America, which June 30, 2017. In our forecast for the KWS Group’s will put even more pressure on prices for agricul­ statement of comprehensive income, we specify tural raw materials. We therefore anticipate that the the anticipated net sales, EBIT and R&D intensity economic environment will remain difficult. There excluding the contribution our joint ventures make to is only limited potential for shifts in cultivation area net sales and income (in accordance with IFRS 11). in favor of KWS’ important crops, such as corn or You can find the net sales and EBIT expectations in sugarbeet, and competition remains very intense. We the forecast for the segments. In line with our inter­ specifically expect lower net sales in our sugarbeet nal corporate controlling structure, the contributions seed business in North America. Despite the fact made by our joint ventures are included proportion­ that there will no longer be any net sales in Europe ately in the segment reports. from our operational potato business as a result of 56 Combined Management Report | Forecast Report Annual Report 2015/2016 | KWS Group its sale, we expect net sales in Europe to remain We will probably not be able to repeat the exception- stable or increase slightly. All in all, we expect the al success of the Sugarbeet Segment in 2015/2016 KWS Group’s net sales to be below our medium- to in the coming fiscal year. The sale of our operational long-term growth target of at least 5%. At the same potato business means that KWS will focus on de- time, we expect the EBIT margin to increase slightly veloping hybrid potatoes in the future. As a result, compared to the previous year (10.9%), despite the there will no longer be any revenue from the sale of fact that profit contributions from the sugarbeet seed seed potatoes. We generated net sales of around business in North America will probably be lower. €28 million in this field in the year under review. In We will increase expenditure on ensuring our future view of our already very large share of the market, we growth, maintaining an R&D intensity of around do not see any possibility for further growth in North 17%. Our capital spending on property, plant and America. We anticipate a slight decline in net sales equipment in the coming fiscal year will relate mainly there. The EU’s Sugar Market Regime will expire in to the construction of new or expansion of existing September 2017, which means a new situation for the production plants, such as increasing the capacity of 2017 spring sowing season. Due to declining sugar sugarbeet seed production in Einbeck. stocks, we currently expect cultivation area in the EU to increase slightly. All in all, the segment’s net sales Forecast for the segments are expected to fall by 5% to 10%. The segment’s The Corn Segment is expected to grow its net sales income will probably be lower and the EBIT margin by between 5% and 10% in the coming year. As far slightly below that of the previous year. as can be seen at present, all regions will contribute to that. We will successfully expand our business in For the fall sowing season in the second half of 2016, Europe, assuming that there are no further declines the current level of consumer prices for cereals con- in the corn cultivation area. Net sales in North Amer- tinues to mean low earnings prospects for farmers. In ica will only increase slightly and the high yields from such an environment, demand for high-quality cereal the 2016 harvest mean that expansion of the cultiva- seed will also tend to be lower than in times of high tion area is unlikely. In Argentina, we expect a sharp cereal prices. The Cereals Segment is therefore increase in the corn cultivation area under the new expected to post net sales on a par with the previous agricultural policy, and we expect to benefit from year. The segment’s income will improve, among that. In Brazil, we will further increase the share of other things due to lower expenditure on inventory our own corn varieties and grow net sales as a whole management. We currently anticipate an EBIT margin – albeit not as strongly as in previous years. Despite of just over 10%. further expansion of research and distribution, the segment’s income will improve as far as can be seen Revenue from our farms in Germany is grouped in at present. We expect the segment to generate an the Corporate Segment. It should again be around EBIT margin of around 10%. €4 million. All cross-segment costs of the KWS Group are allocated to this segment, which regularly means that its EBIT is negative. It will likely be be- tween € –55 and € –60 million. Forecast for the 2016/2017 fiscal year Statement of comprehensive income of the KWS Group Net sales growth EBIT margin R&D intensity < 5% ≥ 11% Around 17% Forecast Report | Combined Management Report 57 KWS Group | Annual Report 2015/2016Digital Farming Smartphones and tablets are now mobile accessories and constant companions for many farmers. That’s why, in addition to personal contact, KWS’ online platform CultiVent offers digital consulting on topics related to growing crops. Up­to­date information for the par­ ticular season and digital services support farmers – from cultiva­ tion to harvesting and beyond. Farmers can use the “KWS mobile” app to control the population density or calculate the current  level of nutrient removal – quickly and easily, right in the field. The “ damage pattern finder” gives farmers tips on suitable strategies to combat diseases and pests. Backed by this knowledge, farmers can not only increase their yield and thus their income, but also use resources in a more efficient and eco­friendly way. Harvest workers Corporate Governance Corporate Governance Report and Declaration tion of compliance was issued to the effect that the on Corporate Governance1 company complies almost fully with the code’s rec­ Responsible corporate governance has always been ommendations. of great importance at KWS SAAT SE. Since it was founded 160 years ago, our company’s successful You can find detailed information on corporate gov­ development has been based on thinking in the long ernance, also with the contents in accordance with term and acting in terms of sustainability. The Exec­ Clause 3.10 of the German Corporate Governance utive Board and the Supervisory Board run and ac­ Code, in our corporate governance report (which company KWS with the goal of ensuring that it creates is also the declaration on corporate governance in sustainable value added. They once again examined accordance with Section 289a of the German Com­ in the year under review whether the company com­ mercial Code (HGB)), which is available in full on our plies with the stipulations of the German Corporate website at www.kws.com/ir. You can find the com­ Governance Code. As a result, the following declara­ pensation report on the next page. Compliance Declaration in Accordance with Section 161 AktG (German Stock Corporation Act)1 The Executive Board and the Supervisory Board of In accordance with Clause 5.4.1 (2) Sentence 1 KWS SAAT SE declare, in compliance with Section of the German Corporate Governance Code, the 161 AktG (German Stock Corporation Act), that the Supervisory Board is to set a limit on the length of company has complied with the recommendations time members can serve on the Supervisory Board. of the German Corporate Governance Code in the This recommendation is not complied with, since in version dated May 5, 2015, since the last compliance a business with a tradition of family ownership like declaration in October 2015, and does now comply, KWS it would significantly restrict the rights of the and will comply with them in the future, with the fol­ family shareholders, who hold a majority stake in the lowing exceptions: company. In accordance with Clause 4.2.2 (2) Sentence 3 Clause 7.1.2 Sentence 4 of the German Corporate of the German Corporate Governance Code, the Governance Code states that the consolidated finan­ Supervisory Board shall consider the relationship cial statements shall be publicly accessible within 90 between the compensation of the Executive Board days of the end of the fiscal year and interim reports and that of senior management and the workforce within 45 days of the end of the reporting period. overall, particularly in terms of its development over KWS SAAT SE publishes its consolidated financial time, whereby the Supervisory Board shall determine statements and interim reports within the period of how senior managers and the relevant staff are to time defined in the regulations for the Prime Stan­ be differentiated. This recommendation is not com­ dard of the German Stock Exchange. The company’s plied with, since the compensation of the Executive seasonal course of business means that it cannot Board, senior management and staff is based on ensure compliance with the recommended periods in variable criteria that defy rigid definition. These cri­ the German Corporate Governance Code. teria include not only generally applicable yardsticks such as degree of responsibility, tasks, personal Einbeck, October 2016 performance, expertise and the like for the Executive Board, but also the company’s economic situation, The Supervisory Board The Executive Board success and future prospects. 1 Not part of the audited Combined Management Report 60 Combined Management Report | Corporate Governance Annual Report 2015/2016 | KWS Group Compensation Report The basic annual salary in the year under review for all The compensation report contains explanations on Executive Board members was €300 thousand. The Chief the salient features, structure and level of the com­ Executive Officer receives an extra “CEO bonus” of 25% pensation paid to members of the Executive Board on top of the basic annual salary. The basic compensa­ and the Supervisory Board of KWS SAAT SE. It is tion is paid as a monthly salary. The basic fixed annual based on the relevant statutory provisions and ori­ salary of Dr. Peter Hofmann was adjusted to the level of ented toward the pertinent recommendations of the the basic salary of the other Executive Board members German Corporate Governance Code. (€300 thousand per fiscal year) effective July 1, 2015; the other components of Dr. Hofmann’s compensation Compensation for members of the Executive remain unchanged. Pursuant to the resolution adopted Board by the Supervisory Board on December 17, 2015, Dr. Pe­ The compensation of members of the Executive ter Hofmann was reappointed for a term of five years Board was set by the Supervisory Board and ap­ effective January 1, 2016, before the end of his existing proved by the Annual Shareholders’ Meeting. It is term. The other components of his compensation were based on the size and activity of the company, its adjusted to fully match that of the other Executive Board economic and financial situation and the level and members at that time. structure of compensation for managing board members at comparable companies. The total compensation of the Executive Board comprises the following components: 1. A basic fixed annual salary (if applicable with a CEO bonus) 2. Fringe benefits 3. A variable payment in the form of a performance­related bonus 4. A variable payment in the form of a long­term incentive (LTI) based on the KWS stock price 5. Any special payments 6. Pension arrangements The performance­related bonus (including fringe benefits), the LTI payment and the total compensa­ tion of every member of the Executive Board is limit­ ed individually to a maximum overall amount. The all-important pellet. Every single seed embodies our knowledge and mission to deliver maximum performance and quality. Corporate Governance | Combined Management Report 61 KWS Group | Annual Report 2015/2016Apart from these fixed salaries, there is also of the Executive Board is obligated to invest a freely non­monetary compensation in the form of fringe selectable amount ranging between at least 20% benefits (such as a company car and a mobile and at most 50% of the gross performance­related phone), contributions to health and nursing care bonus payment in shares of KWS SAAT SE. The insurance, and accident insurance in favor of mem­ long­term incentive (LTI) is paid in the form of cash bers of the Executive Board. compensation after a holding period of five years. It will be paid for the first time at the beginning of 2017. The variable payment for Executive Board members This payment is calculated on the basis of the share’s (performance­related bonus) depends on the compa­ performance over the holding period and on the aver­ ny’s performance over three years – the sustainable age return on sales (ROS, based on segment report­ net income. It is calculated on the basis of a fixed per­ ing), measured as the ratio of operating income to centage of the average net income of the KWS Group net sales. The LTI payment is limited to a maximum for the past three fiscal years. The object of that is for of one­and­a­half times (two times for Dr. Hagen the compensation to reflect the company’s perfor­ Duenbostel) of the capital used to acquire the shares. mance, positive or negative. Additional payments for any duties performed in subsidiaries and associated Additional special payments were not granted to the companies are offset against the variable payment members of the Executive Board in the year under (performance­related bonus). This – including the review. fringe benefits – is limited to an amount of €500 thou­ sand for each Executive Board member (€300 thou­ Pension obligations are granted in the form of a sand for Dr. Peter Hofmann until December 31, 2015) direct obligation to provide benefits, with the annual per fiscal year. If sustainable net incomes of more than anticipated pensions ranging between €13 thousand €100 million in each year are generated in two succes­ and €130 thousand, and a defined contribution plan. sive years, the upper limit for the bonus is increased to In fiscal 2015/2016, €306 (279) thousand was paid to €600 thousand for each Executive Board member as a provident fund backed by a guarantee for pension of the following fiscal year. commitments to members of the Executive Board. A further €423 (143) thousand was allocated to the pen­ Since fiscal year 2010/2011, there has also been sion provisions in accordance with IAS 19 (of which a stock-based bonus system (the first reference €24 thousand was interest expenses and €399 thou­ point for which was in January 2012). It is intended sand from revaluation effects). Pension provisions to­ to act as a long­term incentive and thus support the taling €1,384 (960) thousand were thus formed for the company’s sustainable development. Every member members of the Executive Board of KWS SAAT SE. Pension commitments in € Dr. Hagen Duenbostel Dr. Peter Hofmann Total 06/30/2016 06/30/2015 Interest expenses Revaluation effects 1,015,005.00 682,379.00 17,059.00 315,567.00 368,618.00 278,114.00 6,953.00 83,551.00 1,383,623.00 960,493.00 24,012.00 399,118.00 62 Combined Management Report | Corporate Governance Annual Report 2015/2016 | KWS GroupThe total compensation to be reported for the Ex­ basic annual salary, including fringe benefits, 45.4% ecutive Board in accordance with Section 314 (1) (46.8%) by annual variable components and 15.8% No. 6a of the German Commercial Code (HGB) in (17.6%) by multi­year variable components. The ta­ conjunction with German Accounting Standard No. bles below provide an overview of the total compen­ 17 (GAS 17) was €3,531 (3,803) thousand in fiscal sation granted in the fiscal year on an individualized 2015/2016. 38.8% (35.6%) was accounted for by the basis (excluding pension costs). Total compensation for the Executive Board 2015/2016 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 375,000.00 21,522.58 421,671.27 818,193.85 205,561.20 1,023,755.05 252,034.89 Dr. Léon Broers 300,000.00 23,126.34 421,671.27 744,797.61 205,561.20 950,358.81 202,245.34 Dr. Peter Hofmann 300,000.00 22,835.78 337,337.02 660,172.80 64,567.30 724,740.10 6,470.38 Eva Kienle Total 300,000.00 27,966.54 421,671.27 749,637.81 82,224.48 831,862.29 20,096.09 1,275,000.00 95,451.24 1,602,350.83 2,972,802.07 557,914.18 3,530,716.25 480,846.70 Total compensation for the Executive Board 2014/2015 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 337,500.00 20,350.50 433,588.53 791,439.03 240,839.40 1,032,278.43 229,067.52 Dr. Léon Broers 300,000.00 21,902.68 433,588.53 755,491.21 216,196.55 971,687.76 174,081.27 Dr. Peter Hofmann 187,499.97 15,905.68 195,114.84 398,520.49 0.00 398,520.49 0.00 Eva Kienle Phillip von dem Bussche 300,000.00 26,995.92 433,588.53 760,584.45 54,366.70 814,951.15 5,449.04 135,000.00 9,131.94 282,868.06 427,000.00 159,035.30 586,035.30 232,368.96 Total 1,259,999.97 94,286.72 1,778,748.49 3,133,035.18 670,437.95 3,803,473.13 640,966.79 1 Long term incentive fair value Compensation of former members of the Executive Executive Board, as incurred in the year under review Board and their surviving dependents amounted to and in the previous year in accordance with the rec­ €1,334 (1,693) thousand, of which €97 (97) thousand ommendations in Clause 4.2.5 (3) of the German Cor­ was payment under a consultancy agreement. Pen­ porate Governance Code (DCGK) in the version dated sion commitments in accordance with IAS 19 (2011) May 5, 2015. recognized for this group of persons amounted to €8,027 (7,131) thousand as of June 30, 2016. The pen­ The target compensation, including the agreed lower sion commitments for three former members of the and upper limits, is shown under “Award.” The LTI Executive Board are backed by a guarantee. No loans awards are assessed at the present value at the time were granted to members of the Executive Board and of acquisition of the last tranche of shares. The details the Supervisory Board in the year under review. on the receipts show the payments actually made to a member of the Executive Board in fiscal years In the tables below, we present the individual awards 2014/2015 and 2015/2016. and receipts separately for each member of the Corporate Governance | Combined Management Report 63 KWS Group | Annual Report 2015/2016 Executive Board compensation in keeping with Clause 4.2.5 (3) of the German Corporate Governance Code (DCGK) in € Grant Receipt 2015/2016 2014/2015 2015/2016 2014/2015 min. max. Dr. Hagen Duenbostel (Chief Executive Office) Fixed payment Fringe benefits Subtotal Annual variable payment ( performance­related bonus) 375,000.00 375,000.00 375,000.00 337,500.00 375,000.00 337,500.00 21,522.58 21,522.58 21,522.58 20,350.50 21,522.58 20,350.50 396,522.58 396,522.58 396,522.58 357,850.50 396,522.58 357,850.50 419,876.27 0.00 478,477.42 421,424.46 421,671.27 433,588.53 Total cash compensation 816,398.85 396,522.58 875,000.00 779,274.96 818,193.85 791,439.03 Multi­year variable payment LTI 2013/2014 LTI 2014/2015 Subtotal Pension costs1 205,561.20 0.00 433,215.59 240,839.40 1,021,960.05 396,522.58 1,308,215.59 1,020,114.36 818,193.85 791,439.03 107,059.00 107,059.00 107,059.00 98,048.00 107,059.00 98,048.00 Total compensation 1,129,019.05 503,581.58 1,415,274.59 1,118,162.36 925,252.85 889,487.03 Maximum compensation2 1,765,000.00 1,765,000.00 Dr. Léon Broers Fixed payment Fringe benefits Subtotal Annual variable payment ( performance­related bonus) 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 23,126.34 23,126.34 23,126.34 21,902.68 23,126.34 21,902.68 323,126.34 323,126.34 323,126.34 321,902.68 323,126.34 321,902.68 419,876.27 0.00 476,873.66 421,424.46 421,671.27 433,588.53 Total cash compensation 743,002.61 323,126.34 800,000.00 743,327.14 744,797.61 755,491.21 Multi­year variable payment LTI 2013/2014 LTI 2014/2015 Subtotal Pension costs1 205,561.20 0.00 324,911.69 216,196.55 948,563.81 323,126.34 1,124,911.69 959,523.69 744,797.61 755,491.21 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,020,563.81 395,126.34 1,196,911.69 1,031,523.69 816,797.61 827,491.21 Maximum compensation2 Dr. Peter Hofmann Fixed payment Fringe benefits Subtotal Annual variable payment ( performance­related bonus) 1,547,000.00 1,547,000.00 300,000.00 300,000.00 300,000.00 187,499.97 300,000.00 187,499.97 22,835.78 22,835.78 22,835.78 15,905.68 22,835.78 15,905.68 322,835.78 322,835.78 322,835.78 203,405.65 322,835.78 203,405.65 335,901.02 0.00 377,164.22 189,641.01 337,337.02 195,114.84 Total cash compensation 658,736.80 322,835.78 700,000.00 393,046.66 660,172.80 398,520.49 Multi­year variable payment LTI 2013/2014 LTI 2014/2015 Subtotal Pension costs1 64,567.30 0.00 102,055.60 723,304.10 322,835.78 802,055.60 393,046.66 660,172.80 398,520.49 78,953.00 78,953.00 78,953.00 60,663.00 78,953.00 60,663.00 0.00 Total compensation 802,257.10 401,788.78 881,008.60 453,709.66 739,125.80 459,183.49 Maximum compensation2 1,047,000.00 635,250.00 1 In accordance with IAS 19R from commitments for pensions and other pension benefits; this relates to costs for the company, not the actual entitlement or payment 2 The total compensation is limited individually to a maximum overall amount per fiscal year 64 Combined Management Report | Corporate Governance Annual Report 2015/2016 | KWS Group Executive Board compensation in keeping with Clause 4.2.5 (3) of the German Corporate Governance Code (DCGK) in € Eva Kienle Fixed payment Fringe benefits Subtotal Grant Receipt 2015/2016 2014/2015 2015/2016 2014/2015 min. max. 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 27,966.54 27,966.54 27,966.54 26,995.92 27,966.54 26,995.92 327,966.54 327,966.54 327,966.54 326,995.92 327,966.54 326,995.92 Annual variable payment ( performance­related bonus) 419,876.27 0.00 472,033.46 421,424.46 421,671.27 433,588.53 Total cash compensation 747,842.81 327,966.54 800,000.00 748,420.38 749,637.81 760,584.45 Multi­year variable payment LTI 2013/2014 LTI 2014/2015 Subtotal Pension costs1 82,224.48 0.00 129,964.68 54,366.70 830,067.29 327,966.54 929,964.68 802,787.08 749,637.81 760,584.45 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 902,067.29 399,966.54 1,001,964.68 874,787.08 821,637.81 832,584.45 Maximum compensation2 1,247,000.00 1,247,000.00 Philip von dem Bussche (Chief Executive Officer until December 31, 2014) Fixed payment Fringe benefits Subtotal Annual variable payment ( performance­related bonus) Total cash compensation Multi­year variable payment LTI 2013/2014 LTI 2014/2015 Subtotal Pension costs1 Total compensation Maximum compensation2 ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ 135,000.00 9,131.94 144,131.94 282,868.06 427,000.00 159,035.30 586,035.30 ­ 586,035.30 ­ ­ ­ ­ ­ ­ ­ ­ ­ 135,000.00 9,131.94 144,131.94 282,868.06 427,000.00 427,000.00 ­ 427,000.00 1 In accordance with IAS 19R from commitments for pensions and other pension benefits; this relates to costs for the company, not the actual entitlement or payment 2 The total compensation is limited individually to a maximum overall amount per fiscal year Compensation for members of the company’s long­term development. In keeping with Supervisory Board that, members of the Supervisory Board receive The Supervisory Board’s compensation was set by €400 for each full €0.10 by which the average con­ the Annual Shareholders’ Meeting on December 17, solidated annual earnings per share before minority 2009, and has remained unchanged since then. It interests for the past three fiscal years, starting is based on the size of the company, the duties and with the fiscal year for which the compensation is responsibilities of the members of the Supervisory granted, exceeds the amount of €4.00. The perfor­ Board and the company’s economic situation. The mance­related payment is limited to the amount of remuneration includes not only a fixed payment of the fixed payment. €28 thousand p.a. and a fixed payment for work on committees, but also a performance­related The Chairman of the Supervisory Board receives component. This component is geared toward the three times and his or her deputy one­and­a­half Corporate Governance | Combined Management Report 65 KWS Group | Annual Report 2015/2016 times the fixed compensation of an ordinary mem­ – including value­added tax – that they incur while ber. There is no extra compensation for them for carrying out the duties of their position. work on committees. The Chairman of the Audit Committee receives €25 thousand p.a. Ordinary The compensation for the Supervisory Board in the members of the Supervisory Board receive €5 thou­ year under review was unchanged over the previous sand p.a. for their work on the Committee for Exec­ year. Total compensation was €516 thousand exclu­ utive Board Affairs and €10 thousand p.a. for their sive of value added tax. In all, 46% (46%) or €238 work on the Audit Committee. The members of the (238) thousand of the total compensation is perfor­ Supervisory Board are reimbursed for all expenses mance­related. Total compensation for the Supervisory Board in € Dr. Andreas J. Büchting1 Dr. Arend Oetker2 Fixed 84,000.00 42,000.00 Work on committees Performance- related Total 2015/2016 Total 2014/2015 0.00 0.00 84,000.00 168,000.00 168,000.00 42,000.00 84,000.00 84,000.00 Hubertus von Baumbach3 28,000.00 25,000.00 28,000.00 81,000.00 81,000.00 Jürgen Bolduan 28,000.00 10,000.00 28,000.00 66,000.00 66,000.00 Cathrina Claas­Mühlhäuser 28,000.00 5,000.00 28,000.00 61,000.00 61,000.00 Dr. Berthold Niehoff 28,000.00 0.00 28,000.00 56,000.00 56,000.00 238,000.00 40,000.00 238,000.00 516,000.00 516,000.00 1 Chairman 2 Deputy Chairman 3 Chairman of the Audit Committee Disclosures in Accordance with Sections 289 (4) Shareholders’ Meeting and exercise their voting rights and 315 (4) of the German Commercial Code (HGB) are authorized to exercise the voting rights conferred and the Explanatory Report of the Executive Board by all the shares they hold and have registered. If members of the Executive Board or executive employ­ Composition of the subscribed capital ees have acquired shares as part of the long­term in­ The subscribed capital of KWS SAAT SE is €19.8 mil­ centive programs, these shares are subject to a lock­ lion. It is divided into 6.6 million bearer shares. Each up period until the end of the fifth year after the end of share grants the holder the right to cast one vote at the quarter in which they were acquired. The lock­up the Annual Shareholders’ Meeting. period for shares that employees have acquired as part of the Employee Stock Programs runs until the Restrictions relating to voting rights or the end of the fourth year as of when they are posted to transfer of shares the employee’s securities account. There may be restrictions relating to voting rights or the transfer of shares as a result of statutory or con­ Direct and indirect participating interests in tractual provisions. For example, shareholders are excess of 10% of the voting rights barred from voting under certain conditions pursuant The company has been informed by shareholders of to Section 136 of the German Stock Corporation Act the following direct or indirect participating interests (AktG) or Section 28 of the German Securities Trading in the capital of KWS SAAT SE in excess of 10% of Act (WpHG). In addition, no voting rights accrue to the the voting rights in accordance with Section 21 and company on the basis of the shares it holds (Section Section 22 of the German Securities Trading Act 71b AktG). The Executive Board is not aware of any (WpHG) or elsewhere: contractual restrictions relating to voting rights or transfer of shares. If there are no restrictions to voting The voting shares, including mutual allocations, of rights, all shareholders who register for the Annual the members and companies of the families Büchting Shareholders’ Meeting in time and have submitted und Arend Oetker listed below each exceed 10% and proof of their authorization to participate in the Annual total approximately 52.5%: 66 Combined Management Report | Corporate Governance Annual Report 2015/2016 | KWS Group■■ Dr. Drs. h. c. Andreas J. Büchting, Germany on the Statute for a European Company (SE Regu­ ■■ Christiane Stratmann, Germany ■■ Dorothea Schuppert, Germany lation), Article 46 of the Council Regulation on the Statute for a European Company (SE Regulation) ■■ Michael C.­E. Büchting, Germany and Sections 84 and 85 AktG (German Stock Cor­ ■■ Annette Büchting, Germany ■■ Stephan O. Büchting, Germany ■■ Christa Nagel, Germany ■■ Bodo Sohnemann, Germany poration Act). Section 6 of KWS SAAT SE’s Articles of Association also contains provisions that relate to the appointment of members of the Executive Board by the Supervisory Board and that correspond to the ■■ Matthias Sohnemann, Germany statutory regulations. ■■ Malte Sohnemann, Germany ■■ Arne Sohnemann, Germany ■■ AKB Stiftung, Hanover Amendments to the Articles of Association The company’s Articles of Association can be amend­ ■■ Büchting Beteiligungsgesellschaft mbH, Hanover ed by a resolution adopted by the Shareholders’ ■■ Zukunftsstiftung Jugend, Umwelt und Kultur, Einbeck Meeting in accordance with Article 59 of the Council ■■ Kommanditgesellschaft Dr. Arend Oetker Vermö­ Regulation on the Statute for a European Company gensverwaltungsgesellschaft mbH & Co., Berlin (SE Regulation) and Section 179 (1) AktG (German ■■ Dr. Marie Theres Schnell, Germany Stock Corporation Act). In accordance with Article 51 ■■ Johanna Sophie Oetker, Germany of the SE Implementation Act (SEAG), Section 179 (2) ■■ Leopold Heinrich Oetker, Germany AktG (German Stock Corporation Act) and Section ■■ Clara Christina Oetker, Germany ■■ Ludwig August Oetker, Germany 18 of the Articles of Association of KWS SAAT SE, amendments to the Articles of Association require that at least half the capital stock be represented and that The voting shares, including mutual allocations, of a resolution be adopted by the Shareholders’ Meeting the members and companies of the families Büchting by a simple majority of the capital stock represented in and Arend Oetker listed above each exceed 10% and adoption of the resolution, unless obligatory statutory total approximately 53.1% for regulations specify otherwise. If at least half the capital ■■ Dr. Arend Oetker, Germany to amend the Articles of Association, the resolution must be passed with a majority of at least two­thirds The voting shares, including mutual allocations, of of the votes cast. The power to make amendments to the shareholders stated below each exceed 10% and the Articles of Association that only affect the wording stock is not represented in adoption of the resolution total 15.4%. (Section 179 (1) Sentence 2 AktG) has been conferred on the Supervisory Board in accordance with Section ■■ Hans­Joachim Tessner, Germany 22 of the Articles of Association of KWS SAAT SE. ■■ Tessner Beteiligungs GmbH, Goslar ■■ Tessner Holding KG, Goslar Powers of the Executive Board, in particular in relation to issuing or buying back shares Shares with special rights and voting control The Executive Board is not currently authorized to Shares with special rights that grant powers of control issue or buy back shares. have not been issued by the company. There is no special type of voting control for the participating in­ Significant agreements in the event of a change terests of employees. Employees who have an interest of control, compensation agreements in the company’s capital exercise their control rights Significant agreements subject to the condition of in the same way as other shareholders. a change in control pursuant to a takeover bid have not been concluded. The compensation agreements Appointment and removal of members of the Ex- between the company and members of the Execu­ ecutive Board tive Board governing the case of a change in control Members of the Executive Board of KWS SAAT SE stipulate that any such compensation will be limited are appointed and removed in accordance with Ar­ to the applicable maximum amounts specified by the ticle 9 (1) and Article 39 (2) of the Council Regulation German Corporate Governance Code. Corporate Governance | Combined Management Report 67 KWS Group | Annual Report 2015/2016Crowd-puller Information Events Crowds of people normally only seen at the Annual Shareholders’ Meeting gathered at the Biotechnology Center on January 29, 2016. Over 500 customers of KWS flocked to the Agricultural Forum in Einbeck. As at 30 other Agricultural Forums held throughout Germany, farmers were able to get firsthand information on the latest topics in breeding, agricultural policy, markets and agricultural trials. In the course of the year, KWS offers many other opportunities for people to learn more about plant breeding and about our company – at conferences, Field Days or trade shows, for example. There is also great demand for tours of our headquar­ ters in Einbeck. In fiscal 2015/2016, more than 7,400 visitors took the opportunity to get a close­up insight into seed production, the greenhouses and research labs. KWS SAAT SE (Explanations in Accordance to the HGB) References to KWS SAAT SE in the KWS Group’s tains the compliance declaration in accordance with Annual Report Section 161 AktG (German Stock Corporation Act), The Management Reports of KWS SAAT SE and the has been published in the Internet at www.kws.com/ir. KWS Group are combined. The declaration on corpo­ The following disclosures are identical to those of the rate governance in accordance with Section 289a of KWS Group and are printed in this Annual Report: the German Commercial Code (HGB), which also con­ References to KWS SAAT SE in the Annual Report of the KWS Group Disclosures On the Compensation Report, in accordance with Section 289 (4) of the German Commercial Code (HGB) and explanatory report of the Executive Board On business activity, corporate strategy, corporate controlling and management, as well as explanations on business performance On the dividend On research and development On the sustainability report Page(s) 61 to 67 22 to 48 13 27 to 29 49 KWS SAAT SE is the parent company and holding multiplies and distributes sugarbeet and corn company of the KWS Group. It is responsible for seed. It finances basic research and breeding of strategic management and, among other things, the main range of varieties at the KWS Group and provides its subsidiaries with new varieties every year for the purpose of multiplication and distri­ bution. KWS SAAT SE and KWS LOCHOW GMBH concluded a profit and loss transfer agreement on October 15, 2015, which will apply retroactively as of July 1, 2015. The Shareholders’ Meeting of KWS LOCHOW on October 15, 2015, and the Annual Shareholders’ Meeting of KWS SAAT SE on Decem­ ber 17, 2015, approved conclusion of the profit and loss transfer agreement; as a result, KWS LOCHOW paid a profit of €10.6 million to the company for the first time for fiscal year 2015/2016 on the basis of the agreement. As announced in the last annual report, KWS MAIS GMBH was merged with KWS SAAT SE effective July 1, 2015. The profit from the merger was €67.7 million and is recognized as extraordinary income. The reintegration of KWS MAIS GMBH marked one of several planned steps in simplify­ ing the Group’s structure in order to make internal processes more efficient and reduce our adminis­ trative overhead. The structure of our segments Breeding new varieties and developing new technologies takes a long time – and calls for focus and perseverance. 70 Combined Management Report | KWS SAAT SE (Explanations in Accordance to the HGB) Annual Report 2015/2016 | KWS Groupwas not affected by this measure. In order to permit ties to banks to €225.1 (150.0) million, mainly due to the better comparability, the figures from the previous issue of a further borrower’s note loan of €70.0 million. year include the relevant contributions by KWS In addition, liabilities to affiliated companies rose to MAIS GMBH. More information is published in the €237.3 (161.7) million, mainly due to financing activities. annual financial statements of KWS SAAT SE at KWS SAAT SE’s total liabilities were €493.0 (345.6) www.kws.de/ir (German only). million. Earnings Employees KWS SAAT SE’s net sales increased in fiscal An average of 1,424 (1,326) people were employed at 2015/2016 by 1.4% to €458.0 (451.8) million. This rise KWS SAAT SE in the year under review, of whom 116 is mainly attributable to the increase in revenue from (124) were trainees and interns. sugarbeet seed and the positive performance of win­ ter rapeseed business. Research and development Risks and opportunities expenditure, which is pooled at KWS SAAT SE, was The risks and opportunities at KWS SAAT SE are es­ increased to €158.0 (155.1) million. Selling expenses sentially the same as at the KWS Group. It shares the fell slightly to €59.2 (61.3) million. Most of the admin­ risks of its subsidiaries and associated companies in istrative functions for the KWS Group are located in accordance with its respective stake in them. You can KWS SAAT SE. Administrative expenses were €57.0 find a detailed description of the opportunities and (55.9) million. The balance of other operating income risks and an explanation of the internal control and risk and other operating expenses rose by €0.9 million management system (Section 289 (5) of the German to €33.2 million. Overall, KWS SAAT SE’s operating Commercial Code (HGB)) on pages 49 to 55. income was thus €18.1 (8.4) million. Net financial in­ come/expenses is made up of the net income from Forecast report equity investments from eight (seven) companies KWS SAAT SE generates the main part of its net sales and the interest result. It fell to €18.0 (36.7) million, in from sugarbeet and corn seed business and royalties particular due to expenses from operational potato from basic corn seed. The further development of business and a rise in interest expense. Taking into sugarbeet seed business depends, to a major extent, account tax expenditures, net income for the year on developments in our growth markets in Eastern was €100.7 (32.5) million. Europe and cultivation areas in our key markets. We currently anticipate a slight increase in net sales from Assets and financial situation this business. Corn business will probably increase KWS SAAT SE’s total assets increased in the year slightly as well, with the result that, all in all, we expect under review by 21.8% to €885.2 (727.0) million. Fixed KWS SAAT SE to grow its net sales slightly year on assets at the balance sheet date were €485.4 (420.8) year. KWS SAAT SE’s operating income is mainly im­ million or 54.8% (57.9%) of total assets. The increase pacted by income from European sugarbeet and corn in fixed assets is mainly due to a rise in intangible as­ business, the costs of central Group functions and the sets and financial assets. At the same time, current KWS Group’s cross­segment research and develop­ assets rose by 30.6% to €398.4 (305.1) million, mainly ment activities. In view of the anticipated challenging due to the increase in cash and cash equivalents to market environment in the EU, we assume at present €105.1 (12.8) million. Inventories rose by 13.5% to €67.0 that income from corn and sugarbeet business will (59.0) million, while receivables and other assets fell decline slightly. That, along with a slight increase in to €206.4 (226.2) million. KWS SAAT SE’s equity in­ costs for the central Group functions, means that creased to €266.4 (253.0) million, giving an equity ratio KWS SAAT SE’s EBIT is expected to fall slightly. of 30.1% (34.8%). There was an increase in the liabili­ KWS SAAT SE (Explanations in Accordance to the HGB) | Combined Management Report 71 KWS Group | Annual Report 2015/2016Annual Financial Statements for the KWS Group 2015/2016 74 Statement of Comprehensive Income 75 Balance Sheet 76 Statement of Changes in Equity 78 Cash Flow Statement 79 Notes for the KWS Group 2015/2016 80 85 88 92 113 119 120 123 1. General Disclosures 2. Disclosures on the Annual Financial Statements 3. Segment Reporting for the KWS Group 4. Notes to the Balance Sheet 5. Notes to the Income Statement 6. Notes to the Cash Flow Statement 7. Other Notes 8. Declaration by Legal Representatives 124 Auditors’ Report s t n e m e t a t S l i a c n a n F i l a u n n A Statement of Comprehensive Income July 1 to June 30 in € thousand I. Income statement Net sales Cost of sales Gross profit on sales Selling expenses Research & development expenses General and administrative expenses Other operating income Other operating expenses Operating income Interest and similar income Interest and similar expenses Income from equity-accounted financial assets Other net income from equity investments Net financial income/expenses Results of ordinary activities Taxes Net income for the year II. Other comprehensive income Revaluation of available-for-sale financial assets Currency translation difference for economically independent foreign units Currency translation difference from equity-accounted financial assets Items that may have to be subsequently reclassified as profit or loss Revaluation of net liabilities/assets from defined benefit plans Items not reclassified as profit or loss Other comprehensive income after tax III. Comprehensive income (total of I. and II.) Net income after shares of minority interests Share of minority interests Net income for the year Comprehensive income after shares of minority interests Share of minority interests Comprehensive income Earnings per share (in €) 74 Annual Financial Statements | Statement of Comprehensive Income Note no. 2015/2016 2014/2015 (19) 1,036,774 (20) (21) (22) (23) (26) (11) 480,864 555,910 196,818 182,360 76,402 70,372 57,938 986,015 453,498 532,517 188,991 174,627 74,756 87,960 68,686 112,764 113,417 2,662 14,347 26,466 3 14,784 127,548 42,271 85,277 1,621 12,401 23,747 3,722 16,689 130,106 46,058 84,048 354 –172 –18,743 –469 –18,858 –17,049 –17,049 –35,907 49,370 85,261 16 85,277 50,681 –1,311 49,370 24,606 21,223 45,657 – 8,956 – 8,956 36,701 120,749 82,712 1,336 84,048 120,282 467 120,749 12.92 12.53 Annual Report 2015/2016 | KWS GroupBalance Sheet Assets in € thousand Intangible assets Property, plant and equipment Equity-accounted financial assets Financial assets Noncurrent tax assets Other noncurrent financial assets Deferred tax assets Noncurrent assets Inventories Biological assets Trade receivables Securities Cash and cash equivalents Current tax assets Other current financial assets Other current assets Current assets Total assets 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 financial liabilities Other noncurrent liabilities Noncurrent liabilities Short-term provisions Short-term borrowings Trade payables Current tax liabilities Other current financial liabilities Other current liabilities Current liabilities Liabilities Note no. 06/30/2016 06/30/2015 (2) (3) (4) (5) (6) (23) (7) (7) (8) (9) (10) (8) (8) (8) 95,098 378,639 147,511 2,192 3,382 96 41,039 667,957 185,783 12,496 293,881 30,679 133,224 55,451 45,070 12,090 85,661 351,856 153,018 2,465 3,976 26 35,910 632,912 177,990 12,344 309,665 66,973 41,211 57,549 26,732 11,756 768,674 704,220 1,436,631 1,337,132 Note no. 06/30/2016 06/30/2015 19,800 5,530 740,197 2,432 767,959 136,515 228,712 1,413 9,447 681 16,885 393,653 80,914 23,078 75,014 21,062 13,990 60,961 275,019 668,672 19,800 5,530 705,720 7,668 738,718 110,641 181,783 1,600 9,686 539 12,482 316,731 87,355 32,283 59,658 30,111 15,687 56,589 281,683 598,414 (12) (11) (23) (13) (14) Total equity and liabilities 1,436,631 1,337,132 Balance Sheet | Annual Financial Statements 75 KWS Group | Annual Report 2015/2016Statement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Accumulat- ed Group equity from Earnings Parent company Parent company Minority interest Group equity Comprehensive other Group income Comprehensive other Group income Total Minority interest Comprehensive other Group income Total Adjustments from currency translation of equity- accounted financial assets Reserve for available- for-sale financial assets Adjustments from currency translation 07/01/2014 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests 06/30/2015 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests 06/30/2016 19,800 5,530 662,031 –19,800 82,712 –22,230 –11,293 69 594 629,706 9,088 –1,021 –4 8,063 0 25,463 21,223 82,712 25,463 21,223 –160 –160 –8,956 –8,956 19,800 5,530 724,943 3,233 9,930 –91 –33,751 1,456 731,050 10,424 –1,878 0 862 862 –19,800 85,261 0 –17,395 85,261 –17,395 –469 –469 333 333 –17,049 –17,049 19,800 5,530 794,000 –14,162 9,461 242 –50,800 1,456 765,527 3,596 Revaluation of defined benefit plans –24,795 Other trans- actions Adjustments from currency translation Revaluation of defined benefit plans Other trans- actions 0 1,336 –19,800 82,712 37,570 120,282 1,336 –857 –857 –329 16 –19,800 85,261 –34,580 –1,348 50,681 16 –1,348 3,596 –6,728 3,383 3,132 –94 0 0 0 0 0 0 0 0 0 0 0 1,336 –869 467 –862 7,668 –329 16 –1,327 –1,311 –3,596 2,432 –12 –12 –862 –878 21 21 0 –857 637,769 –19,800 84,048 36,701 120,749 0 738,718 –20,129 85,277 –35,907 49,370 0 767,959 76 Annual Financial Statements | Statement of Changes in Equity Annual Report 2015/2016 | KWS Group Adjustments from currency translation of equity- accounted financial assets –11,293 Reserve for available- for-sale financial assets 69 Adjustments from currency translation –22,230 Statement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Accumulat- ed Group equity from Earnings 07/01/2014 Dividends paid Net income for the year Other comprehensive income after tax (losses) Total consolidated gains Change in shares of minority interests 06/30/2015 Dividends paid Net income for the year Other comprehensive income after tax (losses) Total consolidated gains Change in shares of minority interests 06/30/2016 662,031 –19,800 82,712 0 0 –19,800 85,261 3,596 Parent company Parent company Minority interest Group equity Comprehensive other Group income Comprehensive other Group income Total Minority interest Comprehensive other Group income Total Revaluation of defined benefit plans Other trans- actions Adjustments from currency translation Revaluation of defined benefit plans Other trans- actions 19,800 5,530 –24,795 594 629,706 9,088 –1,021 25,463 21,223 82,712 25,463 21,223 –160 –160 –8,956 –8,956 0 0 0 1,336 –19,800 82,712 37,570 120,282 1,336 –857 –857 19,800 5,530 724,943 3,233 9,930 –91 –33,751 1,456 731,050 10,424 –1,878 862 862 0 –17,395 85,261 –17,395 –469 –469 333 333 –17,049 –17,049 0 0 0 19,800 5,530 794,000 –14,162 9,461 242 –50,800 1,456 765,527 –329 16 –19,800 85,261 –34,580 –1,348 50,681 16 –1,348 3,596 –6,728 3,383 3,132 –94 0 0 0 0 0 –4 8,063 0 1,336 –869 467 –862 7,668 –329 16 –1,327 –1,311 –3,596 2,432 –12 –12 –862 –878 21 21 0 –857 637,769 –19,800 84,048 36,701 120,749 0 738,718 –20,129 85,277 –35,907 49,370 0 767,959 Statement of Changes in Equity | Annual Financial Statements 77 KWS Group | Annual Report 2015/2016 Cash Flow Statement July 1 to June 30 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 Increase (–)/decrease in inventories, trade receivables and other assets not attributable to investing or financing activities Increase/decrease (–) in trade payables and other liabilities not attributable to investing or financing activities Proceeds and payments (+) from/for equity-accounted companies Net cash from operating activities Proceeds from disposals of property, plant and equipment Payments (–) for capital expenditure on property, plant and equipment Proceeds from disposals of intangible assets Payments (–) for capital expenditure on intangible assets Proceeds from disposals of financial assets Payments (–) for capital expenditure on financial assets Receipts from the disposal of consolidated subsidiaries and other business units Payments (–) for purchase of shares in consolidated subsidiaries and other business units Net cash from investing activities 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 financing activities Net cash changes in cash and cash equivalents Changes in cash and cash equivalents due to exchange rate, consolidated group and measurement changes Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note no. 2015/2016 2014/2015 85,277 84,048 48,187 1,184 –27,351 107,297 –551 849 45,911 –1,192 – 36,704 92,063 14,027 –160 –26,973 – 72,809 19,560 25,682 125,864 1,101 –67,745 87 –29,699 348 –266 4,000 0 –92,174 –47,215 144,758 –71,066 –5,092 21,385 55,075 644 108,184 163,903 2,841 12,157 48,119 1,741 – 82,108 107 – 4,468 229 – 7,535 0 –31,727 –123,761 –19,800 103,678 – 30,907 – 4,573 48,398 – 27,244 13,164 122,264 108,184 (1) (2) (3) (4) 78 Annual Financial Statements | Cash Flow Statement Annual Report 2015/2016 | KWS Group Notes for the KWS Group 2015/2016 The KWS Group is a consolidated group as defined by the off against each other, provided the requirements defined relevant accounting regulations. The consolidated financial in IAS 12 have been met. The previous year’s figures have statements of the KWS Group as of June 30, 2016, have been adjusted to enable better comparison. been prepared by KWS SAAT SE in accordance with the International Financial Reporting Standards (IFRS) pub- Unless otherwise stated, all the figures in the Notes are lished by the International Accounting Standards Board in thousands of euros (€ thousand) and have been rounded (IASB), London, taking into account the interpretations of the in accordance with standard commercial practice. International Financial Reporting Interpretations Committee (IFRIC) and in addition the commercial law regulations to be In addition, the following standards had to be applied for applied pursuant to Section 315 a (1) HGB (German Com- the first time in fiscal year 2015/2016: Amendments to IAS mercial Code). 19 (2011) – Employee Benefits: Em ployee Contributions; Annual Improvements to the International Financial Report- KWS SAAT SE is an international company based in ing Standards (2010 – 2012 cycle); Annual Improvements to Germany and has its headquarters at Grimsehlstrasse 31, the International Financial Reporting Standards (2011 – 2013 37574 Einbeck, Germany. cycle). The new standards and interpretations to be applied did not result in any significant impact. The statements were prepared under the assumption that the operations of the company will be continued. The The following standards and interpretations, or revisions of accounting and measurement methods have generally standards or interpretations, were not applied in the year been retained without change, except for the recognition of under review, as they have not yet been adopted by the deferred tax assets and deferred tax liabilities, which – as EU or application of them for fiscal 2015/2016 was not yet is customary internationally – are shown after being netted mandatory: To be applied in the future Financial reporting standards and interpretations Mandatory first-time application Amendments to IFRS 11 – Joint Arrangements: Accounting for Acquisitions of Interests in Joint Operations Fiscal 2016/2017 Amendments to IAS 16 and IAS 38 – Property, Plant and Equipment and Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortization Fiscal 2016/2017 Amendments to IAS 16 and IAS 41 – Property, Plant and Equipment and Agriculture: Bearer Plants Amendments to IAS 27 – Separate Financial Statements: Equity Method in Separate Financial Statements Annual Improvements to the International Financial Reporting Standards (2012–2014 cycle) Fiscal 2016/2017 Fiscal 2016/2017 Fiscal 2016/2017 Amendments to IAS 1 – Presentation of Financial Statements: Disclosure Initiative Fiscal 2016/2017 Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception At the earliest in fiscal year 2016/2017 Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealized Losses At the earliest in fiscal year 2017/2018 Amendments to IAS 7 – Statement of Cash Flows: Disclosure Initiative At the earliest in fiscal year 2017/2018 Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions At the earliest in fiscal year 2018/2019 IFRS 15 – Revenue from Contracts with Customers IFRS 9 – Financial Instruments IFRS 16 – Leases At the earliest in fiscal year 2018/2019 At the earliest in fiscal year 2018/2019 At the earliest in fiscal year 2019/2020 The impact of the standards and interpretations on the any significant effects on the consolidated financial state- consolidated financial statements of the KWS Group are ments from application of new or amended standards, with currently being examined and determined. On the basis of the exception of application of IFRS 16 – Leases. the results of this examination to date, KWS does not expect Notes for the KWS Group 2015/2016 | Annual Financial Statements 79 KWS Group | Annual Report 2015/20161. General Disclosures Companies consolidated in the KWS Group According to IAS 36, goodwill is not amortized, but test- The consolidated financial statements of the KWS Group in- ed for impairment at least once a year (impairment-only clude the single-entity financial statements of KWS SAAT SE approach). Investments in unconsolidated companies are and its subsidiaries in Germany and other countries, as carried at cost. well as joint ventures and associated companies, which are carried using the equity method, and a joint operation. A Joint ventures are consolidated using the equity method in company is a subsidiary if KWS SAAT SE has existing rights application of IFRS 11 and IAS 28. The basis for a joint ven- that give it the current ability to control its relevant activi- ture is a contractual agreement with a third party to manage ties. Relevant activities are the activities that significantly a joint venture together. In the case of joint ventures, the affect the company’s returns. Control therefore only exists parties who exercise joint management have rights to the if KWS SAAT SE has the ability to use its power to affect net assets of the agreement. the amount of the variable returns. Control can usually be derived from holding a majority of the voting rights direct- In the case of joint ventures measured in accordance with ly or indirectly. Subsidiaries and joint ventures that are the equity method, the carrying amount is increased or re- considered immaterial for the presentation and evaluation duced annually by the equity capital changes corresponding of the financial position and performance of the Group are to the KWS Group’s share. In the case of first-time consol- not included. Details on the changes in the consolidated idation of equity investments using the equity method, dif- group are provided in Section 2. “Disclosures on the annual ferences from first-time consolidation are treated in accor- financial statements – Consolidated group and changes in dance with the principles of full consolidation. The changes the consolidated group.” Consolidation methods in the proportionate equity that are recognized in profit or loss are included, along with impairment of goodwill, under the item “Income from equity-accounted financial assets” in The single-entity financial statements of the individual sub- the net financial income/expenses. sidiaries included in the consolidated financial statements and the single-entity financial statements of the joint ven- Associated companies in which a stake between 20% and tures and associated companies included using the equity 50% is held are likewise measured using the equity method. method and of the joint operation were uniformly prepared on the basis of the accounting and measurement methods Subsidiaries are always consolidated if such recognition is applied at KWS SAAT SE; they were audited by indepen- considered material for the fair presentation of the financial dent auditors. For fully or proportionately consolidated position and results of operations of the KWS Group. As units acquired before July 1, 2003, the Group exercised part of the elimination of intra-Group balances, borrowings, the option allowed by IFRS 1 to maintain the consolidation receivables, liabilities and provisions are netted between the procedures chosen to date. The goodwill reported in the consolidated companies. Intercompany profits not realized HGB financial statements as of June 30, 2003, was therefore at Group level are eliminated from intra-Group transactions. transferred unchanged at its carrying amount to the opening Sales, income and expenses are netted between consoli- IFRS balance sheet. For acquisitions made after June 30, dated companies, and intra-Group distributions of profit are 2003, capital consolidation follows the purchase method by eliminated. allocating the cost of acquisition to the Group’s interest in the subsidiary’s remeasured equity at the time of acquisi- Deferred taxes on consolidation transactions recognized tion. Any excess of interest in equity over cost is recognized in income are calculated at the tax rate applicable to the as an asset, up to the amount by which fair value exceeds company concerned. These deferred taxes are aggregated the carrying amount. Any goodwill remaining after first-time with the deferred taxes recognized in the separate financial consolidation is recognized under intangible assets. statements. 80 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 1. General Disclosures Annual Report 2015/2016 | KWS GroupMinority interests are recognized in the amount of the imput- currency method and rounded in accordance with standard ed percentage of equity in the consolidated companies. commercial practice as follows: Currency translation ■■ Income statement items at the average exchange rate for Under IAS 21, the financial statements of the consolidated the year; foreign group companies that conduct their business as ■■ Balance sheet items at the exchange rate on the balance financially, economically and organizationally indepen- sheet date. dent entities are translated into euros using the functional Exchange rates for main currencies 1 EUR/ ARS BRL GBP RUB UAH USD Argentina Brazil UK Russia Ukraine USA The following exchange rates were applied in the consoli- dated financial statements for the main foreign currencies relative to the euro: Rate on balance sheet date Average rate 06/30/2016 06/30/2015 2015/2016 2014/2015 16.67190 10.16290 13.58600 10.27994 3.61730 0.82615 71.21020 27.56354 1.11430 3.49470 0.71153 61.52060 23.54140 1.11840 4.11588 0.75290 74.54532 26.60710 1.10631 3.20855 0.75716 59.64182 20.80004 1.19175 The difference resulting from the application of annual All estimates and assessments as part of accounting and average rates to the net profit for the period in the income measurement are continually reviewed; they are based on statement is taken directly to equity. According to IAS 21, historical patterns and expectations about the future regard- exchange differences resulting from loans to foreign subsid- ed as reasonable in the particular circumstances. iaries are reported in Other comprehensive income and are not recognized in profit or loss. Recognition of income and expenses Net sales include sales of products and services, less Classification of the statement of revenue reductions. Net sales from the sale of products are comprehensive income realized at the time at which the opportunities and risks pass The costs for the functions include all directly attributable to the buyer. Net sales from service transactions are recog- costs, including other taxes. Research and development nized at the time at which the outcome of the transaction can expenses are reported separately for reasons of transparen- be reliably estimated in accordance with the percentage of cy. Performance-based government grants are not deduct- completion. Other income, such as interest, royalties and divi- ed from the costs to which they relate, but reported gross dends, is recognized in the period it accrues as soon as there under other operating income. is a contractual or legal entitlement to it. Accounting policies Performance-based public grants are carried under the other Consistency of accounting policies The accounting policies are unchanged from the previous Operating expenses are recognized in the income statement year. upon the service in question being used or as of the date on operating income as part of profit/loss. which they occur. 1. General Disclosures | Notes for the KWS Group 2015/2016 | Annual Financial Statements 81 KWS Group | Annual Report 2015/2016Intangible assets impairment loss on property, plant and equipment no Purchased intangible assets are carried at cost less longer applies, its value is increased to up to the amount straight-line amortization and impairment losses. It is neces- that would have resulted if the impairment loss had not oc- sary to examine whether the useful life of intangible assets curred, taking depreciation into account. In accordance with is finite or indefinite. Goodwill has an indefinite useful life. IAS 20, government grants are deducted from the costs of Goodwill and intangible assets with an indefinite useful life the asset. Any deferred income is not recognized. are not amortized, but tested for impairment at least once a year. The procedure for the impairment test is explained in Financial instruments the notes to the balance sheet. Intangible assets acquired Financial instruments are, in particular, financial assets and as part of business combinations are carried separately financial liabilities. The financial assets consist primarily of from goodwill if they are separable according to the defini- bank balances and cash on hand, trade receivables, other tion in IAS 38 or result from a contractual or legal right. receivables, other financial assets and securities. The credit The service life of intangible assets is as follows: ognized in the balance sheet is net of allowances for receiv- risk mainly comprises trade receivables. The amount rec- Useful life of intangible assets Breeding material, proprietary rights to varieties and trademarks Other rights Software Distribution rights Trait licensing agreements Property, plant and equipment Useful life 10 years 5 – 10 years 3 – 8 years 5 – 20 years 15 years ables expected to be uncollectible, estimated on the basis of historical patterns and the current economic environment. The credit risk on cash and derivative financial instruments is limited because they are kept with banks that have been giv- en a good credit rating by international rating agencies. There is no significant concentration of credit risks, because the risks are spread over a large number of contract partners and customers. The entire credit risk is limited to the respective carrying amount. Comments on the risk management system can be found in the Management Report. Property, plant and equipment is measured at cost less Available-for-sale financial assets are carried at fair value if straight-line depreciation and impairment losses. In addition that can be reliably measured. Unrealized gains and loss- to directly attributable costs, the cost of self-produced plant es, including deferred taxes, are recognized directly in the or equipment also includes a proportion of the overheads reserve for available-for-sale financial assets under equity. and depreciation/amortization. Allowances are recognized immediately through the income Useful life of property, plant and equipment Buildings Operating equipment and other facilities Technical equipment and machinery Laboratory and research facilities Other equipment, operating and office equipment Useful life 10 – 50 years 5 – 25 years 5 –15 years 5 –13 years 3 –15 years statement. Financial assets belonging to this category of financial instruments are measured at cost, since there is no active market. The financial assets include shares in uncon- solidated subsidiaries and securities classified as noncurrent assets. They are subsequently measured at amortized cost. Borrowings are carried at amortized cost. The carrying amount of receivables, fixed-income securities and cash is assumed as the fair value due to their short term and the fixed-interest structure of the investments. Low-value assets are fully expensed in the year of purchase; The financial liabilities comprise, in particular, trade payables, they are reported as additions and disposals in the year borrowings and other liabilities. of purchase in the statement of changes in fixed assets. Impairment losses on property, plant and equipment are The fair value of financial liabilities with a long-term fixed recognized according to IAS 36 whenever the recover- interest rate is determined as present values of the payments able amount of the asset is less than its carrying amount. related to the liabilities, using a yield curve applicable on the The recoverable amount is the higher of the fair value less balance sheet date. costs to sell or the value in use. If the reason for an earlier 82 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 1. General Disclosures Annual Report 2015/2016 | KWS GroupDerivative instruments are measured at fair value in accor- designated hedging instruments in accordance with IAS 39. dance with IAS 39; they can be assets or liabilities. Common They are measured at fair value. Changes in value are rec- derivative financial instruments are essentially used to hedge ognized in income. Securities are derecognized after being interest rate and foreign currency risks. The fair value of the sold on the settlement date. derivative financial instruments is measured on the basis of ■■ Available-for-sale financial assets the market information available on the balance sheet date This category covers all financial assets that have not been and using recognized mathematical models, such as present assigned to one of the above categories. In principle, se- value or Black-Scholes, to calculate option values, taking curities are classed as available for sale, unless a different their volatility, remaining maturity and capital market interest classification is required due to the fact that they have an rates into account. The instruments must also be classified in explicit purpose. Equity instruments, such as shares in a level of the fair value hierarchy. (unconsolidated) affiliated companies, which are measured at amortized cost, and shares held in listed companies, are Financial instruments in level 1 are measured using quoted also included in this category. In principle, financial instru- prices in active markets for identical assets or liabilities. In ments in this category are measured at their fair value in level 2, they are measured by directly observable market subsequent recognition. The changes to their fair value in inputs or derived indirectly on the basis of prices for similar subsequent recognition are recognized as unrealized gains instruments. Finally, input factors not based on observable and losses directly in equity in the reserve for available-for- market data are used to calculate the value of level 3 financial sale financial assets. The realized gains or losses are not instruments. recognized as profit or loss until they are disposed of. If there is objective evidence of permanent impairment on the Subsequent measurement of the financial instruments de- balance sheet date, the instruments are written down to the pends on their classification in one of the following categories lower value. Any subsequent decreases in the impairment defined in IAS 39: loss are recognized directly in equity. ■■ Financial liabilities measured at amortized cost ■■ Loans and receivables All financial liabilities, with the exception of derivative finan- This category mainly comprises trade receivables, other cial instruments, are measured at amortized cost using the receivables, loans and cash, including fixed-income short- effective interest method. The liabilities are derecognized at term securities. Loans are measured at cost. Loans that the time they are settled or when the reason why they were carry no interest or only low interest are measured at their formed no longer exists. present value. Discernible risks are taken into account by ■■ Financial liabilities at fair value recognition of an impairment loss. After their initial recog- This category covers derivative financial instruments that nition, the other financial assets in this category are mea- have a negative market value and are categorized in prin- sured at amortized cost using the effective interest method, ciple as held for trading. They are measured at fair value. minus impairments. Receivables that carry no interest Changes in value are recognized in income. Derivatives that or only low interest and with a term of more than twelve are designated hedging instruments in accordance with months are discounted. Necessary value impairments are IAS 39 are excluded from this provision. based on the expected credit risk and are carried in sepa- rate impairment accounts. Receivables are derecognized Securities are generally classified as available for sale, which if they are settled or uncollectible. Other financial assets is why changes in their fair values that require reporting are are derecognized at the time they are disposed of or if they taken directly to equity. If securities are carried at their fair have no value. value and have to be recognized in income, changes to the ■■ Financial assets at fair value fair values are directly included in the net income for the Held-for-trading securities acquired with the intention of period. being sold in the short term are assigned to this category. Derivate financial instruments with a positive market value are also categorized as held for trading, unless they are 1. General Disclosures | Notes for the KWS Group 2015/2016 | Annual Financial Statements 83 KWS Group | Annual Report 2015/2016 Derivatives The provisions for semi-retirement include obligations from The derivatives do not meet the requirements of IAS 39 to be concluded semi-retirement agreements. Payment arrears and designated as a hedging instrument. They are measured at top-up amounts for semi-retirement pay and for the contribu- their fair value. The changes in their market value are recog- tions to the statutory pension insurance program are recog- nized in the income statement. Derivatives are derecognized nized in measuring them. on their day of settlement. Other provisions Inventories and biological assets Provisions are set up if current obligations have accrued from Inventories are measured at the lower of cost or net realiz- past events and it is likely that they will be utilized. In addition, able value less an allowance for obsolescent or slow-moving it must be possible to estimate the amount of the anticipated items. In addition to directly attributable costs, the cost of obligation reliably. sales also includes indirect labor and materials including depreciation under IAS 2. Under IAS 41, biological assets Provisions are measured at their expected amount or most are measured at fair value less the estimated costs to sell. likely amount, depending on whether they comprise a large Immature biological assets are carried as inventories as of the number of items or constitute a single obligation. Provisions time they are harvested. The measurement procedure used is are reviewed regularly and adjusted to reflect new findings or based on standard industry value tables. changes in circumstances. Long-term provisions are dis- Deferred taxes counted taking into account future cost increases and using capital market interest rates for matching maturities, insofar Deferred taxes are calculated in accordance with IAS 12. as the interest effect is material. Deferred taxes are calculated on differences between the carrying amounts of assets and liabilities in the consolidated Contingent liabilities balance sheet and their tax base, and on carried-forward tax The contingent liabilities result from debt obligations where losses. Deferred tax assets are netted off against deferred tax outflow of the resource is not probable or the level of the ob- liabilities, provided they relate to the same tax creditor and ligation cannot be estimated with sufficient reliability, or from have the same due date. Deferred tax assets are recognized obligations for loan amounts drawn down by third parties as if it can be assumed that they will be used in future. Deferred of the balance sheet date. tax liabilities must be set up for all taxable temporary differ- ences. All deferred taxes must be assessed individually at Borrowing costs each balance sheet date. Under IAS 12, deferred taxes are In accordance with IAS 23, borrowing costs are capitalized if calculated on the basis of the applicable local income tax an- they can be classified as qualifying assets. ticipated at the time of reversal. No discounting is carried out. Discretionary decisions and estimates Provisions for income taxes The measurement approaches and amounts to be carried in The provisions for income taxes comprise obligations from these IFRS financial statements are partly based on estimates current income taxes. They are measured on the basis of a and specifically defined specifications. This relates in partic- best-possible assessment of the future amount to be paid. ular to: Deferred taxes are carried in a separate balance sheet item. ■■ Determination of the useful life of the depreciable asset Provisions for pensions and other employee benefits ■■ Definition of measurement assumptions and future results The provisions for pensions and other employee benefits are in connection with impairment tests, above all for capital- calculated using actuarial principles in accordance with the ized goodwill projected unit credit method. Actuarial gains and losses re- ■■ Determination of the net selling price for inventories sulting from revaluation of the net liability must be recognized ■■ Definition of the parameters required for measuring pen- directly in equity in Other comprehensive income. If there are sion provisions planned assets, they are netted off against the associated ■■ Selection of parameters for the model-based measurement obligations. of derivatives 84 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 1. General Disclosures Annual Report 2015/2016 | KWS Group■■ Determination whether tax losses carried forward can be Despite careful estimates, the actual development may devi- used ate from the assumptions. ■■ Determination of the fair value of intangible assets, tan- gible assets and liabilities acquired as part of a business The Executive Board of KWS SAAT SE prepared the con- combination and determination of the service lives of the solidated financial statements on September 27, 2016, and purchased intangible assets and tangible assets released them for distribution to the Supervisory Board. The ■■ Measurement of other provisions Supervisory Board has the task of examining the consolidat- ed financial statements and declaring whether it approves them. 2. Disclosures on the Annual Financial Statements Number of companies including KWS SAAT SE Fully consolidated Equity method Joint operation Total Domestic Foreign Total Domestic Foreign Total 06/30/2016 06/30/2015 13 0 0 13 46 3 1 50 59 3 1 63 13 0 0 13 49 4 0 53 62 4 0 66 Consolidated group and changes in Assets of KWS POTATO B.V. – mainly varieties, rights the consolidated group and the customer base – with a total carrying amount of KWS MAIS GMBH was merged with KWS SAAT SE effec- €3,881 thousand were sold as part of an asset deal in tive July 1, 2015. In addition, KWS SERVICOS E PARTICI- June 2016. The breeding station and its land are still owned PACOES SOUTH AMERICA LTDA. acquired the remaining by the company, whose purpose is to provide breeding ser- shares in RIBER KWS SEMENTES S.A. in December 2015. vices. Its distribution activities have been discontinued. On January 25, 2016, SOCIETE DE MARTINVAL S.A.S., A total of 59 (62) companies were fully consolidated in the LABOGERM S.A.R.L. and MOMONT HENNETTE S.A. consolidated financial statements at June 30, 2016. Three merged and the resultant company was renamed KWS (four) joint ventures and associated companies were mea- MOMONT S.A.S. S.A.R.L. ADRIEN MOMONT ET FILS was sured using the equity method. One (zero) joint operation also renamed KWS MOMONT RECHERCHE S.A.R.L. on the has been included proportionately. This is GENECTIVE S.A. same date. KANT-HARTWIG & VOGEL GMBH was included in the con- solidated companies for the first time effective April 1, 2016. Our second sugarbeet company in the U.S. was merged with BETASEED INC. effective April 21, 2016. 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2015/2016 | Annual Financial Statements 85 KWS Group | Annual Report 2015/2016List of shareholdings in accordance with Section 313 HGB (German Commercial Code) Fully consolidated subsidiaries1 Sugarbeet 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 93% 100% BETASEED INC.2 Bloomington, MN, U.S. KWS FRANCE S.A.R.L. Roye, France DELITZSCH PFLANZENZUCHT GMBH9 Einbeck, Germany O.O.O. KWS RUS11 Lipetsk, Russia O.O.O. KWS R&D RUS10 Lipetsk, Russia KWS ITALIA S.P.A. Forli, Italy KWS POLSKA SP.Z O.O. Poznan, Poland KWS SCANDINAVIA A/S9 Guldborgsund, Denmark KWS SEMILLAS IBERICA S.L.9 Zaratán, Spain SEMILLAS KWS CHILE LTDA. Rancagua, Chile KWS SRBIJA D.O.O. New Belgrade, Serbia KWS SUISSE SA Basle, Switzerland BETASEED FRANCE S.A.R.L.17 Bethune, France KWS UKRAINE T.O.V.11 Kiev, Ukraine KWS TÜRK TARIM TICARET A.S.8 Eskisehir, Turkey BETASEED GMBH Frankfurt, Germany KWS POTATO B.V.16 Emmeloord, Netherlands DYNAGRI S.A.R.L.15 Casablanca, Morocco KWS Podillya T.O.V. 21 Kiev, Ukraine Corn 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 51% 100% 100% 100% 100% KWS BENELUX B.V. Amsterdam, Netherlands KWS SEMENA S.R.O. Bratislava, Slovakia KWS MAIS FRANCE S.A.R.L. Champol, France KWS AUSTRIA SAAT GMBH Vienna, Austria KWS SJEME D.O.O. Pozega, Croatia KWS OSIVA S.R.O. Velke Mezirici, Czech Republic KWS BULGARIA E.O.O.D. Sofia, Bulgaria Formerly: KWS Semena Bulgaria E.O.O.D. AGROMAIS GMBH Everswinkel, Germany KWS MAGYARORSZÁG KFT. Györ, Hungary KWS SEMINTE S.R.L.12 Bucharest, Romania KWS ARGENTINA S.A. Balcarce, Argentina RAZES HYBRIDES S.A.R.L.3 Alzonne, France KWS MELHORAMENTO E SEMENTES LTDA.19 Curitiba, Brazil RIBER KWS SEMENTES S.A.20 Patos de Minas, Brazil KWS PERU S.A.C.7 Lima, Peru KWS R&D China LTD.14 Hefei, China Cereals Corporate 100 % KWS LOCHOW GMBH Bergen, Germany 100 % KWS UK LTD.6 Thriplow, UK 100 % KWS LOCHOW POLSKA SP.Z O.O.6 Kondratowice, Poland 100 % KWS MOMONT S.A.S.6 Mons-en-Pévèle, France KWS MOMONT RECHER- CHE S.A.R.L.13 Mons-en-Pévèle, France 100 % 100% KWS LANDWIRTSCHAFT GMBH * Einbeck, Germany 100% KWS INTERSAAT GMBH Einbeck, Germany 100% KWS SEEDS INC.8 Bloomington, MN, U.S. 100% GLH SEEDS INC.2 Bloomington, MN, U.S. 100% 100% KWS SAATFINANZ GMBH Einbeck, Germany RAGIS KARTOFFELZUCHT- UND HANDELS- GESELLSCHAFT MBH Einbeck, Germany 100% KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH Northeim-Wiebrechtshausen, Germany 100% EURO-HYBRID 100% GESELLSCHAFT FÜR GETREIDEZÜCHTUNG MBH Einbeck, Germany KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA.18 São Paulo, Brazil 100% KWS GATEWAY RESEARCH 100% CENTER LLC.2 St. Louis, MO, U.S. KWS SERVICES DEUTSCHLAND GMBH Einbeck, Germany 100% KWS SERVICES EAST GMBH Vienna, Austria 100% KWS SERVICES WEST S.L.U. Barcelona, Spain 100% KWS SERVICES NORTH AMERICA LLC. Bloomington, MN, U.S. 100% BEIJING KWS AGRICULTURE TECHNOLOGY CO., LTD.14 Beijing, China 100% KWS CEREALS USA LLC.2 Champagne, IL, U.S. 100% KWS SERVICES NORTH B.V. 100% Rotterdam, Netherlands KANT-HARTWIG & VOGEL GMBH Einbeck, Germany Equity-accounted joint ventures1 Equity-accounted associated companies1 Joint operation (proportionately consolidated)1 Corn Corn Corn 50% AGRELIANT GENETICS LLC. 5 49% KENFENG – KWS SEEDS CO., LTD. Westfield, IN, U.S. 50% AGRELIANT GENETICS INC. Chatham, Ontario, Canada Beijing, China 50% GENECTIVE S. A. Chappes, France 86 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 2. Disclosures on the Annual Financial Statements Annual Report 2015/2016 | KWS Group Unconsolidated subsidiaries1 Sugarbeet 67% VAN RIJN BALCAN S.R.L.15 Vulcan, Romania Cereals 74% LOCHOW-PETKUS BELGIUM N.V.6 Linter, Belgium Corn 100% 100% 100% 50% 50% 50% 50% 50% KWS SEEDS THAILAND CO., LTD.14 Chiang Mai, Thailand KWS R&D PRIVATE LIMITED11 Hyderabad, India KWS PARAGUAY S.R.L.22 Asuncion, Paraguay GENECTIVE CANADA INC.4 Montreal, Canada GENECTIVE TAIWAN LTD.4 Taipei City, Taiwan GENECTIVE USA CORP.4 Weldon, U.S. GENECTIVE JAPAN K.K.4 Chiba, Japan GENECTIVE KOREA4 Sangdaewon-dong, Korea * Profit and loss transfer agreement 1 The percentages shown for each company relate to the share in that company held within the KWS Group 2 Subsidiary of KWS SEEDS INC. 3 Subsidiary of KWS FRANCE S.A.R.L. 4 Subsidiary of GENECTIVE S.A. 5 Investee of GLH SEEDS INC. 6 Subsidiary of KWS LOCHOW GMBH 7 Subsidiary of KWS CHILE LTDA. and KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. 8 Subsidiary of KWS INTERSAAT GMBH and KWS SAAT SE 9 Subsidiary of KWS INTERSAAT GMBH 10 Subsidiary of O.O.O. KWS RUS 11 Subsidiary of EURO-HYBRID GMBH and KWS SAATFINANZ GMBH 12 Subsidiary of KWS SAAT SE and KWS SAATFINANZ GMBH 13 Subsidiary of KWS MOMONT S.A.S. 14 Subsidiary of EURO-HYBRID GMBH 15 Subsidiary of KWS POTATO B.V. 16 Subsidiary of RAGIS GMBH 17 Subsidiary of BETASEED GMBH 18 Subsidiary of KWS INTERSAAT GMBH and KWS SAATFINANZ GMBH 19 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and KWS INTERSAAT GMBH 20 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. 21 Subsidiary of KWS UKRAINE T.O.V. 22 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and KWS MELHORAMENTO E SEMENTES LTDA. Status: June 30, 2016 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2015/2016 | Annual Financial Statements 87 KWS Group | Annual Report 2015/20163. Segment Reporting for the KWS Group In accordance with its internal reporting system, the KWS Cereals Group is primarily organized according to the following The lead company of this segment, which essentially con- business segments: ■■ Corn ■■ Sugarbeet ■■ Cereals ■■ Corporate cerns the production and distribution of hybrid rye, wheat and barley, as well as oil and field seed, is KWS LOCHOW GMBH with its four (six) foreign subsidiaries in France, the UK and Poland. Corporate Apart from revenue from our farms and services for third Considered a core competency for the KWS Group’s entire parties, net sales from strategic projects are reported in this product range, plant breeding, including the related biotech- segment. The segment also assumes the costs of all central nology research, is essentially concentrated at the parent holding functions and expenses for long-term research proj- company KWS SAAT SE in Einbeck. The breeding material, ects that have not yet reached market maturity. including the relevant information and expertise about how to use it, is owned by KWS SAAT SE with respect to sugar- It also includes all management services of KWS SAAT SE, beet and corn and by KWS LOCHOW GMBH with respect such as the holding company and administrative functions, to cereals. Product-related R&D costs are carried directly in which are not directly charged to the product segments or the product segments Corn, Sugarbeet and Cereals. Cen- indirectly allocated to them by means of an appropriate cost trally controlled corporate functions are grouped in the Cor- formula. porate Segment. The distribution and production of oil and field seed are reported in the Cereals and Corn Segments, Segment information in keeping with the legal entities currently involved. The Executive Board as the main decision-making body Description of segments Corn is responsible for allocating resources and assessing the earnings strength of the business segments. The segments and regions are defined in compliance with the internal controlling and reporting systems (management approach). Following the merger with KWS MAIS GMBH, the produc- The accounting policies used to determine the information tion and distribution activities of this segment are managed for the segments are basically the same as used for the by KWS SAAT SE. The activities relate to corn for grain and KWS Group. The only exception relates to consolidation silage corn, and to oil and field seed, and are conducted by of the equity-accounted joint ventures that are assigned to one (one) German company, 15 (15) foreign subsidiaries, two the Corn Segment, namely AGRELIANT GENETICS LLC., (three) joint ventures, one (one) associated company and AGRELIANT GENETICS INC. and KENFENG – KWS SEEDS one (zero) joint operation of the KWS Group. CO., LTD. In accordance with internal controlling practic- es, they are included proportionately as part of segment Sugarbeet reporting. The results of the multiplication, processing and distribution activities for sugarbeet seed, as well as our seed potato The segment net sales, segment income, depreciation and business, are reported under the Sugarbeet Segment. amortization, other noncash items, operating assets, oper- Under the leadership of KWS SAAT SE, 17 (18) foreign ating liabilities and capital expenditure on noncurrent assets subsidiaries and two (two) subsidiaries in Germany are by segment have been determined in accordance with the active in this segment. internal operational controlling structure, with the joint ven- tures and associated company consolidated proportionately (management approach). In order to permit better compara- bility, they have been reconciled with the figures in the IFRS consolidated financial statements. 88 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 3. Segment Reporting for the KWS Group Annual Report 2015/2016 | KWS GroupSegment sales contains both net sales from third par- Technology revenues from genetically modified properties ties (external sales) and net sales between the segments (“tech fees”) are paid as a per-unit royalty on the basis of (intersegment sales). The prices for intersegment sales are the number of units sold, due to their growing competitive determined on an arm’s-length basis. Uniform royalty rates importance. per segment for breeding genetics are used as the basis. Sales per segment in € thousand Corn Sugarbeet Cereals Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements Segment sales Internal sales External sales 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 795,320 439,635 754,458 390,646 119,046 113,207 17,921 18,133 162 88 1,095 13,811 16 99 795,158 439,547 754,442 390,547 1,939 13,981 117,951 111,268 4,110 4,152 1,371,922 1,276,444 15,156 16,035 1,356,766 1,260,409 –319,992 –274,394 1,036,774 986,015 The Corporate Segment generates 77.1% (77.1%) of its sales The Corn Segment is the largest contributor of external from the other segments. As in the previous year, the sales sales, accounting for 58.6% (59.9%) of external sales, of this segment represent 0.3% of the Group’s external followed by Sugarbeet with 32.4% (31.0%) and Cereals with sales. 8.7% (8.8%). Earnings, depreciation and amortization and other noncash items per segment in € thousand Segment earnings Depreciation and amortization Other noncash items Corn Sugarbeet Cereals Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 63,570 118,571 9,028 84,184 92,998 12,019 –50,102 – 51,186 23,199 14,193 8,192 10,343 19,525 14,974 7,284 9,840 16,080 11,002 5,862 1,555 – 4,517 15,199 4,143 22,150 141,067 138,015 55,927 51,623 34,499 36,975 –28,303 –24,598 –7,740 –5,712 –21,328 8,680 112,764 113,417 48,187 45,911 13,171 45,655 Net financial income/expenses 14,784 16,689 Earnings before taxes 127,548 130,106 0 0 0 0 0 0 0 0 The income statements of the consolidated companies Depreciation and amortization charges of €55,927 are assigned to the segments by means of profit center (51,623) thousand allocated to the segments relate ex- allocation. Operating income, the most important internal clusively to intangible assets and property, plant and parameter and an indicator of the earnings strength in the equipment. KWS Group, is used as the segment result. The operating income of each segment is reported as the segment result. The other noncash items recognized in the income The segment results are presented on a consolidated basis statement relate to noncash changes in the allowances on and include all directly attributable income and expenses. inventories and receivables, and in provisions. Items that are not directly attributable are allocated to the segments on the basis of an appropriate formula. 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2015/2016 | Annual Financial Statements 89 KWS Group | Annual Report 2015/2016Operating assets and operating liabilities per segment in € thousand Corn Sugarbeet Cereals Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements Others Operating assets Operating liabilities 2015/2016 2014/2015 2015/2016 2014/2015 717,419 262,555 118,283 108,600 644,909 274,238 120,291 102,719 1,206,857 1,142,157 –240,961 –204,640 965,897 470,735 937,517 399,615 163,694 136,624 91,227 25,772 90,508 371,201 –78,981 292,220 376,452 668,672 70,233 23,490 91,213 321,560 –63,698 257,862 340,552 598,414 KWS Group acc. to consolidated financial statements 1,436,631 1,337,132 The operating assets of the segments are composed of in- Capital expenditure on assets was increased year on year tangible assets, property, plant and equipment, inventories, by 20.0% to €159,711 (133,073) thousand. Capital expendi- biological assets and trade receivables that can be charged ture in the Corn Segment (€119,072 thousand; previous directly to the segments or indirectly allocated to them by year: €44,528 thousand) related mainly to the trait licensing means of an appropriate formula. agreement and the production plant in Ukraine. The capital expenditure in the Sugarbeet Segment totaled €17,199 thou- The operating liabilities attributable to the segments include sand following €24,026 thousand in the previous year, the borrowings reported on the balance sheet, less provi- that of the Cereals Segment €9,174 thousand following sions for taxes and the portion of other liabilities that cannot €44,399 thousand in the previous year, and that of the Cor- be charged directly to the segments or indirectly allocated porate Segment €14,266 thousand following €20,120 thou- to them by means of an appropriate formula. sand in the previous year. Investments in long-term assets by segment in € thousand Corn Sugarbeet Cereals Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements 2015/2016 2014/2015 119,072 17,199 9,174 14,266 159,711 –60,426 99,285 44,528 24,026 44,399 20,120 133,073 – 8,061 125,012 Disclosures by region The external net sales by sales region are broken down on The disclosures on the regional composition of net sales, the basis of the country where the customer is based. No capital expenditure and operating assets have been made individual customer accounted for more than 10% of total in accordance with the accounting policies to be applied to net sales in the current or past fiscal year. the consolidated financial statements of the KWS Group, and thus, without proportionate consolidation of the equity- accounted financial investments. 90 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 3. Segment Reporting for the KWS Group Annual Report 2015/2016 | KWS GroupExternal sales by region in € thousand Germany Europe (excluding Germany) Thereof in France North and South America Thereof in Brazil Thereof in the U.S. Rest of world KWS Group A total of 65.1% (67.5%) of total sales are recorded in Europe (including Germany). Investments in long-term assets by region in € thousand Germany Europe (excluding Germany) Thereof in France North and South America Thereof in Brazil Thereof in the U.S. Rest of world KWS Group 2015/2016 2014/2015 223,971 450,817 (107,067) 282,999 (78,557) (180,288) 78,986 1,036,774 223,885 441,526 (107,263) 254,709 (66,316) (164,571) 65,895 986,015 2015/2016 2014/2015 48,945 32,220 (10,681) 15,531 (2,441) (9,745) 2,589 99,285 33,859 64,630 (44,305) 22,834 (2,871) (17,067) 3,689 125,012 A total of 49.3% (27.1%) of the capital spending was made in made in North and South America, 32.5% (51.7%) in Europe Germany. Of the further capital spending, 15.6% (18.2%) was (ex cluding Germany) and 2.6% (3.0%) in the rest of the world. Long-term assets by region in € thousand Germany Europe (excluding Germany) Thereof in France North and South America Thereof in Brazil Thereof in the U.S. Rest of world KWS Group 2015/2016 2014/2015 214,217 163,994 (71,889) 234,253 (37,603) (184,839) 10,976 623,440 185,651 156,084 (67,629) 240,965 (48,073) (181,296) 10,300 593,000 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2015/2016 | Annual Financial Statements 91 KWS Group | Annual Report 2015/20164. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand Gross book values Amortization/depreciation Net book values Change in conso­ lidated compa­ nies Cur rency trans­ lation Additions of equity­ account­ ed assets Addi­ tions Dis­ posals Dis posals of equity ac­ counted assets Trans­ fers 06/30/2016 07/01/2015 06/30/2016 06/30/2016 06/30/2015 Cur rency trans­ lation Planned additions Value impair­ ments Dis­ posals Trans­ fers 07/01/2015 Patents, industrial property rights and software Goodwill 110,543 –829 36,975 –7,712 Intangible assets 147,518 –8,541 0 0 0 0 0 0 0 0 0 0 0 29,538 0 29,538 11,507 16,558 10,037 31,645 69,747 44 247 0 0 0 0 0 0 0 0 23,625 5,451 29,076 1,896 6,631 6,268 0 0 0 0 0 0 1,359 4,888 6,247 116,986 28,700 145,686 56,405 5,452 61,857 –23 11,434 2,181 19,538 0 0 0 5,452 –23 11,434 2,181 24,990 129 0 129 50,588 0 50,588 66,398 28,700 95,098 54,138 31,523 85,661 6,495 295,023 80,407 –535 9,365 1,598 1,484 89,122 205,901 203,841 12,277 230,095 120,161 –506 16,097 5,921 742 130,573 99,522 91,049 –792 94,145 58,004 –623 9,110 5,552 –1,714 59,225 34,920 32,485 228 0 –17,295 38,298 2 0 2 38,296 24,481 15,023 0 685 657,561 258,574 –1,664 34,572 13,071 512 278,922 378,639 351,856 26,466 0 25,682 –5,865 155,904 0 378 0 156 2,827 8,393 370 0 296 8,393 147,511 153,018 635 2,192 2,465 99,576 26,466 44,477 25,682 1,223 961,979 329,194 –1,391 46,006 2,181 38,092 641 338,539 623,440 593,000 284,248 –5,331 211,210 –3,319 90,489 679 24,483 –307 610,430 –8,278 161,411 2,835 –470 –32 922,194 –17,321 07/01/2014 06/30/2015 07/01/2014 06/30/2015 06/30/2015 06/30/2014 88,375 –2,819 21,511 4,460 Goodwill 34,365 0 2,610 0 Intangible assets 122,740 –2,819 24,121 4,460 235,426 3,584 6,118 26,163 173,546 1,193 6,017 23,741 81,818 1,441 106 14,002 28,185 589 0 20,283 518,975 6,807 12,241 84,189 0 0 0 0 0 0 0 0 585 0 585 1,744 2,582 7,454 0 0 0 0 0 0 –399 110,543 0 36,975 –399 147,518 43,411 5,452 48,863 –973 10,561 3,905 0 0 –973 10,561 3,905 478 0 478 –21 0 –21 56,405 5,452 61,857 54,138 31,523 85,661 44,964 28,913 73,877 14,701 284,248 72,244 1,130 8,729 1,640 –56 80,407 203,841 163,182 9,295 211,210 108,178 298 13,563 1,962 84 120,161 91,049 65,368 576 90,489 54,658 1,200 9,153 58,004 32,485 27,160 403 0 –24,171 24,483 2 0 2 24,481 28,183 12,183 0 401 610,430 235,082 2,628 31,445 10,602 21 258,574 351,856 283,893 134,523 21,223 –13,278 7,353 23,747 3,048 –116 52 182 0 0 331 12,157 0 779,286 25,095 23,136 96,184 23,747 13,099 12,157 0 0 2 161,411 2,835 922,194 8,393 348 0 123 8,393 153,018 126,130 370 2,465 2,700 292,686 1,778 42,006 3,905 11,181 329,194 593,000 486,600 Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity­accounted financial assets Financial assets Assets Patents, industrial property rights and software Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity­accounted financial assets Financial assets Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 31 7,000 0 0 101 0 0 0 –7 0 0 0 0 0 0 0 0 0 0 92 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Group4. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand Change in conso­ lidated compa­ nies Cur rency trans­ lation Additions of equity­ account­ Dis posals of equity ac­ Addi­ Dis­ counted Trans­ tions ed assets posals assets fers Cur rency trans­ lation Planned additions Value impair­ ments Dis­ posals Trans­ fers 07/01/2015 06/30/2016 07/01/2015 06/30/2016 06/30/2016 06/30/2015 Gross book values Amortization/depreciation Net book values 1,359 4,888 6,247 116,986 28,700 145,686 6,495 295,023 Intangible assets 147,518 –8,541 110,543 –829 36,975 –7,712 284,248 –5,331 211,210 –3,319 90,489 679 24,483 –307 610,430 –8,278 161,411 2,835 –470 –32 922,194 –17,321 29,538 0 29,538 11,507 16,558 10,037 31,645 69,747 44 247 0 0 0 0 0 0 0 0 0 0 0 56,405 5,452 61,857 –23 11,434 2,181 19,538 0 0 0 5,452 –23 11,434 2,181 24,990 129 0 129 50,588 0 50,588 66,398 28,700 95,098 54,138 31,523 85,661 80,407 –535 9,365 12,277 230,095 120,161 –506 16,097 –792 94,145 58,004 –623 9,110 228 0 –17,295 38,298 2 0 0 15,023 685 657,561 258,574 –1,664 34,572 26,466 0 25,682 –5,865 155,904 378 156 2,827 8,393 370 0 296 0 0 0 0 0 0 0 0 0 1,598 1,484 89,122 205,901 203,841 5,921 742 130,573 99,522 91,049 5,552 –1,714 59,225 34,920 32,485 0 0 2 38,296 24,481 13,071 512 278,922 378,639 351,856 0 31 0 0 8,393 147,511 153,018 635 2,192 2,465 99,576 26,466 44,477 25,682 1,223 961,979 329,194 –1,391 46,006 2,181 38,092 641 338,539 623,440 593,000 07/01/2014 06/30/2015 07/01/2014 06/30/2015 06/30/2015 06/30/2014 88,375 –2,819 21,511 4,460 Goodwill 34,365 0 2,610 0 Intangible assets 122,740 –2,819 24,121 4,460 –399 110,543 0 36,975 –399 147,518 43,411 5,452 48,863 –973 10,561 3,905 0 0 0 –973 10,561 3,905 478 0 478 –21 0 –21 56,405 5,452 61,857 54,138 31,523 85,661 44,964 28,913 73,877 Patents, industrial property rights and software Goodwill Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity­accounted financial assets Financial assets Assets Patents, industrial property rights and software Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity­accounted financial assets 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 23,625 5,451 29,076 1,896 6,631 6,268 585 0 585 2,582 7,454 0 331 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 161,411 2,835 922,194 235,426 3,584 6,118 26,163 1,744 14,701 284,248 72,244 1,130 8,729 173,546 1,193 6,017 23,741 9,295 211,210 108,178 298 13,563 81,818 1,441 106 14,002 576 90,489 54,658 1,200 9,153 28,185 589 0 20,283 403 0 –24,171 24,483 2 0 0 518,975 6,807 12,241 84,189 12,183 401 610,430 235,082 2,628 31,445 Financial assets 3,048 –116 52 182 134,523 21,223 –13,278 7,353 23,747 12,157 8,393 348 0 123 0 0 0 0 0 0 0 0 0 1,640 –56 80,407 203,841 163,182 1,962 84 120,161 91,049 65,368 7,000 0 –7 0 58,004 32,485 27,160 2 24,481 28,183 10,602 21 258,574 351,856 283,893 Assets 779,286 25,095 23,136 96,184 23,747 13,099 12,157 292,686 1,778 42,006 3,905 11,181 0 0 0 8,393 153,018 126,130 370 2,465 2,700 329,194 593,000 486,600 0 101 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 93 KWS Group | Annual Report 2015/2016(1) Assets loss is recognized if the recoverable amount of an entity is The statement of changes in fixed assets contains a break- less than its carrying amount. The recoverable amount is down of assets summarized in the balance sheet and shows the higher of the fair value less costs to sell and the value in how they changed in 2015/2016. Capital expenditure on prop- use of a cash-generating unit. The impairment tests to be erty, plant and equipment and intangible assets was €99,285 carried out for fiscal 2015/2016 determine the recoverable (125,011) thousand. The Combined Management Report amount on the basis of the value in use of the respective describes the significant additions to assets. Depreciation cash-generating unit. and amortization and value impairments amounted to €48,187 (45,911) thousand. (2) Intangible assets The impairment test uses the expected future cash flows on which the medium-term plans of the companies are based; these plans, which cover a period of four years, have been This item includes purchased varieties, rights to varieties approved by the Executive Board. They are based on and distribution rights, software licenses for electronic historical patterns and expectations about future market data processing and goodwill. The current additions of development. €29,538 (4,460) thousand related to software licenses and patents as well as trait licensing agreements (€25,338 thou- For the European and American markets, the key assump- sand). Amortization of intangible assets amounted to tions on which corporate planning is based include as- €13,615 (14,466) thousand, of which €2,181 (3,905) thou- sumptions about price trends for seed, in addition to the sand were value impairments. Depending on the operation- development of market shares and the regulatory frame- al use of the intangible assets, these charges are included work. Company-internal projections take the assumptions in the selling expenses to an amount of €1,737 thousand of industry-specific market analyses and company-related and in the research and development costs to an amount of growth perspectives into account. €444 thousand. The discount rate at the KWS Group has been derived as One major intangible asset is the trait licensing agree- the weighted average cost of capital (WACC) and for the ment. Its carrying amount at the balance sheet date was cash-generating units is 4.48% (5.46%) after tax. A growth €24,050 thousand. Its remaining useful life is 14 years. rate of 1.5% (1.5%) has been assumed here beyond the detailed planning horizon in order to allow for extrapolation The goodwill recognized as an asset relates mainly to in line with the expected inflation rate. the Brazilian companies RIBER KWS SEMENTES S.A. – €15,660 (21,686) thousand; KWS MELHORAMENTO E SE- The impairment tests conducted at the end of fiscal year MENTES LTDA. – €2,722 (4,115) thousand; and the French 2015/2016 confirmed that the existing goodwill is not breeding company GENECTIVE S.A. – €4,888 (4,888) thou- impaired. Sensitivity analyses were also carried out for all sand. In the Cereals Segment, the goodwill of KWS cash-generating units to which goodwill is allocated. In our MOMONT S.A.S. is recognized to an amount of €2,600 opinion, realistic changes in the basic assumptions would (2,600) thousand and that of KWS UK LTD. to an amount of not result in the need to recognize an impairment loss at €1,399 (1,693) thousand. any cash-generating unit whose goodwill is significant rela- tive to the total carrying amount of goodwill. In order to meet the requirements of IFRS 3 in combination with IAS 36 and to determine any impairment of goodwill, The impairment test for KWS POTATO B.V. in the previous cash-generating units have been defined in line with in- year revealed the need for a write-down, which was re- ternal reporting guidelines. At the KWS Group, these are flected in a reduction in the value of the intangible assets generally the legal entities, with the exception of our potato by €3,905 thousand. A total of €2,237 thousand has been unit, which as a whole represents the cash-generating unit. allocated to the research and development costs and To test for impairment, the carrying amount of each entity is €1,668 thousand to the selling expenses, since a number determined by allocating the assets and liabilities, including of varieties, customer relationships and industrial property attributable goodwill and intangible assets. An impairment rights were relinquished. This value impairment has been charged to the Sugarbeet Segment. 94 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Group(3) Property, plant and equipment classified as a significant joint venture. From the Group Capital expenditure amounted to €69,747 (96,430) thousand perspective, AGRELIANT GENETICS INC. was classified as and depreciation amounted to €34,572 (31,445) thousand. an insignificant joint venture. The Combined Management Report describes the signif- icant capital expenditure. Property, plant and equipment The two joint ventures are operating units. The main busi- – mainly assets under construction – to an amount of ness activity of the two joint ventures is the production and €3,111 thousand are held as security for liabilities. sale of corn and soybean seed in North America. (4) Equity­accounted financial assets The following disclosures on the joint ventures in accor- Equity­accounted joint ventures 12.B12-B13 are only slightly influenced by the insignificant The joint ventures AGRELIANT GENETICS LLC. and AGRE- joint ventures. If individual items of the information present- LIANT GENETICS INC., which KWS operates together with ed are materially influenced by the insignificant joint ven- its joint venture partner Vilmorin, are recognized at equity. tures, this information is presented separately. dance with IFRS 12.21 (a) and (b) in conjunction with IFRS In the year under review, AGRELIANT GENETICS LLC. was Disclosures on equity­accounted joint ventures (with the partner Vilmorin) in € thousand Stake in the joint venture Current assets Thereof cash and cash equivalents1 Noncurrent assets Current liabilities Thereof current financial liabilities (excluding trade payables and other liabilities and provisions) Noncurrent liabilities Net assets (100%) Group share of net assets (50%) Goodwill Carrying amount for the stake in the joint ventures Net sales Depreciation and amortization Net income for the year Other comprehensive income Comprehensive income (100%) Comprehensive income (50%) Group share of comprehensive income Dividend payment 1 Thereof AGRELIANT GENETICS LLC.: €5,878 (23,594) thousand 06/30/2016 06/30/2015 50% 310,658 (23,428) 206,013 253,654 (74,624) 3,674 259,343 129,672 8,802 138,474 637,976 15,478 48,004 0 48,004 24,002 24,002 51,364 50% 318,792 (48,494) 122,992 174,974 (17,158) 2,352 264,458 132,229 13,668 145,897 570,236 10,820 44,292 0 44,292 22,146 22,146 23,408 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 95 KWS Group | Annual Report 2015/2016Equity­accounted associated companies accordance with IFRS 12.21 (c) in conjunction with The disclosures on insignificant associated companies in IFRS 12.B16 are as follows: Disclosures on insignificant associated companies accounted for using the equity method in € thousand Carrying amount for the stake in insignificant associated companies (aggregated) Net income for the year Other comprehensive income Comprehensive income (100%) 06/30/2016 06/30/2015 9,059 5,029 0 5,029 7,120 20 0 20 In the year under review, this relates to our Chinese joint account also includes other interest-bearing loans totaling venture KENFENG – KWS SEEDS CO., LTD., which is includ- €230 (466) thousand. The other financial assets totaling ed in the KWS Group’s consolidated financial statements €379 thousand are reported at their amortized cost, since as an associated company in accordance with the equity the fair value cannot be reliably determined. method. (6) Noncurrent tax assets Proportionately consolidated joint operations This mainly relates to the present value of the corporate Joint operations are based on joint arrangements that al- income tax credit balance of the German Group compa- ways exist when the KWS Group jointly conducts operations nies, which was last determined at December 31, 2006, managed together with a third party pursuant to a con- and has been paid in ten equal annual amounts since tractual agreement. The operation is jointly managed only September 30, 2008. if decisions on significant activities require the unanimous consent of the parties involved. The assets and liabilities (7) Inventories and biological assets and revenue and expenses from the joint operations are in- Inventories and biological assets increased by €7,945 thou- cluded proportionately (at 50%) in the consolidated financial sand, or 4.2%, a figure that includes cumulative impair- statements. The main activity of the proportionately consol- ment losses on the net realizable value totaling €49,947 idated GENECTIVE S.A. is development of its own traits for (51,244) thousand. Inventories to an amount of €5,225 thou- genetically improving crops. (5) Financial assets sand are held as security for liabilities. Immature biologi- cal assets relate to living plants in the process of growing (before harvest). The field inventories of the previous year Investments in unconsolidated subsidiaries totaling have been harvested in full and the fields have been newly €439 (39) thousand and shares in cooperatives, GmbHs tilled in the year under review. Public subsidies of €1,368 and other securities classified as noncurrent assets that (1,443) thousand, for which all the requirements were met are of minor significance are reported, in principle, at their at the balance sheet date, were granted for the total area amortized cost totaling €692 (1,871) thousand since the under cultivation of 4,240 (4,246) ha and were recognized fair value cannot be reliably determined. Listed shares in income. Future public subsidies depend on the further are carried at their fair value of €452 (89) thousand. This development of European agricultural policy. Inventories and biological assets in € thousand Raw materials and consumables Work in progress Immature biological assets Finished goods 06/30/2016 06/30/2015 18,041 52,206 12,496 115,536 198,279 18,263 48,921 12,344 110,806 190,334 96 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Group (8) Current receivables Current receivables in € thousand Trade receivables Current tax assets Other current financial assets Other current assets 06/30/2016 06/30/2015 293,881 309,665 55,451 45,070 12,090 57,549 26,732 11,756 406,492 405,702 Trade receivables were €293,881 thousand following includes €1,386 (3,022) thousand in receivables from joint €309,665 thousand in the previous year. This amount ventures and joint operations. Development of current financial assets and trade receiveables by overdue in € thousand 06/30/2016 Of which: neither written down nor overdue on the balance sheet date Carrying amount 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 Trade receivables 293,881 268,656 15,656 2,748 1,257 Other current financial assets 06/30/2015 45,070 338,951 34,559 0 0 0 303,215 15,656 2,748 1,257 Trade receivables 309,665 254,682 45,630 3,442 2,285 0 0 0 0 Other current financial assets 26,732 336,397 21,996 5 276,678 45,635 1,108 4,550 1 2,286 134 134 4,521 0 4,521 1,402 0 1,402 The already overdue trade receivables that have been partly Receivables to an amount of €4,147 thousand are held as written down amount to €1,043 (2,224) thousand. There are security for liabilities. no indications on the balance sheet date that customers who owe trade receivables that have not been written down The following allowances have mainly been made for possi- and are not overdue will not meet their payment obligations. ble risks of nonpayment of trade receivables: Change in allowances on receivables in € thousand 2015/2016 2014/2015 The receivables include an amount of €450 (361) thousand due after more than one year. 07/01 Addition Disposal Reversal 22,627 27,393 9,466 7,305 1,317 1,219 4,040 10,852 06/30 26,736 22,627 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 97 KWS Group | Annual Report 2015/2016(9) Securities consolidated financial statements, minus dividends paid to Securities amounting to €30,679 (66,973) thousand relate shareholders. The differences from currency translation, primarily to debt securities and fund shares. the reserve for available-for-sale financial assets and the reserve for revaluation of net liabilities/assets from defined (10) Cash and cash equivalents benefit plans, as well as the reserve for currency translation Cash and cash equivalents of €133,224 (41,211) thousand for equity-accounted financial assets, are also carried here. consists of balances with banks and cash on hand. The cash flow statement explains the change in this item com- Differences from translation of the functional currency of pared with the previous year, together with the change in foreign business operations into the currency used by the securities. (11) Equity Group in reporting (euro) are essentially carried in the item Adjustments from currency translation. The item Revaluation of net liabilities/assets from defined benefit plans includes The fully paid-up subscribed capital of KWS SAAT SE is still the actuarial gains and losses from pensions and other €19,800 thousand. The no-par bearer shares are certificated employee benefits. Differences from translation of the func- by a global certificate for 6,600,000 shares. The company tional currency of equity-accounted foreign business units does not hold any shares of its own. into the currency used by the Group in reporting (euro) are essentially carried in the reserve for currency translation for The capital reserves essentially comprise the premium ob- equity-accounted financial assets. tained as part of share issues. The tax effects on other comprehensive income are as The revenue reserves essentially comprise the net income follows: generated in the past by the companies included in the Other comprehensive income in € thousand Items that may have to be subsequently reclassified as profit or loss Revaluation of available-for-sale financial assets Currency translation difference for economically independent foreign units Currency translation difference from equity-accounted financial assets Items not reclassified as profit or loss Revaluation of net liabilities/assets from defined benefit plans Other comprehensive income 2015/2016 2014/2015 Before taxes Tax effect After taxes Before taxes Tax effect After taxes –18,752 –106 –18,858 45,606 460 –106 354 –223 –18,743 –469 –24,652 –24,652 –43,404 0 0 –18,743 24,606 –469 7,603 –17,049 7,603 7,497 –17,049 –35,907 21,223 –12,945 –12,945 32,661 51 51 0 0 3,989 3,989 4,040 45,657 –172 24,606 21,223 –8,956 –8,956 36,701 The objective of KWS’ capital management activities is to minority interests) is €85,261 (82,712) thousand. However, pursue the interests of shareholders and employees in ac- there was a total dividend payout of €19,800 (19,800) thou- cordance with the corporate strategy and earn a reasonable sand in December 2015. This ensures the adequate inter- return on investment. One main goal is to retain the trust nal financing of further operating business expansion in of investors, lenders and the market, so as to strengthen the long term. Equity increased by €29,241 thousand to the company’s future business development. KWS’ cap- €767,959 (738,718) thousand. This figure includes a re- ital management activities intend to optimize the average duction of €19,212 thousand (previous year: increase of cost of capital. Another goal is a balanced mix of equity €45,829 thousand) in the reserve for currency translation and debt capital. Consolidated income (after taxes and for foreign subsidiaries and equity-accounted joint ventures 98 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Groupand associated companies. Please refer to the statement of An important indicator in capital management is the equity changes in equity for further effects not recognized in the ratio. It was 53.5% (55.2%) at June 30, 2016, and thus at a income statement. Capital structure in € thousand Equity Long-term financial borrowings Other noncurrent liabilities Short-term borrowings Other noncurrent liabilities Total capital good and solid level. The capital structure is as follows: 06/30/2016 767,959 228,712 164,941 23,078 251,941 1,436,631 Share of total capital 53.5% Share of total capital 55.2% 06/30/2015 738,718 181,783 134,948 32,283 249,400 1,337,132 The focus in selecting financial instruments is on financing The accumulated interests in RIBER KWS SEMENTES with matching maturities, which is achieved by controlling S.A. in the previous year were €5,576 thousand and have the maturities. Long-term financial borrowings increased by been carried under minority interests. The voting rights €46,929 (68,029) thousand. This is mainly due to the increase on June 30, 2015, corresponded to 49.99%. The share of in long-term financial loans from banks. minority interests in this company’s net income for the year (12) Minority interest The acquisition of the remaining shares in RIBER KWS The disclosures on significant minority interests in accor- SEMENTES S.A. means that the KWS Group does not have dance with IFRS 12.12 in conjunction with IFRS 12.B10 are any minority interests that are assessed as being significant. as follows for the previous year: was €1,263 thousand. Disclosures on subsidiaries with significant minority interests in € thousand Equity Current assets Noncurrent assets Current liabilities Noncurrent liabilities Net sales Profit/loss Other income Comprehensive income Net cash from operating activities Net cash from investing activities Net cash from financing activities RIBER KWS SEMENTES S.A., Patos de Minas, Brazil 06/30/2015 11,152 69,164 16,259 44,300 29,971 65,804 2,525 –2,465 60 1,446 –2,237 2,868 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 99 KWS Group | Annual Report 2015/2016In addition, DYNAGRI S.A.R.L., KWS ARGENTINA S.A. (13) Noncurrent liabilities and RAZES HYBRIDES S.A.R.L. have minority interests, Noncurrent liabilities increased by €76,922 thousand. That although these are assessed as being insignificant. is mainly attributable to the increase in long-term financial borrowings from banks totaling €76,178 thousand. At the same time, other noncurrent financial liabilities decreased by €29,249 thousand. Noncurrent liabilities in € thousand Long-term provisions Long-term borrowings Trade payables Deferred tax liabilities Other noncurrent financial liabilities Other noncurrent liabilities The trade payables and other long-term liabilities are due for payment in between one and five (one and five) years. Long­term provisions in € thousand 06/30/2015 06/30/2016 06/30/2015 136,515 228,712 1,413 9,447 681 16,885 393,653 110,641 181,783 1,600 9,686 539 12,482 316,731 06/30/2016 Changes in the consoli­ dated group, currency Interest expenses from com­ pounding Addition Consump­ tion Reversal Pension provisions 102,201 –186 2,538 26,356 Tax provisions Other provisions 1,392 7,048 110,641 3 33 0 114 1,582 1,762 –150 2,652 29,700 4,478 1,341 501 6,320 0 0 8 8 126,431 1,636 8,448 136,515 The other provisions mainly comprise provisions by the Ger- is assumed in Germany. The discount rate in Germany was man companies for semi-retirement and loyalty bonuses. 1.30% compared with 2.50% the year before, 3.60% in the The pension provisions are based on defined benefit obli- 1.05% and 3.00% in the rest of the world. gations, determined by years of service and pensionable compensation. They are measured using the projected unit The following mortality tables were used at June 30, 2016: U.S. compared with 4.60% the year before, and between credit method under IAS 19 (2011), on the basis of as- sumptions about future developments. The assumptions in ■■ In Germany: The 2005G mortality table of Klaus Heubeck detail are that wages and salaries in Germany will increase ■■ Abroad: RP-2000 Mortality Table Scale AA by 3.00% (3.00%) annually, in the U.S. by 3.75% (3.75%) annually and in the rest of the world by 2.00% (2.00%) A retirement age of 63 years is imputed for Germany, where- annually. An annual increase in pensions of 2.00% (2.00%) as a retirement age of 65 years is imputed for the U.S. 100 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS GroupNature and scope of the pension benefits The pension plans are mainly subject to the following risks: In Germany Investment and return The following benefits are provided under a company agree- The present value of the defined benefit obligation from the ment relating to the company retirement pension program: pension plan is calculated using a discount rate defined on the basis of the returns on high-quality fixed-income corpo- ■■ An old-age pension at the age of 65 rate bonds. If the income from the planned assets is below ■■ An early retirement pension before the age of 65, coupled this rate of interest, the result is a shortfall in the plan. The with benefits from the early retirement pension from the corporate bonds and share funds are chosen to ensure risk statutory pension insurance program diversification and managed by an external fund manager. ■■ An invalidity pension for persons who suffer from occu- pational disability or incapacity to work as defined by the Change in interest rates statutory pension insurance program The fall in the returns on corporate bonds and thus the dis- ■■ A widow’s or widower’s pension count rate will result in an increase in the obligations, which is only partly compensated for by a change in the value of For benefit obligations backed by a guarantee by an insur- the planned assets. ance company toward three former members of the Exec- utive Board, the planned assets of €10,217 (9,446) thou- Life expectancy sand correspond to the present value of the obligation. In The present value of the defined benefit obligation from the accordance with IAS 19 (2011), the pension commitments plan is calculated on the basis of the best-possible estimate are netted off against the corresponding assets (planned using mortality tables. An increase in the life expectancy assets). Abroad of the entitled employees results in an increase in the plan liabilities. The defined benefit obligations abroad mainly relate to pen- Salary and pension trends sion commitments in the U.S. Share funds and bonds were The present value of the defined benefit obligation from the mainly invested in to cover them. All employees who have plan is calculated on the basis of future salaries/pensions. reached the age of 21 are entitled to benefits. In addition, Consequently, increases in the salary and pension of the en- each employee must have worked at least one year and at titled employees results in an increase in the plan liabilities. least 1,000 working hours to earn an entitlement. In previous years, KWS countered the usual risks of direct The following benefits are granted from the pension plan: obligations by converting the pension obligations from defined benefit to defined contribution plans. As a result, ■■ An old-age pension at the age of 65 subsequent benefits will be provided by a provident fund ■■ An early retirement pension before the age of 65 – to be backed by a guarantee. The existing obligations, which are eligible, the employee must be at least 55 and the mini- partly covered by planned assets, are funded from the oper- mum vesting period must be five years ating cash flow and are subject to the familiar measurement ■■ A pro-rata pension if the employee reaches the minimum risks. vesting period of five years, but is below 55 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 101 KWS Group | Annual Report 2015/2016 The tables below show the changes in the accrued benefit and planned assets: Changes in accrued benefit entitlements in € thousand 2015/2016 2014/2015 Germany Abroad Total Germany Abroad Total Accrued benefit entitlements from retirement obligations on July 1 Service cost Interest expense Actuarial gains (–)/losses (+) of which due to a change in financial assumptions used for calculation of which due to experience adjustments Pension payments made Exchange rate changes Other changes in value Accrued benefit entitlements from retirement obligations on June 30 Change in planned assets in € thousand 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 Other changes in value Fair value of the planned assets on June 30 106,837 18,408 125,245 95,942 13,865 109,807 787 2,608 21,388 917 761 1,704 3,369 3,792 25,180 691 2,713 12,402 21,229 3,389 24,618 12,010 159 –5,013 403 –541 49 –124 562 –5,554 49 –124 392 –4,911 698 671 986 747 239 –678 2,365 501 1,389 3,384 13,388 12,757 631 –5,589 2,365 501 126,607 23,262 149,869 106,837 18,408 125,245 Germany Abroad Total Germany Abroad Total 2015/2016 2014/2015 9,446 229 1,133 –591 13,598 23,044 601 830 –605 –485 48 64 528 –1,076 48 64 9,275 260 491 –580 10,698 19,973 603 863 –47 –485 2,309 520 444 –1,065 2,309 520 10,217 13,221 23,438 9,446 13,598 23,044 In order to allow reconciliation with the figures in the bal- ance sheet, the accrued benefit must be netted off with the planned assets. Reconciliation with the balance sheet values for pensions in € thousand 2015/2016 2014/2015 Germany Abroad Total Germany Abroad Total Accrued benefit entitlements from retirement obligations on June 30 Fair value of the planned assets on June 30 Balance sheet values on June 30 126,607 23,262 149,869 106,837 18,408 125,245 10,217 116,390 13,221 10,041 23,438 126,431 9,446 97,391 13,598 23,044 4,810 102,201 102 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS GroupThe following amounts were recognized in the statement of comprehensive income: Effects on the statement of comprehensive income 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 financial 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 787 2,379 917 159 2015/2016 Total 1,704 2,538 Germany Abroad 691 2,452 3,166 1,076 4,242 3,143 2014/2015 Total 1,389 2,520 3,909 698 68 766 –1,133 605 –528 –491 47 –444 21,229 3,390 24,618 12,011 159 403 562 392 747 239 12,758 631 20,255 4,397 24,652 11,912 1,033 12,945 23,421 5,473 28,894 15,055 1,799 16,854 The service cost is recognized in operating income in the The fair value of the planned assets was split over the fol- respective functional areas by means of an appropriate lowing investment categories: formula. Net interest expenses and income are carried in the interest result. Breakdown of the planned assets by investment category in € thousand Corporate bonds Equity funds Consumer industry Finance Industry Technology Health care Other Cash and cash equivalents Reinsurance policies Planned assets on June 30 Germany Abroad 3,510 8,842 1,935 956 656 1,514 986 2,795 869 10,217 10,217 13,221 2015/2016 Total 3,510 8,842 Germany Abroad 2014/2015 Total 3,646 9,071 881 9,446 3,646 9,071 2,010 1,068 698 1,396 1,337 2,562 881 13,598 23,044 869 10,217 23,438 9,446 9,446 The planned assets abroad relate mainly to the U.S. There The following sensitivity analysis at June 30, 2016, shows is no active market for the reinsurance policies in Germany. how the present value of the obligation would change given There is an active market for the other planned assets: the a change in the actuarial assumptions. No correlations fair value can be derived from their stock market prices. A between the individual assumptions were taken into account total of 82.3% (79.2%) of the corporate bonds have an AAA in this, i.e., if an assumption varies, the other assumptions rating. were kept constant. The projected unit credit method used to calculate the balance sheet values was also used in the sensitivity analysis. 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 103 KWS Group | Annual Report 2015/2016 Sensitivity analysis in € thousand Discount rate Anticipated annual pay increases Anticipated annual pension increase Life expectancy Effect on obligation in 2015/2016 Effect on obligation in 2014/2015 Change in assumption +/– 100 basis points +/– 50 basis points +/– 25 basis points +/– 1 year Decrease Increase 28,975 –22,459 –1,325 1,437 –4,654 –5,471 4,846 5,592 Change in assumption +/– 100 basis points +/– 50 basis points +/– 25 basis points +/– 1 year Decrease Increase 21,889 –17,286 –915 991 –3,848 –4,489 3,991 4,563 The following undiscounted payments for pensions (with their due dates) are expected in the following years: Anticipated payments for pensions Anticipated payments for pensions in € thousand 2015/2016 in € thousand 2014/2015 Germany Abroad 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 5,042 4,979 4,921 5,027 4,941 2021/2022 – 2025/2026 24,333 600 686 789 834 1,083 5,465 Total 5,642 5,665 5,710 5,861 6,024 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 Germany Abroad 5,050 4,948 4,909 4,864 4,986 535 594 623 751 756 Total 5,585 5,542 5,532 5,615 5,742 29,798 2020/2021 – 2024/2025 24,425 4,713 29,138 The weighted average time at which the pension obligations have to be set up for them, since there are no further ob- are due is 16.6 (15.2) years in Germany and 17.3 (16.0) years ligations above and beyond payment of the contributions abroad. (defined contribution plans). These comprise benefits that are funded solely by the employer and allowances for con- Defined contribution plans version of earnings by employees. Apart from the above-described pension obligations, there are other old-age pension systems. However, no provisions The total pension costs for fiscal 2015/2016 were as follows: Pension costs in € thousand Germany Abroad Cost for defined contribution plans 2,266 1,302 Service cost for the defined benefit obligations Pension costs 787 3,053 917 2,219 2015/2016 2014/2015 Total 3,568 1,704 5,272 Germany Abroad 2,070 1,095 691 2,761 698 1,793 Total 3,165 1,389 4,554 104 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS GroupIn addition, contributions of €13,724 (12,947) thousand were obligation from salary conversion was backed by a guaran- paid to statutory pension insurance institutions. tee that exactly matches the present value of the obligation of €3,581 (4,048) thousand (defined contribution plan). The costs for defined contribution plans in Germany mainly related to the provident fund backed by a guarantee. The The long-term financial borrowings include loans from banks contributions to this pension plan were €2,016 (1,649) thou- amounting to €228,712 (152,534) thousand. They have re- sand. The return and income from the planned assets de- maining maturities through 2025. pend on the reinsurance policy, which yields guaranteed in- terest of between 1.25% and 2.25%. In addition, the benefit (14) Current liabilities Current liabilities in € thousand Short­term provisions Current liabilities to banks Current financial liabilities to affiliates Other current financial liabilities Short­term borrowings Trade payables to affiliates Trade payables to joint ventures Other trade payables Trade payables Tax liabilities Other current financial liabilities Other current liabilities Short­term provisions 06/30/2016 06/30/2015 80,914 22,684 65 329 87,355 31,857 308 118 23,078 32,283 0 45 74,969 75,014 21,062 13,990 60,961 1,108 0 58,550 59,658 30,111 15,687 56,589 275,019 281,683 in € thousand 06/30/2015 06/30/2016 Changes in the consoli­ dated group, currency Addition Consump­ tion Reversal Obligations from sales transactions 73,152 –1,249 61,121 67,463 2,677 62,884 Obligations from purchase transactions Other obligations 5,395 8,808 87,355 –1,773 4,242 1,220 1,792 7,869 788 3,452 70,782 71,703 742 3,321 6,740 3,884 14,146 80,914 The obligations from sales transactions essentially relate The tax liabilities of €21,062 (30,111) thousand include to provisions for licenses and returns. The obligations from amounts for the year under review and the period not yet purchase transactions include provisions for procurement concluded by the external tax audit. transactions, such as compensation for breeding areas. The other obligations relate to litigation risks and other provi- sions that cannot be assigned to the group of sales transac- tions or the group of purchase transactions. 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 105 KWS Group | Annual Report 2015/2016(15) Derivative financial instruments Hedging transactions in € thousand Currency hedges Interest-rate hedges Commodity hedges Nominal volume 143,735 34,000 162 06/30/2016 06/30/2015 Carrying amounts Fair value Nominal volume Carrying amounts Fair value 2,027 –485 9 2,027 –485 9 95,003 34,000 148 1,182 –130 0 1,182 –130 0 177,897 1,551 1,551 129,151 1,052 1,052 Of the currency hedges, hedges with a nominal volume and the greatest business activity, is used to calculate the of €140,625 (89,248) thousand have a remaining maturity fair value. If this market does not exist for the asset or liabil- of less than one year, and hedges with a nominal volume ities in question, the market that maximizes the amount that of €3,110 (5,755) thousand have a remaining maturity of would be received to sell the asset or minimizes the amount between one and five years. In the previous year, hedg- that would be paid to transfer the liability, after taking into es for interest-rate derivatives with a nominal volume of account transaction costs, is used. These are active and €19,000 thousand had a remaining maturity of less than accessible markets for identical assets and liabilities, where one year. Of the interest-rate derivatives, hedges with a the fair value results from quoted prices that are observable nominal volume of €29,000 (0) thousand will mature with- (level 1 input factors). At the KWS Group, this relates to se- in one to five years, and hedges with a nominal value of curities in the category “Available-for-sale financial assets”, €5,000 (15,000) thousand will mature in more than five years. as well as fund shares at banks and other financial assets The commodity hedges have remaining maturities of less whose price is likewise quoted in active markets. than one (one) year. (16) Financial instruments The level 2 input factors relate to derivative financial instru- ments that have been concluded between KWS companies In general, the fair values of financial assets and liabilities and banks. The prices can thus be derived indirectly from are calculated on the basis of the market data available on active market prices for similar assets and liabilities. The the balance sheet date and are assigned to one of the three level 3 input factors cannot be derived from observable hierarchy levels in accordance with IFRS 13. The principal market information. market, i.e., the market with the largest volume of trading 106 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS GroupThe carrying amounts and fair values of the financial assets (financial instruments), split into the measurement catego- ries in accordance with IAS 39, are as follows: 06/30/2016 in € thousand Financial assets Financial assets Other noncurrent financial assets of which derivative financial instruments Trade receivables Securities Cash and cash equivalents Other current financial assets of which derivative financial instruments Total 06/30/2015 in € thousand Financial assets Financial assets Other noncurrent financial assets of which derivative financial instruments Trade receivables Securities Cash and cash equivalents Other current financial assets of which derivative financial instruments Total Fair values 2,192 96 (96) 293,881 30,679 133,224 45,070 (2,950) 505,142 Fair values 2,465 26 (26) 309,665 66,973 41,211 26,732 (2,976) 447,072 Financial instruments Carrying amounts Loans and receivables Financial assets held for trading Available­for­sale financial assets Total carrying amount 0 0 (0) 293,881 0 133,224 42,120 (0) 469,225 0 96 (96) 0 0 0 2,950 (2,950) 3,046 2,192 2,192 0 (0) 0 30,679 0 0 (0) 32,871 96 (96) 293,881 30,679 133,224 45,070 (2,950) 505,142 Financial instruments Carrying amounts Loans and receivables Financial assets held for trading Available­for­sale financial assets Total carrying amount 0 0 (0) 309,665 0 41,211 23,756 (0) 374,632 0 26 (26) 0 0 0 2,976 (2,976) 3,002 2,465 2,465 0 (0) 0 66,973 0 0 (0) 69,438 26 (26) 309,665 66,973 41,211 26,732 (2,976) 447,072 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 107 KWS Group | Annual Report 2015/2016The fair value of financial assets (equity instruments) mea- The fair values of securities classified as current assets are s ured at amortized costs cannot be reliably determined based on the price for them quoted on active markets (level 1). because there are no active markets. These assets relate to shares in unconsolidated subsidiaries and associated com- The fair value of derivative financial instruments is the present panies. It is assumed that the carrying amounts are the same values of the payments related to these balance sheet items. as the fair values. In addition, the financial assets include These instruments are mainly forward exchange deals. They securities classified as noncurrent assets, whose fair value is are measured on the basis of quoted exchange rates and measured by their prices on the stock market (level 1). yield curves available from the market data and allowing for The fair value of trade receivables, other current financial assets, and cash and cash equivalents is the same as the The carrying amounts and fair values of the financial lia- carrying amounts as a result of the short time in which these bilities (financial instruments), split into the measurement instruments are due. categories in accordance with IAS 39, are as follows: counterparty risks (level 2). 06/30/2016 in € thousand Fair values Financial liabilities measured at amortized cost Financial liabilities held for trading Financial instruments Carrying amounts Disclo­ sure in acc. with IFRS 7 Total carrying amount Financial liabilities Long-term borrowings of which outstanding purchase price obligations for consolidated subsidiaries Long-term trade payables Other noncurrent financial liabilities of which derivative financial instruments Short-term borrowings Short-term trade payables Other current financial liabilities of which derivative financial instruments 233,558 228,712 (0) 1,413 681 (533) 23,078 75,014 13,990 (964) (0) 1,413 148 (0) 23,078 75,014 13,026 (0) Total 347,734 341,391 0 (0) 0 533 (533) 0 0 964 (964) 1,497 0 228,712 (0) 0 0 (0) 0 0 0 (0) 0 (0) 1,413 681 (533) 23,078 75,014 13,990 (964) 342,888 108 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Group06/30/2015 in € thousand Financial liabilities Long-term borrowings of which outstanding purchase price obligations for consolidated subsidiaries Long-term trade payables Other noncurrent financial liabilities of which derivative financial instruments Short-term borrowings Short-term trade payables Other current financial liabilities of which derivative financial instruments Fair values Financial liabilities measured at amortized cost Financial liabilities held for trading Financial instruments Carrying amounts Disclo­ sure in acc. with IFRS 7 Total carrying amount 183,428 152,534 0 29,249 181,783 (29,249) 1,600 539 (265) 32,283 59,658 15,687 (1,684) (0) 1,600 274 (0) 32,283 59,658 14,003 (0) (0) 0 265 (215) 0 0 1,684 (1,684) 1,949 (29,249) (29,249) 0 0 (0) 0 0 0 (0) 1,600 539 (215) 32,283 59,658 15,687 (1,684) 29,249 291,550 Total 293,195 260,352 The fair value of long-term borrowings was calculated on the Due to the generally short times by which trade payables basis of discounted cash flows. To enable that, interest rates and other financial liabilities (excluding derivatives) are due, for comparable transactions and yield curves were used it is assumed that their carrying amounts are equal to the (level 2). fair value. The outstanding purchase price obligation for consolidated None of the reported financial instruments will be held to subsidiaries that was recognized in the previous year must maturity. be carried at the present value of the anticipated future purchase price payments for minority interests. This was derived from the anticipated operating income of the sub- sidiary and a risk-adjusted discount rate (level 3). 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 109 KWS Group | Annual Report 2015/2016The table below shows the financial assets and liabilities measured at fair value: Assets and liabilities measured at fair value in € thousand 06/30/2016 06/30/2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivative financial instruments not part of a hedge under IAS 39 Available-for-sale financial assets Financial assets Derivative financial instruments not part of a hedge under IAS 39 Financial liabilities 0 3,046 32,421 0 32,421 3,046 0 0 1,497 1,497 0 0 0 0 0 3,046 0 3,002 32,421 69,104 0 35,467 69,104 3,002 1,497 1,497 0 0 1,949 1,949 0 0 0 0 0 3,002 69,104 72,106 1,949 1,949 The table below presents the net gains/losses carried in the income statement for financial instruments in each measure- ment category: Net gain/losses of financial instruments in € thousand Available-for-sale financial assets Financial assets held for trading Loans and receivables Financial liabilities measured at amortized cost Financial liabilities held for trading 06/30/2016 06/30/2015 47 –262 –1,349 –12,228 1,158 141 2,141 3,854 –10,644 –1,471 The net income from available-for-sale financial assets in- In order to control the credit risk resulting from receivables cludes income from equity investments in cooperatives and from customers, a regular creditworthiness analysis is income from securities. conducted by the responsible credit manager in accor- dance with the credit volume. Security is available for some The net gains from financial assets held for trading and of these receivables and is used depending on the local financial liabilities held for trading solely comprise changes circumstances. This includes, in particular, credit insurance, in the market value of derivative financial instruments. down payments and guarantees. In general, reservation of The net gain/loss from loans and receivables mainly it limits are defined for all customers. Credit risks from includes effects from changes in the allowances for financial transactions are controlled centrally by Corporate ownership of goods is agreed with our customers. Cred- impairment. Finance/Treasury. In order to minimize risks, financial trans- actions are exclusively conducted within defined limits with The net losses from financial liabilities measured at amor- banks and partners who always have an investment grade. tized cost result mainly from interest expense. Compliance with the risk limits is constantly monitored. The Interest income from financial assets that are not measured ject to the approval of the regional or divisional management at fair value and recognized in the income statement was and the Executive Board. limits are adjusted depending on the credit volume only sub- €2,278 (1,480) thousand. Interest expenses for financial borrowings were €12,228 (10,644) thousand. 110 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS GroupLiquidity is managed in the eurozone by the central Treasury There are unutilized credit lines totaling €271 million. The unit using a cash-pooling system. Liquidity requirements are syndicated loan of €200 million runs until October 2019, generally determined by means of cash planning and are with the option of extending it up to October 2021. This loan covered by cash and promised credit lines. only contains one financial covenant. In the case of financial covenants, the dynamic gearing ratio is used as a finan- KWS SAAT SE raised a borrower’s note loan for an amount cial indicator. Compliance with the covenants is regularly of €70 million for financing purposes in December 2015. The reviewed by KWS SAAT SE’s Treasury unit and reported to tranches have a maturity of five and seven years; part of the the banks every quarter in connection with the quarterly and loan has a variable interest rate, but most of it (€43 million) annual financial statements. has a fixed interest rate. The table below shows the KWS Group’s liquidity analysis for nonderivative and derivative financial liabilities. The table is based on contractually agreed, undiscounted payment Fiscal year 2015/2016 in € thousand flows: Book value Liquidity analysis of financial liabilities 06/30/2016 06/30/2016 Total Financial liabilities Trade payables Other financial liabilities 251,790 257,621 76,427 13,174 76,427 13,174 Due in > 1 year and < 5 years Cash flows Due in > 5 years 124,519 105,606 1,202 148 210 Due in < 1 year 27,496 75,014 13,026 Nonderivative financial liabilities 341,391 347,221 115,536 125,869 105,816 Payment claim Payment obligation Derivative financial liabilities 1,497 Fiscal year 2014/2015 in € thousand Book value 21,052 23,225 2,173 20,237 21,961 1,724 815 1,264 449 Liquidity analysis of financial liabilities 06/30/2015 06/30/2015 Total Financial liabilities Trade payables Other financial liabilities 214,066 237,027 61,258 14,542 61,258 14,542 Due in < 1 year 42,285 59,658 14,268 Due in > 1 year and < 5 years 138,416 1,189 274 Cash flows Due in > 5 years 56,326 411 Nonderivative financial liabilities 289,866 312,827 116,211 139,879 56,737 Payment claim Payment obligation Derivative financial liabilities 1,949 40,134 43,812 3,678 39,868 43,168 3,300 266 644 378 4. Notes to the Balance Sheet | Notes for the KWS Group 2015/2016 | Annual Financial Statements 111 KWS Group | Annual Report 2015/2016The cash flows of the derivative financial liabilities mainly In order to assess the risk of interest rate changes, the relate to forward exchange deals and include both inter- sensitivity of interest rates to fluctuations was determined. est payments and redemption payments. These derivative The average rate of interest in the fiscal year was nega- financial instruments are settled in gross. tive. An increase in the rate of interest of one percentage The following sensitivity analyses show the impact on interest income canceling each other out (previous year: income and equity. The calculated figures relate to the port- additional income of €0.1 million); equity would therefore not folio at the balance sheet date and show the hypothetical be impacted (previous year: an improvement of €0.1 million). point would result in additional interest expense and higher effect for one year. A reduction in the rate of interest to zero percentage points would add a further €0.6 (1.1) million in income to the interest In order to assess the risk of exchange rate changes, the result. Equity would increase by €0.4 (0.7) million in the sensitivity of a currency to fluctuations was determined. event of such a change in the rate of interest. After the euro, the US dollar is the most important currency in the KWS Group. All other currencies are of minor impor- The Management Report addresses possible risks resulting tance. The average exchange rate in the fiscal year was from agreements regarding financial dependencies. 1.11 (1.19) USD/EUR. If the US dollar depreciated by 10%, the financial instruments would be worth €199 (233) thousand. If (17) Contingent liabilities the US dollar appreciated by 10%, the financial instruments As in the previous year, there are no contingent liabilities to would have a value of €244 (285) thousand. The net income report at the balance sheet date. for the year and equity would change accordingly. Due to seasonally related fluctuations in borrowing require- There was a €13,211 (11,875) thousand obligation from ments, the impact of changes in market interest rates is cal- uncompleted capital expenditure projects, mainly relating culated across the board on the basis of the current interest to property, plant and equipment. The largest item is the (18) Other financial obligations result. obligations from investments of €2.0 million in expanding the greenhouse complex and of €1.9 million in expanding the Forum at Einbeck. Obligations under rental agreements and leases in € thousand Due within one year Due between 1 and 5 years Due after 5 years 06/30/2016 06/30/2015 16,520 21,353 6,002 43,875 15,063 20,788 7,530 43,381 The leases relate primarily to full-service agreements for IT year under review. The main leasehold obligations relate to equipment and fleet vehicles, which also include services land under cultivation. for which a total of €5,556 (4,544) thousand was paid in the 112 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 4. Notes to the Balance Sheet Annual Report 2015/2016 | KWS Group5. Notes to the Income Statement Income statement Net sales Cost of sales Gross profit on sales Selling expenses Research & development expenses General and administrative expenses Other operating income Other operating expenses Operating income 2015/2016 2014/2015 in € millions % of sales in € millions % of sales 1,036.8 480.9 555.9 196.8 182.4 76.4 70.4 57.9 112.8 100.0 46.4 53.6 19.0 17.6 7.4 6.8 5.6 10.9 986.0 453.5 532.5 189.0 174.6 74.8 88.0 68.7 113.4 100.0 46.0 54.0 19.2 17.7 7.6 8.9 7.0 11.5 1.7 Net financial income/expenses 14.8 1.4 16.7 Result of ordinary activities 127.6 12.3 130.1 13.2 Taxes Net income for the year Share of minority interest Net income after minority interest (19) Net sales and function costs By product category in € thousand Certified seed sales Royalties income Basic seed sales Services fee income Other sales 42.3 85.3 0.0 85.3 4.1 8.2 0.0 8.2 46.1 84.0 1.3 82.7 4.7 8.5 0.1 8.4 2015/2016 2014/2015 918,471 877,494 73,006 19,411 3,513 22,373 1,036,774 72,626 14,318 780 20,797 986,015 5. Notes to the Income Statement | Notes for the KWS Group 2015/2016 | Annual Financial Statements 113 KWS Group | Annual Report 2015/2016By region in € thousand Germany Europe (excluding Germany) North and South America Rest of world 2015/2016 2014/2015 223,972 450,817 282,999 78,986 1,036,774 223,885 441,526 254,709 65,895 986,015 For further details of sales, see segment reporting. Sales are The cost of sales increased by 6.0% to €480,864 recognized when the agreed goods or services have been (453,498) thousand, or 46.4% (46.0%) of sales. The total supplied and the risk and title pass to the buyer. Any rebates cost of goods sold was €290,480 (272,836) thousand. or discounts are taken into account. July 1 to June 30 in € thousand Impairment losses Decreases in impairment loss The impairment losses on inventories and the decreases in the impairment loss, which are carried as a reduction in the cost of materials in the period, are as follows for each segment: Total 9,350 6,777 The €7,827 thousand increase in selling expenses to amounted to €182,360 (174.627) thousand. Development €196,818 (188,991) thousand is attributable to the creation costs for new varieties are not recognized as an asset and expansion of distribution structures. This is 19.0% of because evidence of future economic benefit can only be net sales, down from 19.2% the year before. provided after the variety has been officially certified. Research and development is recognized as an expense General and administrative expenses increased by in the year it is incurred; in the year under review, this €1,646 thousand to €76,402 thousand, representing 7.4% of sales, after 7.6% the year before. (20) Other operating income July 1 to June 30 in € thousand Income from sales of fixed assets Income from the reversal of provisions Exchange rate gains and gains from currency and interest rate hedges Income from reversal of allowances on receivables Performance-based public grants Income relating to previous periods Income from loss compensation received Miscellaneous other operating income 2015/2016 2014/2015 445 6,748 28,050 4,636 5,924 8,925 132 15,512 70,372 877 6,427 36,640 10,852 4,845 8,227 862 19,230 87,960 The other operating income mainly comprises foreign ex- other operating income. The performance-based govern- change gains and income from interest rate hedges, as well ment grants mainly relate to breeding allowances and farm as income from the reversal of provisions and miscellaneous payments. 114 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 5. Notes to the Income Statement Annual Report 2015/2016 | KWS Group(21) Other operating expenses July 1 to June 30 in € thousand Legal form expenses Allowances on receivables Counterparty default Exchange rate losses and losses on currency and interest rate hedges Losses from sales of fixed assets Expenses relating to previous periods Expense from remeasurement of intangible assets Other expenses 2015/2016 2014/2015 944 8,263 3,293 28,986 1,294 1,741 239 13,178 57,938 1,712 8,478 8 44,304 717 1,199 238 12,030 68,686 In the year under review, allowances for receivables €7,244 (2,591) thousand at the Sugarbeet Segment and and counterparty defaults of €4,132 (5,644) thousand €180 (251) thousand at the Cereals Segment. were recognized as an expense at the Corn Segment, (22) Net financial income/expenses July 1 to June 30 in € thousand Interest income Interest expenses Income from other financial assets Write-down on securities Interest effects from pension provisions Interest expense for other long-term provisions Financial lease interest expense Interest result Result from equity-accounted financial assets Income from equity investments Gain from revaluation of the existing shares in SOCIETE DE MARTINVAL S.A. Net income from equity investments Net financial income/expenses 2015/2016 2014/2015 2,618 11,679 44 0 2,547 114 7 –11,685 26,466 3 0 26,469 14,784 1,480 9,709 141 9 2,518 158 7 –10,780 23,747 0 3,722 27,469 16,689 Net income from equity investments fell year on year by result of €–11,685 (–10,780) thousand, net financial €1,000 thousand. Income from equity-accounted financial income/expenses fell by €1,905 thousand to €14,784 assets rose from €23,747 thousand to €26,466 thousand, (16,689) thousand. The interest effects from pension pro- but was not able to fully compensate for the non-recur- visions comprise interest expenses (compounding) and the ring effect from remeasurement of the existing shares in planned income. SOCIETE DE MARTINVAL S.A. Together with an interest 5. Notes to the Income Statement | Notes for the KWS Group 2015/2016 | Annual Financial Statements 115 KWS Group | Annual Report 2015/2016(23) Taxes Income tax expense is computed as follows: Income tax expenses in € thousand Actual income taxes In Germany Abroad Thereof from previous years Deferred taxes In Germany Abroad Income taxes 2015/2016 2014/2015 40,803 4,666 36,137 –267 1,468 2,831 –1,363 42,271 51,954 15,723 36,231 294 –5,896 –634 –5,262 46,058 KWS pays tax in Germany at a rate of 29.1%. Corporate in- German Group companies carried these claims as assets come tax of 15.0% (15.0%) and solidarity tax of 5.5% (5.5%) at their present value totaling €2,470 (3,706) thousand at are applied uniformly to distributed and retained profits. In June 30, 2016. A total of €1,236 (1,235) thousand was re- addition, trade tax is payable on profits generated in Germa- covered in the year under review and recognized directly in ny. Trade income tax is applied at a weighted average rate of equity. 13.3% (13.3%), resulting in a total tax rate of 29.1% (29.1%). The profits generated by Group companies outside Ger- The “Law on Tax Measures Accompanying Introduction many are taxed at the rates applicable in the country in of the Societas Europaea and Amending Further Tax which they are based. The tax rates in foreign countries vary Regulations” (SEStEG), which was passed at the end of between 10.0% (10.0%) and 39.0% (39.0%). 2006, means that the corporate income tax credit bal- ance at December 31, 2006, can be realized. It will be paid The deferred taxes that are recognized relate to the follow- out in ten equal annual amounts from 2008 to 2017. The ing balance sheet items and tax loss carryforwards: Deferred taxes in € thousand Intangible assets Property, plant and equipment Financial assets Inventories Current assets Noncurrent liabilities of which pension provisions Current liabilities Deferred taxes recognized (gross) Tax loss carryforward Consolidations Setting off Deferred taxes recognized (net) Deferred tax assets Deferred tax liabilities 2015/2016 2014/2015 2015/2016 2014/2015 786 612 1,738 8,122 1,618 27,549 (22,734) 14,463 54,888 5,588 1,249 –20,686 41,039 273 515 1,655 9,645 4,760 18,145 (15,754) 11,547 46,540 6,660 1,119 –18,409 35,910 5,957 17,703 0 1,013 4,026 1,420 (11) 3 8,118 15,375 1 187 3,363 954 (92) 87 30,122 28,085 0 11 0 10 –20,686 –18,409 9,447 9,686 There is a deferred tax expense of €1,616 (1,308) thousand from the allowance for deferred taxes on tax loss carryfor- No deferred taxes were formed for tax loss carryforwards wards and temporary differences in the year under review. totaling €24,987 (13,595) thousand that have not yet been The write-up of deferred taxes results in deferred tax utilized. Of these, €4,627 (5,266) thousand must be utilized income of €95 (0) thousand. within a period of 5 years and €5,715 (0) thousand within a 116 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 5. Notes to the Income Statement Annual Report 2015/2016 | KWS Group period of nine years. Low carryforwards totaling €14,645 assumed that the companies in question will post taxable (8,330) thousand can be utilized without any time limit. profits in the future. The fact is taken into account here that the KWS Group may realize income with a delay due to the No deferred taxes were formed for deductible temporary long-term nature of research and development spending. differences totaling €543 (1,540) thousand. The reconciliation of the expected income tax expense to Temporary differences of €120,336 thousand are connected the reported income tax expense is derived on the basis of to shares in subsidiaries for which no deferred tax liabilities the consolidated income before taxes and the nominal tax are formed pursuant to IAS 12.39. rate for the Group of 29.1% (29.1%), taking into account the In the year under review, there were surpluses of deferred tation in the tax reconciliation has been changed and the tax assets from temporary differences and loss carryfor- previous year’s figures have been adjusted accordingly. wards totaling €30,677 (13,864) thousand at Group com- panies that made losses in the past period or the previous Other taxes, primarily real estate tax, are allocated to the period. These were considered recoverable, since it is relevant functions. following effects. In order to improve clarity, the presen- Reconciliation of income taxes in € thousand Earnings before income taxes Expected income tax expense1 Reconciliation with the reported income tax expense Differences from the Group`s tax rate Effects of changes in the tax rate Tax effects from: Expenses not deductible for tax purposes and other additions tax-free income other permanent deviations Reassessment of the recognition and measurement of deferred tax assets Tax credits Taxes relating to previous years Other effects Reported income tax expense Effective tax rate 1 Tax rate in Germany: 29.1% 2015/2016 2014/2015 127,548 37,148 11,709 –393 4,255 –13,155 –330 3,567 –245 –2,385 2,100 42,271 33.1% 130,106 37,861 4,228 0 6,654 –5,573 –778 3,646 –313 –79 412 46,058 35.4% (24) Personnel costs/employees Personnel costs went up by €15,310 thousand to July 1 to June 30 in € thousand Wages and salaries Social security contributions, expenses for pension plans and benefits 2015/2016 2014/2015 188,170 176,088 44,013 40,785 232,183 216,873 €232,183 thousand, an increase of 7.1%. The number of employees increased by 152 to 4,843, or by 3.2%. Compensation increased by 6.9% from €176,088 thousand in the previous year to €188,170 thousand. Social security contributions, expenses for pension plans and benefits were €3,228 thousand higher than in the previous year. 5. Notes to the Income Statement | Notes for the KWS Group 2015/2016 | Annual Financial Statements 117 KWS Group | Annual Report 2015/2016Employees1 Germany Europe (excluding Germany) North and South America Rest of world Total 1 Annual average 2015/2016 2014/2015 1,908 1,449 1,280 206 4,843 1,868 1,401 1,234 188 4,691 Long­term incentive (LTI) The stock-based compensation plans awarded at the KWS Group are recognized in accordance with IFRS 2 “Share-based Payment.” The incentive program, which was launched in fiscal 2009/2010, involves stock-based payment transactions with cash compensation, which are measured at fair value at every balance sheet date. Members of the Executive Board are obligated to acquire shares in KWS SAAT SE every year in a freely select- able amount ranging between 20% and 50% of the gross With our joint ventures, associated company and joint oper- performance-related bonus. Along with that, all members ation consolidated proportionately, the number of employ- of the second management level can likewise take part ees was 5,472 (5,322). The reported number of employees is in an LTI program. As part of this program, they are obli- greatly influenced by seasonal labor. gated to invest in shares in KWS SAAT SE every year in a (25) Share­based payment Employee Share Program freely selectable amount ranging between 10% and 40% of the gross performance-related bonus. The members of the Executive Board and the second management level may sell these shares at the earliest after a regular holding KWS has established a share program for employees. All period of five years beginning at the time they are acquired employees who have been with the company for at least one (end of the quarter in which the shares were acquired). The year without interruption and have a permanent employment entitled persons are paid a long-term incentive (LTI) in the relationship that has not been terminated at a KWS Group form of cash compensation after the holding period for company that participates in the program are eligible to take the tranche in question. Its level is calculated on the basis part. That also includes employees who are on maternity of KWS SAAT SE’s share performance and on the KWS leave or parental leave or who are in semi-retirement. Group’s return on sales (ROS), measured as the ratio of operating income to net sales, over the holding period. For Each employee can acquire up to 500 shares. A bonus of persons with contracts as of July 1, 2014, the cash compen- 20% is deducted from the purchase price, which depends sation for members of the Executive Board is a maximum on the price applicable on the key date. The shares are sub- of one-and-half times (for the Chief Executive Officer two ject to a lock-up period of four years beginning when they times), and for members of the second management level a are posted to the employee’s securities account. The right maximum of two times their own investment (LTI cap). The to a dividend, if KWS SAAT SE pays one out, exists during costs of this compensation are recognized in the income the lock-up period. Holders can also exercise their right to statement over the period and were €510 (1,044) thou- participate in the Annual Shareholders’ Meeting during the sand in the period under review. The provision for it at lock-up period. They can dispose freely of the shares after June 30, 2016, was €2,680 (2,170) thousand. The LTI fair the lock-up period. values are calculated by an external expert. A total of 7,541 (9,878) shares were repurchased for the Em- (26) Net income for the year ployee Share Program at a total price of €1,952 (2,684) thou- The KWS Group’s net income for the year was €85,277 sand in the year under review. The total cost for issuing (84,048) thousand on operating income of €112,764 shares at a reduced price was €311 thousand in the past (113,417) thousand and net financial income/expenses of fiscal year (previous year: €566 thousand). €14,784 (16,689) thousand. The return on sales fell slightly to 8.2% (8.5%). Net income for the year after minority interest was €85,261 (82,712) thousand. Earnings per share in the year under review were €12.92 (12.53). 118 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 5. Notes to the Income Statement Annual Report 2015/2016 | KWS Group6. Notes to the Cash Flow Statement The cash flow statement, which has been prepared accord- (3) Net cash from financing activities ing to IAS 7, shows the changes in cash and cash equiva- Financing activities resulted in cash proceeds of lents of the KWS Group in the three categories of operating €21,385 thousand (previous year: cash proceeds of activities, investing activities and financing activities. The €48,398 thousand). The dividend payments to parent share- effects of exchange rate changes and changes in the con- holders and other shareholders comprise the dividends solidated group have been eliminated from the respective of €19,800 (19,800) thousand paid to the shareholders of balance sheet items, except those affecting cash and cash KWS SAAT SE, as well as acquisition of the minority interest equivalents. (1) Net cash from operating activities in Brazil of €27,086 thousand. In addition, net borrowings totaling €68,600 (68,198) thousand were raised. The cash proceeds from operating activities are substan- (4) Supplementary information on the tially determined by cash earnings. In the year under review cash flow statement they were €107,297 (92,063) thousand. The proportion of Of the changes in cash and cash equivalents caused by cash earnings included in sales was 10.3% (9.3%). Lower exchange rate, consolidated group and measurement working capital tie-up and higher liabilities meant that there changes, a total of € –1,161 (6,879) thousand results from were net cash proceeds of €26,973 thousand. The cash exchange rate-related adjustments. proceeds from operating activities also include interest income of €2,609 (1,479) thousand and interest expense of As in previous years, cash and cash equivalents are com- €7,871 (6,843) thousand. Income tax payments amounted posed of cash (on hand and balances with banks) and to €46,916 (69,967) thousand. The dividends received from current available-for-sale securities. the joint ventures are also carried here and total €25,682 (12,157) thousand. (2) Net cash from investing activities A net total of €92,174 (123,761) thousand was required to finance investing activities. An amount of €97,444 (86,576) thousand was paid for intangible and tangible assets and an amount of €266 (7,535) thousand for financial assets. Some €25,262 thousand was paid out to obtain the trait licensing agreements. There were total cash receipts of €1,536 (2,077) thousand for disposals of assets. There were cash receipts of €4,000 thousand from the disposal of busi- ness units. A total of €31,727 thousand was paid to acquire shares in consolidated companies and other business units in the previous year. 6. Notes to the Cash Flow Statement | Notes for the KWS Group 2015/2016 | Annual Financial Statements 119 KWS Group | Annual Report 2015/20167. Other Notes Proposal for the appropriation of net retained profits Shareholdings of members of the Supervisory Board KWS SAAT SE posted operating income of €18,149 thou- and the Executive Board (as of September 27, 2016) sand compared with €–23,242 thousand for the previ- Dr. Arend Oetker indirectly holds a total of 1,694,587 ous year. Allowing for net financial income/expenses (1,650,010) shares and Dr. Andreas J. Büchting 108,030 of €17,991 (45,017) thousand and an extraordinary in- (108,030) shares in KWS SAAT SE. The members of the Su- come of €67,617 (0) thousand resulting from the merger pervisory Board hold a total of 1,803,317 (1,758,735) shares with KWS MAIS GMBH as well as income taxes to- in KWS SAAT SE. taling €3,032 (2,108) thousand, net income in accor- dance with the German commercial law regulations was All together, the members of the Executive Board hold €100,725 (19,667) thousand. Adding the net profit of 16,107 (14,445) shares in KWS SAAT SE. €66 (199) thousand brought forward from the previous year, a net retained profit of €100,791 thousand is available for Related party disclosures distribution. Transactions with related parties in accordance with IAS 24 are all business dealings that are conducted with the report- A proposal will be made to the Annual Shareholders’ Meet- ing entity by entities or natural persons or their close family ing that, of KWS SAAT SE’s net retained profit, an amount members, if the party or person in question controls the of €80,950 thousand should be allocated to the revenue reporting entity or is a member of its key management per- reserves and €19,800 thousand should be distributed as a sonnel, for example. There were no business transactions dividend of €3.00 (3.00) for each of the 6,600,000 shares. or legal transactions that required reporting for this group The balance of €41 (66) thousand is to be carried forward to KWS procures goods and services worldwide from a large of persons in fiscal 2015/2016. As part of its operations, the new account. number of business partners. They also include companies in which KWS has an interest and on which representa- Total remuneration of the Supervisory Board tives of KWS’ Supervisory Board exert a significant influ- and Executive Board and of former members of ence. Business dealings with these companies are always the Super visory Board and Executive Board of conducted on an arm’s-length basis and are not material KWS SAAT SE in terms of volume. As part of Group financing, short- and The compensation of the members of the Superviso- medium-term term loans are taken out from, and granted to, ry Board consists of a fixed and a variable component, subsidiaries at market interest rates. The compensation that with the variable component being limited to the level has to be disclosed in accordance with IAS 24 for manage- of the fixed compensation. As in the previous year, the ment in key positions at the Group comprises remuneration total compensation for members of Supervisory Board for the active Executive Board and the Supervisory Board. amounts to €516 (516) thousand, excluding value-added It is presented in the Group Management Report. No other tax. Some €238 (238) thousand of the total compensation is related parties have been identified for whom there is a spe- performance-related. cial reporting requirement under IAS 24. In fiscal year 2015/2016, total Executive Board compen- Disclosure sation amounted to €3,531 (3,803) thousand. The variable The following subsidiaries with the legal form of a corpo- compensation, which is calculated on the basis of the net ration within the meaning of Section 264 (3) of the German profit for the period of the KWS Group, is made up of a Commercial Code (HGB) have utilized the exemption pro- bonus and a long-term incentive. The bonus totals €1,602 vided in Section 264 (3) of the German Commercial Code (1,779) thousand; there are contributions from the long-term (HGB) as regards preparation of financial statements and incentive tranche for 2014/2015 totaling €558 thousand publication: (tranche for 2013/2014: €670 thousand). Compensation of former members of the Executive Board ■■ KWS Landwirtschaft GmbH, Einbeck ■■ KWS LOCHOW GmbH, Bergen and their surviving dependents amounted to €1,334 (1,693) thousand. Pension provisions recognized for this group of persons amounted to €8,027 (7,131) thousand as of June 30, 2016, before being netted off with the relevant planned assets. 120 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 7. Other Notes Annual Report 2015/2016 | KWS GroupRelated parties in € thousand Unconsolidated subsidiaries Equity-accounted joint ventures Joint operation Other related parties Deliveries and services provided Received deliveries and services Receivables Payables 2015/2016 2014/2015 2015/2016 2014/2015 06/30/2016 06/30/2015 06/30/2016 06/30/2015 0 0 0 0 330 0 4,891 1,862 0 6,196 1,691 0 16,319 15,205 17,323 6,394 6,925 132 6,812 132 439 0 0 0 0 0 0 0 0 22 1,086 0 Audit of the annual financial statements Declaration of compliance with the On December 17, 2015, the Annual Shareholders’ Meeting German Corporate Governance Code of KWS SAAT SE elected the accounting firm Deloitte KWS SAAT SE has issued the declaration of compliance GmbH, Hanover, to be the Group’s auditors for fiscal year with the German Corporate Governance Code required by 2015/2016. Fee paid to the external auditors under Section 314 (1) No. 9 of the HGB Section 161 Aktiengesetz (AktG – German Stock Corpora- tion Act) and made it accessible to its shareholders on the company’s home page at www.kws.com/ir. in € thousand 2015/2016 2014/2015 a) Audit of the consolidated financial statements b) Other certification services c) Tax consulting d) Other services Total fee paid 674 0 0 109 783 741 2 0 52 795 For fiscal year 2016/2017, fees for consulting services (excluding auditing) of up to €75 thousand are expected. 7. Other Notes | Notes for the KWS Group 2015/2016 | Annual Financial Statements 121 KWS Group | Annual Report 2015/2016Boards of the Company Supervisory Board Members Dr. Drs. h. c. Andreas J. Büchting Einbeck Agricultural Biologist Chairman of the Supervisory Board of KWS SAAT SE Dr. Arend Oetker Berlin Businessman Managing Partner of Kommanditgesellschaft Dr. Arend Oetker Vermögensverwaltungsgesellschaft mbH & Co., Berlin Deputy Chairman of the Supervisory Board of KWS SAAT SE Hubertus von Baumbach Ingelheim am Rhein Businessman Chairman of the Board of Managing Directors of C. H. Boehringer Sohn AG & Co. KG, Ingelheim am Rhein Jürgen Bolduan Einbeck Seed Breeding Employee Chairman of the Central Works Council of KWS SAAT SE Cathrina Claas­Mühlhäuser Frankfurt am Main Businesswoman Chairwoman of the Supervisory Board of CLAAS KGaA mbH, Harsewinkel Dr. Berthold Niehoff Einbeck Agricultural Scientist Employee Representative Mandates Membership of comparable German and foreign oversight boards: ■■ Member of the Board of Directors of Ball Horticultural Company, West Chicago, Illinois (U.S.) 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 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) Supervisory Board Committees Committee Audit Committee Chairman Hubertus von Baumbach Committee for Executive Board Affairs Nominating Committee Andreas J. Büchting Andreas J. Büchting Members Andreas J. Büchting Jürgen Bolduan Arend Oetker Cathrina Claas-Mühlhäuser Arend Oetker Cathrina Claas-Mühlhäuser 122 Annual Financial Statements | Notes for the KWS Group 2015/2016 | 7. Other Notes Annual Report 2015/2016 | KWS GroupMandates Membership of comparable German and foreign oversight boards: ■■ Hero AG, Lenzburg, CH (Member of the Board of Administration) Executive Board Members Dr. Hagen Duenbostel Einbeck Chief Executive Officer Corn, Corporate Development and Communication, Corporate Compliance Dr. Léon Broers Einbeck Research and Breeding Dr. Peter Hofmann Einbeck Sugarbeet, Cereals, Marketing Eva Kienle Göttingen Finance, Controlling, Global Services, IT, Legal, Human Resources 8. Declaration by Legal Representatives We declare to the best of our knowledge that the consoli- dated financial statements give a true and fair view of the assets, financial position and earnings of the Group in com- pliance with the generally accepted standards of consolidat- ed accounting, and that an accurate picture of the course of business, including business results, and the Group’s situ- ation is conveyed by the Group Management Report, which is combined with the Management Report of KWS SAAT SE, and that it describes the main opportunities and risks of the Group’s anticipated development. Einbeck, September 27, 2016 KWS SAAT SE THE EXECUTIVE BOARD H. Duenbostel L. Broers E. Kienle P. Hofmann 8. Declaration by Legal Representatives | Notes for the KWS Group 2015/2016 | Annual Financial Statements 123 KWS Group | Annual Report 2015/2016 Auditors’ Report We have audited the annual financial statements of the the basis of test samples within the framework of the audit. KWS Group – consisting of the balance sheet, the state- The audit includes the assessment of the annual financial ment of comprehensive income, the notes, the cash flow statements of the companies included in the consolidated statement, segment reporting and the statement of changes financial statements, the definition of the companies con- in equity – and the Combined Group Management Report solidated, the accounting and consolidation principles used for the fiscal year from July 1, 2015, to June 30, 2016, all of and any significant estimates made by the Executive Board, which were prepared by KWS SAAT SE, Einbeck. The prepa- as well as the evaluation of the overall presentation of the ration of the consolidated financial statements and the Group consolidated financial statements and the Group Manage- Management Report according to the International Financial ment Report. We believe that our audit provides a reason- Reporting Standards (IFRS) as applicable in the EU, and in able basis for our opinion. addition according to the commercial law regulations to be applied pursuant to Section 315a (1) HGB (German Com- On the basis of our audit, we have no reservations to note. mercial Code), is the responsibility of the Executive Board of the company. Our task is to give, on the basis of the audit In our opinion, pursuant to the findings gained during the au- we have conducted, an opinion on the consolidated financial dit, the consolidated financial statements of KWS SAAT SE, statements and the Group Management Report. Einbeck, comply with the IFRS as applicable in the EU, and in addition with the commercial law regulations to be applied We conducted our audit of the annual financial statements pursuant to Section 315a (1) HGB, and give a true and fair in accordance with Section 317 HGB and the generally view of the assets, financial position and earnings of the accepted standards for the audit of financial statements Group, taking into account these regulations. The Group promulgated by Institut der Wirtschaftsprüfer (the German Management Report accords with the consolidated financial Institute of Certified Public Accountants). According to these statements, conveys overall an accurate view of the Group’s standards, the audit must be planned and executed in such position and accurately presents the opportunities and risks a way that misstatements and violations materially affecting of future development. the presentation of the view of the assets, financial position and earnings conveyed by the consolidated financial state- Hanover, September 27, 2016 ments, taking into account the applicable regulations on orderly accounting, and by the Group Management Report Deloitte GmbH are detected with reasonable certainty. Knowledge of the Wirtschaftsprüfungsgesellschaft 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 financial statements and (Kompenhans) the Group Management Report are evaluated mainly on Auditor (Römgens) Auditor 124 Annual Financial Statements | Notes for the KWS Group 2015/2016 | Auditors’ Report Annual Report 2015/2016 | KWS Group Report on the 1st quarter of 2016/2017 Annual Shareholders’ Meeting in Einbeck Report on the 2nd quarter of 2016/2017 Report on the 3rd quarter of 2016/2017 Publication of 2016/2017 financial statements, annual press and analyst conference in Frankfurt Report on the 1st quarter of 2017/2018 Annual Shareholders’ Meeting 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 6,600,000 Financial calendar Date November 24, 2016 December 15, 2016 March 7, 2017 May 23, 2017 October 26, 2017 November 23, 2017 December 14, 2017 KWS share Key data of KWS SAAT SE Securities identification number ISIN Stock exchange identifier Transparency level Index Share class Number of shares Address Grimsehlstrasse 31 P.O. Box 1463 37555 Einbeck Germany Contact Phone +49 (0)5561 311 0 Fax +49 (0)5561 311 322 info@kws.com www.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: Uwe Aufderheide ■ Hollis Bennett ■ Dirk-Andre Betz ■ Eberhard Franke ■ Frank Stefan Kimmel ■ Landpixel ■ Julia Lormis ■ Dominik Obertreis ■■Spieker Fotografie ■■KWS Group archive KWS SAAT SE Grimsehlstrasse 31 P.O. Box 1463 37555 Einbeck/Germany www.kws.com 

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