KWS Group
Annual Report 2016

Plain-text annual report

7 1 0 2 | 6 1 0 2 t r o p e R l a u n n A Annual Report 2016 | 2017 KWS in Figures The KWS Group (in € millions) Net sales and income Net sales EBIT as a % of net sales (EBIT margin) Net financial income/expenses Net income for the year Additional key figures on earnings R&D intensity in % 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 in € Dividend per share in € 5 Segments (in € millions) 2016/2017 2015/2016 2014/2015 2013/2014 1,075.2 131.6 1,036.8 112.8 12.2 16.6 97.7 17.7 63.3 49.4 836.9 56.0 13.1 7.3 48.5 10.9 14.8 85.3 17.6 99.6 48.2 767.9 53.5 11.9 7.0 87.9 1,495.2 1,436.6 990.1 13.3 122.4 4,937 247.0 14.78 3.20 906.9 12.4 125.9 4,843 232.2 12.92 3.00 986.0 113.4 11.5 16.7 84.0 923.5 118.3 12.8 7.5 80.3 17.7 16.2 132.5 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 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 +3.8% 825 795 +3.4% 440 455 –8.5% 64 58 +27.2% –7.4% 119 151 118 109 +14.4% 9 10 Net sales EBIT Net sales EBIT Net sales EBIT +17.1% 4 5 Net sales –21.0% EBIT –50 –61 2015/2016 2016/2017 Reconciliation (in € millions) Net sales EBIT Segments Reconciliation KWS Group 1,394.0 158.8 –318.8 –27.2 1,075.2 131.6 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. 5 The dividend for 2016/2017 is subject to the consent of the 2017 Annual Shareholders´ Meeting. l s r e d o h e r a h S r u o o T Contents 2 To our Shareholders 2 5 14 16 20 Foreword of the Executive Board Report of the Supervisory Board The KWS Share Corporate Sustainability Spotlight Topic 23 Combined Management Report 24 34 39 53 60 64 74 Fundamentals of the KWS Group Employees Economic Report Opportunity and Risk Report Forecast Report Corporate Governance KWS SAAT SE (Explanations in Accordance with HGB) 77 Annual Financial Statements Léon Broers Research and Breeding Eva Kienle Finance, Controlling, Global Services, IT, Legal, Human Resources Hagen Duenbostel (CEO) Corn, Corporate Development and Communications, Compliance Peter Hofmann Sugarbeet, Cereals, Marketing 2 To our Shareholders | Foreword of the Executive Board Annual Report 2016/2017 | KWS GroupTo our Share- holders Foreword of the Executive Board The good harvests worldwide, high inventories of agricultural raw materials and low consumer prices below the average of the past decade were the main factors that shaped the continued muted trend in the agricultural sector. Returns on investment in the entire industry remain under pressure in view of these fundamentals. The net income earned by farmers in North America this year is likely to be the second-lowest in the past seven years, following 2016. The picture is similar in Germany and other markets. With costs on the rise, farmers in just about all cultivation regions world- wide face low liquidity. They are forced to save on operating resources and are investing far less than they did a few years ago. At the same time, consum- er expectations now pose diverse challenges for the agricultural industry. Transparency and safety in pro- duction, reduced use of limited resources, protection of the environment, and new products for modern nutrition to suit every lifestyle are demanded by everyone and keep the pressure on costs high. Foreword of the Executive Board | To our Shareholders 3 KWS Group | Annual Report 2016/2017Looking ahead, no significant easing of the situation investing in innovations and steadily increasing our in the industry can be expected in the short term. spending on breeding, so as to create value added The UN and the OECD anticipate that growth in for farmers. Together with our expert consulting and global demand for food will weaken by the middle great commitment, we aim to create trust through of the next decade. The growth drivers of the past our joint success and to be partners for farmers. In – rising demand for meat from emerging and devel- doing so, KWS is, and will remain, an independent oping countries, or growth in the global bioenergy family business. sector – will no longer have the same impact as they did in previous years. At the same time, crop yields The fact that KWS has so many good things to will increase and keep the level of supply high. As far present in this Annual Report is owed to the pas- as can be seen at present, the future prices of agri- sion and responsible, thoughtful actions of our now cultural raw materials will therefore not exhibit any almost 5,000 employees worldwide and to their significant upward movement and – despite a high constant professional dedication. And so our deep degree of volatility – will stagnate at the current level. and heartfelt thanks go out to all of them, as well as to our partners and shareholders. These market conditions are making it tough for the agricultural sector to keep up the growth rates of Given its current business performance and on past years. Consolidation projects in the pesticide the basis of a medium- and long-term analysis of and seed industry are largely aimed at strengthening opportunities and risks, KWS continues to look to the the business models in this arena by creating broad, future with optimism. Successes – like failures – are integrated product portfolios. In KWS’ view, how- ideal springboards for further necessary efforts to ever, creating economic strength through integra- grow our position as a global breeding company in tion does not offer an adequate solution to current our various markets. challenges on its own. Farmers will continue to use their freedom of choice to select the best operating I hope this Annual Report proves an informative and resources from a range of different, independent stimulating read. With best regards from Einbeck on vendors – because every vendor has its own individ- behalf of the entire Executive Board. ual strengths and its own specialized products. For generations, KWS has successfully developed tailored, state-of-the-art plant varieties, thereby Dr. Hagen Duenbostel creating the foundation for its organic growth in the Chief Executive Officer past 160 years. And with every new plant generation, breeders aim to improve a product further. New va- rieties that offer rising yields, resistance to diseases and pests, or lower consumption of limited resources such as water, fertilizer or pesticides are already in practical use or are achievable breeding objectives for even more sustainable agriculture. KWS’ goal is to provide farmers with specialized varieties and thus offer them very specific ways of increasing their yields and cutting costs – even under difficult market conditions. Our response to the current situation in the agricultural sector is therefore – largely without regard to economic developments – to keep on 4 To our Shareholders | Foreword of the Executive Board Annual Report 2016/2017 | KWS GroupReport of the Supervisory Board The past fiscal year was characterized by growing in compliance with the bylaws for the Executive volatility in agricultural markets, changing regulatory Board. The company’s business policy, corporate conditions, and increasing consolidation in the and financial planning, profitability and situation, the indus try. While the discontinuation of the European general development of the various businesses, mar- Sugar Market Regime stimulated our sugarbeet seed ket trends and the competitive environment, research business, the continuing low prices of agricultural and breeding and, along with important individual raw materials weighed on our Corn and Cereals Seg- projects, risk management at the KWS Group were ments. At the same time, the company had to decide the subject of detailed discussions. The Chairman whether to complement its largely organic growth by of the Supervisory Board continued the bilateral dis- means of selective acquisitions. Investments to en- cussions with the Chief Executive Officer and individ- able future growth were adopted and organizational ual members of the Executive Board in regular talks changes to the KWS Group initiated in the year under outside the meetings of the Supervisory Board. In review. All in all, KWS believes it is well positioned to addition, there were monthly meetings between the address future trends as a result. Chairman of the Supervisory Board and the Execu- tive Board as a whole, where the company’s current The Supervisory Board discharged the duties incum- business development and, in particular, its strategy, bent on it in accordance with the law, the company’s occurrences of special importance and individual Articles of Association and the bylaws, regularly aspects were dealt with. The Chairman of the Super- advised and monitored the Executive Board in its visory Board informed the Supervisory Board of the activities and satisfied itself that the company was results of these meetings. The Supervisory Board run properly and in compliance with the law and that did not make use of its right to conduct an examina- it was organized efficiently and cost-effectively. The tion granted by Section 111 (2) AktG (German Stock Supervisory Board decided on all significant busi- Corporation Act) since the reporting by the Executive ness transactions requiring its consent and carefully Board meant there was no reason to do so. accompanied the Executive Board in all fundamen- tal decisions of importance to the company. The Focal areas of deliberations Supervisory Board discussed the information and The full Supervisory Board held six meetings in assessments that influenced its decisions together fiscal 2016/2017. All members participated in all of with the Executive Board. Both boards continued the meetings, with the exception of the meeting on their constructive and trusted cooperation as in the June 29, 2017, where one member was unable to past. Among other things, this was demonstrated by attend due to illness. the fact that, as is customary, the Supervisory Board was involved in all decisions of vital importance to At the meeting to discuss the financial statements the company at an early stage. The Supervisory on October 24, 2016, the Supervisory Board dealt Board was provided with the necessary informa- with the recommendation by the Audit Committee on tion in written and oral form regularly, promptly and the appointment of a new independent auditor. The comprehensively. This included all key information Supervisory Board endorsed the recommendation on relevant questions of strategy, planning, the busi- by the Audit Committee and decided to propose the ness performance and the situation of the company appointment of Ernst & Young GmbH Wirtschaftsprü- and the KWS Group, including the risk situation, fungsgesellschaft, Hanover, at the 2016 Annual Share- risk management and compliance. Business trans- holders’ Meeting. Examination and approval of the actions requiring consent were submitted to, and financial statements of KWS SAAT SE and the consol- discussed and approved by, the Supervisory Board idated financial statements of the KWS Group were Report of the Supervisory Board | To our Shareholders 5 KWS Group | Annual Report 2016/2017also on that meeting’s agenda. The independent Shareholders’ Meeting on December 14, 2017. How- auditor also conducted the survey of the Super- ever, employee representatives are elected by direct visory Board with the aim of avoiding and identifying vote by all KWS employees in the European Union fraud. The Supervisory Board is not aware of any (EU) in accordance with Sections 12 (a) and 15 et relevant acts. seq. of the Agreement on Employee Involvement at KWS SAAT SE and Section 8.2 of KWS SAAT SE’s The deliberations on December 14 and 15, 2016, fo- Articles of Association. cused on current developments relating to genetically improved traits and new molecular biology methods The Supervisory Board endorsed the recommen- of plant breeding. The progress made in breeding dations by the Nominating Committee at its meeting drought tolerance was also presented. At its meetings on October 25, 2017, and decided to propose on March 23 and June 29, 2017, the Supervisory that the following serving members of the Super- Board discussed the KWS Group’s organizational visory Board be reelected to the Supervisory development and any acquisition opportunities as Board: Dr. Drs. h. c. Andreas J. Büchting, Cathrina part of the process of increasing consolidation in Claas-Mühlhäuser and Dr. Marie Theres Schnell. the industry. As usual, the Supervisory Board adopted the annual planning for fiscal 2017/2018 and the The current Deputy Chairman of the Supervisory medium-term planning in June 2017. Board, Hubertus von Baumbach, had announced that he would not be standing for reelection. Likewise At its meeting on October 25, 2017, the Supervisory on the basis of the recommendation by the Nomi- Board adopted a competence profile for the body nating Committee, the Supervisory Board therefore as a whole on the basis of the proposal by the proposed electing the further candidate Mr. Victor Nominating Committee. W. Balli as a member of the Supervisory Board. Mr. Balli is from Switzerland and has been CFO of Since the members of the Supervisory Board of the world-leading cocoa and chocolate manufac- KWS SAAT SE are appointed for the period of time turer Barry Callebaut AG since 2007. More details up to the end of the Annual Shareholders’ Meeting about him can be found in the Notice of the Annual that ratifies the acts of the Supervisory Board for Shareholders’ Meeting on December 14, 2017. As a the fiscal year 2016/2017, new elections for the financial expert, Victor Balli is to succeed Hubertus shareholder representatives on the Supervisory von Baumbach in his function as Chairman of the Board of KWS SAAT SE are to be held at the Annual Audit Committee. 6 To our Shareholders | Report of the Supervisory Board Annual Report 2016/2017 | KWS GroupAnnual and consolidated financial statements annual financial statements, Combined Management and auditing Report, audit reports by the independent auditors, Ernst & Young GmbH Wirtschaftsprüfungs- corporate governance report, compensation report gesellschaft, Hanover, the independent auditor and the proposal by the Executive Board on the chosen at the Annual Shareholders’ Meeting on appropriation of the profits. The Supervisory Board December 15, 2016, and commissioned by the Audit also held detailed discussions of questions on the Committee, has audited the financial statements of agenda at its meeting to discuss the financial state- KWS SAAT SE that were presented by the Executive ments on October 25, 2017. The auditor took part in Board and prepared in accordance with the provi- the meeting. It reported on the main results of the sions of the German Commercial Code (HGB) for audit and was also available to answer additional fiscal 2016/2017 and the financial statements of the questions and provide further information for the KWS Group (IFRS consolidated financial statements), Supervisory Board. According to the report of the in- as well as the Combined Management Report of dependent auditor, there were no material weaknesses KWS SAAT SE and the KWS Group Manage ment in the internal control and risk management system Report, including the accounting reports, and in relation to the accounting process. There were awarded them its unqualified audit certificate. In also no circumstances that might indicate a lack of addition, the auditor concluded that the audit of the impartiality on the part of the independent auditor. financial statements did not reveal any facts that There are no services additionally provided by the might indicate a misstatement in the declaration of independent auditor as can be seen in the Notes. compliance issued by the Executive Board and the Supervisory Board in accordance with Section 161 In accordance with the final results of its own exami- AktG (German Stock Corporation Act) with respect nation, the Supervisory Board endorsed the results to the “German Commission for the Corporate Gov- of the audit, among other things as a result of the ernance Code” (cf. Clause 7.2.3 (2) of the German preliminary examination by the Audit Committee, Corporate Governance Code). and did not raise any objections. The Supervisory Board gave its consent to the annual financial state- The Supervisory Board received and discussed ments of KWS SAAT SE, which were prepared by the the financial statements of KWS SAAT SE and the Executive Board, and to the consolidated financial consolidated financial statements and Combined statements of the KWS Group, along with the Com- Management Report of KWS SAAT SE and the bined Management Report of KWS SAAT SE and the KWS Group, along with the report by the indepen- KWS Group. The financial statements are thereby dent auditor of KWS SAAT SE and the KWS Group approved. The Supervisory Board also endorses and the proposal on utilization of the net profit for the the proposal by the Executive Board to the Annual year made by KWS SAAT SE, in due time. Compre- Shareholders’ Meeting on the appropriation of the hensive documents and drafts were submitted to the net retained profit of KWS SAAT SE after having members of the Supervisory Board as preparation. examined it. For example, all of them were provided with the Report of the Supervisory Board | To our Shareholders 7 KWS Group | Annual Report 2016/2017Corporate Governance forward candidates for election to the Superviso- The Supervisory Board conducts the efficiency re- ry Board at the Annual Shareholders’ Meeting on view recommended in Clause 5.6 of the German Cor- December 14, 2017. porate Governance Code every two years. The next review is scheduled in fiscal 2017/2018. The Supervisory Board regularly addressed the question of any conflicts of interest on the part of The Supervisory Board discussed compliance with its members and those of the Executive Board. In the recommendations of the “German Commission the year under review, there were no such conflicts for the Corporate Governance Code” and – after the of interests that had to be disclosed immediately to last compliance declaration in October 2016 – issued the Supervisory Board and reported to the Annual a new declaration of compliance with the German Shareholders’ Meeting. Corporate Governance Code in accordance with Section 161 AktG (German Stock Corporation Act) Supervisory Board committees together with the Executive Board in October 2017. It The Audit Committee convened for four joint meet- is reproduced on page 64 of this Annual Report and ings in fiscal 2016/2017. It also held three telephone can also be obtained on the company’s website at conferences – on all occasions with all its members www.kws.com/corporate-governance. As regards in attendance. In its meeting on September 22, 2016, setting a limit on the length of time members can the Audit Committee discussed the annual financial serve on the Supervisory Board of KWS SAAT SE in statements and accounting of KWS SAAT SE and accordance with Clause 5.4.1 of the German Corpo- consolidated financial statements of the KWS Group rate Governance Code, the Supervisory Board stuck for the fiscal year 2015/2016. In addition, this meeting by its decision once more this year to continue not assessed and intensively discussed the offers sub- to comply with these recommendations of the Ger- mitted by a total of nine auditing firms in the tender- man Corporate Governance Code, since they would ing process relating to selection of the independent significantly restrict the rights of a business with a auditor to be proposed to the Annual Shareholders’ tradition of family ownership like KWS, whose family Meeting, which the Audit Committee had conducted share holders hold a majority stake. from March 31, 2016, to September 22, 2016 (among other things at its meeting on August 24, 2016). As a The Supervisory Board otherwise stuck to its tar- result, the Audit Committee recommended that the get composition, as well as to its assessment of Supervisory Board propose that the company Ernst the number of independent members – also taking & Young GmbH Wirtschaftsprüfungsgesellschaft, into account the company’s ownership structure. Hanover, be appointed at the Annual Shareholders’ The Supervisory Board also took into consideration Meeting, and also named an alternative candidate. the competence profile for the body as a whole as The Annual Shareholders’ Meeting on December 15, proposed by the Nominating Committee in putting 2016, endorsed the proposal by the Supervisory Supervisory Board Committees Committee Audit Committee Chairman Hubertus von Baumbach Committee for Executive Affairs Andreas J. Büchting Nominating Committee Andreas J. Büchting Members Andreas J. Büchting Jürgen Bolduan Hubertus von Baumbach Cathrina Claas-Mühlhäuser Marie Theres Schnell Cathrina Claas-Mühlhäuser 8 To our Shareholders | Report of the Supervisory Board Annual Report 2016/2017 | KWS GroupBoard and appointed the company Ernst & Young Super visory Board approve it. The Audit Committee GmbH Wirtschaftsprüfungsgesellschaft, Hanover, also dealt with the results of auditing projects. The as independent auditor of the financial statements audit plan for fiscal 2017/2018 was also discussed of KWS SAAT SE and the consolidated financial and adopted. statements. At its meeting on December 14, 2016, the Audit Committee dealt with the results of the In addition, the Audit Committee obtained the state- follow-up audits and discussed the candidates for ment of independence from the auditor in accor- awarding the new contract for internal auditing. On dance with Clause 7.2.1 of the German Corporate the basis of the criteria defined by the Audit Commit- Governance Code, ascertained and monitored the tee, the Executive Board awarded the commission to auditor’s independence, examined its qualifications Baker Tilly GmbH Wirtschaftsprüfungsgesellschaft, and defined the focal areas of the audit. The Audit Düsseldorf. The Annual Compliance Report, as Committee also satisfied itself that the regulations on well as the new arrangements for the audit opinion internal rotation were observed by the independent and audit report, were on the agenda of the meet- auditor and dealt with the services rendered addi- ing of the Audit Committee on March 23, 2017. The tionally by the independent auditor. quarterly reports and the semiannual report for fiscal 2016/2017 were discussed in detail in three In addition, the Audit Committee in its meetings dealt telephone conferences and their publication was with preparing the resolution on the appointment of approved. the independent auditor for fiscal year 2017/2018 to be proposed to the Annual Shareholders’ Meeting on The Audit Committee convened on September 27, December 14, 2017. 2017, to discuss the current annual financial state- ments of KWS SAAT SE and KWS’ consolidated The Nominating Committee dealt with the candi- financial statements and accounting. The inde- dates to stand as shareholder representatives in the pendent auditor for fiscal 2016/2017 explained the new elections to the Supervisory Board at the Annual results of its audit of the 2016/2017 financial state- Shareholders’ Meeting on December 14, 2017, and ments and pointed out that there were no grounds for proposed that the following serving members of the assuming a lack of impartiality on the part of the inde- Supervisory Board be reelected: Dr. Drs. h.c. Andreas pendent auditor in its audit. The Audit Committee J. Büchting, Ms. Cathrina Claas-Mühlhäuser and also dealt with the proposal by the Executive Dr. Marie Theres Schnell; in addition, Mr. Victor W. Balli Board on the a ppropriation of the net retained was proposed as a member to be elected to the profit of KWS SAAT SE and recommended that the Supervisory Board for the first time. Report of the Supervisory Board | To our Shareholders 9 KWS Group | Annual Report 2016/2017The committee satisfied itself that all the candidates Change on the Supervisory Board during also had the time expected for them to discharge fiscal 2016/2017 their duties on the board. Moreover, the Nominating Dr. Arend Oetker resigned as a member of the Super- Committee took into account the Supervisory visory Board of KWS SAAT SE effective the end of the Board’s target composition and the competence Annual Shareholders’ Meeting on December 15, 2016; profile for the body as a whole in proposing candi- the Annual Shareholders’ Meeting on December 15, dates. The aspect of diversity should be taken into 2016, then appointed Dr. Marie Theres Schnell as a account in filling posts on the Supervisory Board. member of the Supervisory Board of KWS SAAT SE. In this context, the Supervisory Board decided in accordance with Section 111 (5) AktG (German The departure of Arend Oetker marked the end of Stock Corporation Act) that the ratio of female share- an era that was of outstanding importance for KWS’ holder representatives on the Supervisory Board development. Arend Oetker, a family business own- of KWS SAAT SE should not be less than 25% by er with a long-term approach, took over his equity June 30, 2017. The Supervisory Board stuck to this stake in KWS in 1994. In a pool with the shareholder objective. In the future as well (with a deadline of family Büchting, this formed a felicitous partnership June 30, 2022), the percentage of women and that of between the two families that has shaped KWS’ for- men among the shareholders is to be at least 25% tunes and guaranteed the company’s independence. each. On the other hand, the Supervisory Board is In January 1995, the Annual Shareholders’ Meeting not charged with setting such targets for the employee elected Dr. Arend Oetker to the Supervisory Board, representatives. The regulations for the election of on which he held the post of Deputy Chairman for employee representatives to the Supervisory Board 17 years. In that function, he made a major contribution do not contain target or minimum percentages for to defining the company’s strategic direction and in the proportions of women and men. This objective making influential decisions. With him as a partner, was also taken into account in proposing candidates KWS was not only able to preserve its independence for the new elections to the Supervisory Board to the in the face of considerable resistance, but also made Annual Shareholders’ Meeting on December 14, 2017. significant advances in diversification. As part of naming suitable candidates for the Super- visory Board to propose as members to the Annual That is especially true as regards expansion and inter- Shareholders’ Meeting, the Nominating Committee nationalization of the Corn Segment. Arend Oetker not examined all the candidates and determined that only played a part in shaping the company’s develop- they were all very well qualified to hold a position on ment, but also helped fund it. After all, the necessary the Supervisory Board. up-front investments for successfully establishing the Corn Segment were possible only thanks to a cautious For the first time since KWS SAAT AG was converted dividend policy. In recognition of his great services to into KWS SAAT SE, the employee representatives our company, the Supervisory Board made him an on the Supervisory Board were elected by all KWS honorary member on December 15, 2016. On behalf employees in the European Union. In accordance of all shareholders, we would like to express our with Part III Section 12 (a) of the Agreement on great thanks for his trust in our common enterprise, Employee Involvement at KWS SAAT SE, employees for his commitment, his energy and, not least, his in Germany stood for election for the second period entrepreneurial vision on our board. of office of the Supervisory Board of KWS SAAT SE in accordance with the Articles of Association. Jürgen Bolduan, the long-term Chair of the Central Works Council of KWS SAAT SE and Christine Coenen, the Chair of the European Employee Committee, were elected to the Supervisory Board. 10 To our Shareholders | Report of the Supervisory Board Annual Report 2016/2017 | KWS GroupAndreas J. Büchting, Chairman of the Supervisory Board The Supervisory Board expresses its thanks to the Executive Board and all employees of KWS SAAT SE and its subsidiaries for their great commitment and efforts yet again in helping KWS continue its positive development. Einbeck, October 25, 2017 Dr. Drs. h. c. Andreas J. Büchting Chairman of the Supervisory Board Report of the Supervisory Board | To our Shareholders 11 KWS Group | Annual Report 2016/2017We have been indepen- dent since 1856. And will remain so moving ahead. Our independence. Our continuity. Your success. Doing something everyone can trust. That is independence. KWS stands for long-term, sustainable success. The KWS Share Performance: Higher trading volume, less Other stocks in the industry also performed similarly volatility, 15% increase in share price or better, among other things due to the progress The stock market remained an attractive place to made in consolidation projects by our competitors. invest in the year under review. The new hike in the The DAX and SDAX also performed positively in the base rate by the U.S. Federal Reserve – the last one same period, rising sharply by around 27% and 24%, was to 1.25% on June 14, 2017 – did not put an end respectively. The KWS share’s average daily fluc- to the all-time highs on international stock exchanges, tuation between the highest and lowest price – a especially since the European Central Bank kept its measure of volatility – fell year on year despite a main interest rate at 0%. The DAX surged to a record far higher volume of trading, and was €5.18 (5.62) high of 12,951 points during trading on June 20, 2017. or 1.50% (1.89%) relative to the closing price at The KWS share likewise climbed to an all-time high the end of the year under review. A look at its per- of €375.00 in June 2017, far surpassing the consen- formance over the past five years (July 1, 2012, to sus estimate of equity analysts. Prior to that, we had June 30, 2017) shows that KWS’ share price has in- turned in a very good operating performance in corn creased by 66%, and even by 167% over the past ten seed business in South America and in global sugar- years (July 1, 2007, to June 30, 2017). The SDAX has beet seed business. In December 2016, the share risen by 123% over the past five years and by 66% was listed at a low for the year of €270.00. At the over the past ten years, while the DAX has risen by end of the fiscal year on June 30, 2017, it closed at 90% and 55% in the same periods. €344.45 (297.80)1, around 16% higher year on year. The KWS share’s performance over 10 years 300% 250% 200% 150% 100% 50% 0% +167% +66% +55% July 1, 2007 KWS SDAX DAX June 30, 2017 Listing: KWS remains a firm part of the SDAX three places to 42nd (39th) in terms of trading volume The KWS share continued to climb in the SDAX, over the past twelve months. As a result, it still meets Germany’s index for small caps, in terms of market the criteria for being included in the SDAX. The capitalization on the balance sheet date of June market capitalization for the free float of 30.1% was 30, 2017. It ranked number 14 (18) among the 50 €684 (568) million. companies in the index. However, the share fell 1 If not otherwise specified, the figures in parentheses give the previous year´s figure. 14 To our Shareholders | The KWS Share Annual Report 2016/2017 | KWS Group Shareholder structure at June 30, 2017 Free float 30.1% Tessner Beteiligungs GmbH 15.4% 54.5% Families Büchting, Arend Oetker Employee Stock Purchase Plan: Number of shares 2016/2017 to the Annual Shareholders’ Meeting sold increases by more than 50% on December 14, 2017; €21.1 (19.8) million would For more than 30 years, KWS has offered its em- thus be distributed to KWS SAAT SE’s shareholders. ployees the chance to become a shareholder in the That would correspond to a dividend payout ratio company and thus share in its success and identify of 21.6% (23.2%), once again in line with the KWS more strongly with it. The content of our Employee Group’s earnings- oriented policy of paying a dividend Stock Purchase Plan remained unchanged in the of 20% to 25% of its net income. Key figures for the KWS share (Xetra®) year under review. Our employees were able to buy up to 500 KWS shares at a price of €225.60 (217.60), including a 20% discount, which the individual em- ployees must pay tax on. A total of 435 (395) em- ployees in six (ten) European countries took up this offer and purchased a total of 11,594 (7,541) shares, corresponding to an average stake per employee of 27 (19) shares. The acquired shares are subject to a lock-up period of four years. They cannot be sold, transferred or pledged during this period. As in previous years, the shares used for the Employee ISIN Share class Number of shares Closing price June 30, 2017 June 30, 2016 Stock Purchase Plan were acquired in accordance High and low with Section 71 (1) No. 2 of the German Stock Corporation Act (AktG). A total of €3.4 (1.9) million was used to buy back the company’s own shares, High (June 22, 2017) Low (December 6, 2016) DE0007074007 Individual share certificates 6,600,000 in € 344.45 297.80 in € 375.00 270.00 giving an average purchase price per share of Trading volume (avg.) in shares/day €290.31 (258.85). More details have been published in information released for the capital markets and 2016/2017 2015/2016 can be viewed on our website at www.kws.com/ir. 2,484 2,068 Market capitalization in € millions Planned appropriation of profits: increase in the dividend to €3.20 We continued our earnings-oriented growth in the past fiscal year. The KWS Group increased its net sales and pretax profit. Its net income for the year also rose by 14.5% to €97.7 million. The Executive and Supervisory Boards will therefore propose a divi dend of €3.20 (3.00) for fiscal year June 30, 2017 June 30, 2016 Earnings per share June 30, 2017 June 30, 2016 Volatility (avg.) 2016/2017 2015/2016 2,273 1,965 in € 14.78 12.92 in €/day 5.18 5.62 The KWS Share | To our Shareholders 15 KWS Group | Annual Report 2016/2017 Corporate Sustainability Thinking and acting in terms of generations – These are the basis for our sustainability reporting corporate sustainability at KWS and illustrate that long-term profitable growth poses When KWS’ founders established the company economic, ecological and social challenges for us as in 1856, they created the basis for its sustainable a company. development that has now lasted more than 160 years. We owe this success to our continuous and Sustainability reporting profitable growth, which has forged us into a power- You can find a detailed report on our core issues ful, independent family-run business. Given that it relating to corporate sustainability for Germany in the takes more than ten years to develop a variety, long- Sustainability Report for fiscal 2016/2017. The report term thinking and acting has been a firm part of our is based on the international GRI G4 specifications corporate strategy. We regularly examine the broad on sustainability reporting; it fulfills the “Core” option range of success factors in order to keep our core and can be obtained in the Internet on our website sustainability issues up to date. We formulate these at www.kws.com/ir. We plan to combine the Annual core issues together with our internal and external Report and Sustainability Report next fiscal year stakeholders, looking at financial and non-financial so as to link financial and non-financial topics more aspects alike. As a result, we last identified five closely with each other in the future. subject areas with more than 40 individual topics. No risk of being mistaken. Green containers transport dried sugarbeet seed, while orange ones are ready to bring in the corn harvest. Core sustainability issues Economics and products Governance ■■ Economic success: Key factors in our ■■ Employment, social and environmental economic success are the clear focus on standards: As a responsible, internationally our core business – i.e., breeding new, high- growing company we have established values, yielding varieties to enable resource-sparing, rules, guidelines and standards in the fields of efficient agriculture – coupled with rigorous employment, protection of the environment and customer orientation, profitable growth, financial social welfare, and ensure they are put into prac- independence and sufficient liquidity. tice at all subsidiaries. We will also define them ■■ Product innovations: Our research & for our business partners in the supply chain and development as part of creating new varieties prevent violations of them. focuses on addressing global trends such as ■■ Compliance: We support observance of the law climate change and the limited availability of and company requirements by means of effective natural resources (such as soil and water), as well compliance management. as the occurrence of plant diseases 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 efforts traditional methods, KWS therefore also uses to recruit good employees and maintain a process to biotechnology methods such as genome editing identify and further develop our junior staffers. methods or gene transfer. ■■ Seed quality and safety: KWS seed is quality Work safety and protection of the environment seed that enables plants’ genetic potential to We strive to surpass statutory requirements relating be fully leveraged after sowing in the field. We to work safety and environmental protection, as well ensure the high quality of our seed for people as to the efficient use of resources, such as water, and the environment by means of technical energy and pesticides, as far as our influence allows. and organizational measures, and demonstrate that quality in extensive tests and analyses in Social commitment compliance with official requirements – regardless One focus of our commitment is on strengthening of whether it is ecological, conventional or the regional and local attractiveness of our locations genetically modified seed. at the cultural and social level. We support young ■■ Protection of intellectual property: Protecting scientists (by awarding Deutschlandstipendien and intellectual property is vital for us in recouping our through internships, for example), as well as top- expenditure on research & development. Thanks class research. We encourage our employees to to the breeder’s exemption, variety protection become actively engaged in their social environment. safeguards access to plant genetic resources for breeding new varieties. We also welcome patent protection to protect our investments in state-of- the-art technologies. It is important for us to have unhindered access to biological starting material and to protect our intellectual property in the form of innovative plant varieties and new breeding technologies. Corporate Sustainability | To our Shareholders 17 KWS Group | Annual Report 2016/2017We don’t do every- thing. But what we do, we do right. Your foresight. Your curiosity. Our innovations. Reinventing yourself again and again. That is independence. For this reason, we use state-of-the-art breeding for innovative seeds. Passion and Performance Insights into the cradle of sugarbeet breeding at KWS Sugarbeets and their breeding have been a core competency of KWS for more than 160 years. We again posted very good net sales and earnings for sugarbeet this fiscal year – and that is due to a joint effort by many hands. Our breeders sow the seed for this value chain. What’s so wonderful is that every- one can truly make their own decisions in their sphere of respon- sibility and help shape things here – and that goes for every level. Andreas Loock, Head of Sugarbeet Breeding at KWS Spotlight Topic After germinating, the plants spent twelve weeks in a cooling chamber at five to seven degrees – because they would not form flowers without cold stimulus. Breeders use this trick to shorten sugarbeet’s natural two-year reproduction cycle to just one, and thus speed up the breeding process. Since the 1960s, sugarbeets have been bred solely by means of hybrid breeding. First, inherently homozygous father and mother lines with the desired traits are bred. When, after many cycles, the best maternal and paternal inbred lines are crossed with each other, the result is the seed supplied to farmers. That sounds simple, but it is in fact a lengthy and arduous process in breeding practice. It takes ten to twelve years for a sugarbeet variety to be ready for the market. It took even longer for the new- generation herbicide-tolerant varieties that will be launched next year, initially in northern Europe, under the name CONVISO® SMART: a new system in combination with a broad-spectrum pesticide. In 2001, at the start of its development, there was just one single plant cell out of the millions tested in the lab that had the desired herbicide tolerance as a result of natural mutation. Glass, a lot of glass, and light, natural and artificial – KWS’ largest and most modern greenhouse com- Such a discovery is followed by what Loock de- plex at Grimsehlstrasse in Einbeck is almost the size scribes as a process that has largely the same pat- of three soccer pitches. It is the heart of sugarbeet tern as most of the now around 50 KWS research breeding: sugarbeet plants in different stages of and breeding projects for sugarbeet (in which ap- growth stand in several of the countless large glass proximately €45 million was invested in 2016/2017): cells. Small plants in black plastic pots are growing “We create genetic variety by means of conventional in one of these chambers and have just formed the crossbreeding, select the best candidates, create first wreath of foliage. “That’s a completely normal new variation, select the candidates again and so program for breeding performance and sugar con- on.” State-of-the-art biotechnology methods, such tent,” explains Andreas Loock, Head of Sugarbeet as intensive use of molecular markers, are now a Breeding at KWS. natural part of a sugarbeet breeder’s tools of the 20 To our Shareholders | Spotlight Topic Annual Report 2016/2017 | KWS Group It takes less than a year: a 20,000-fold increase in just 180 days Beta vulgaris var. altissima Botanically speaking, sugar- beet belongs to the goosefoot family Sugar content has increased tenfold over 200 years 1 20,000 From a kilogram of sugarbeet seed comes as much as 20 tons of sugar Innovative 50 KWS research and breeding projects amounting to € 45mill. (Sugarbeet capital expenses 2016/2017) Sugarbeet yield and nutrient content Increase and decrease in parallel Cost of sugar production The gap is closing 20–25 years 50 t/ha 75 t/ha N – 60% % 200 150 100 2005–2015 Sugarbeet Sugar cane ≈11,000 qm² The greenhouse complex in Einbeck is about the size of three soccer pitches trade and speed up variety development significantly. our work in the field and in the lab,” notes Loock. Further development of, and creation of, new modern His team comprises a total of 30 breeders and the breeding methods, such as genome editing, will same number of breeding assistants, who supervise enlarge the breeder’s tool set and help accelerate the different breeding programs in several working breeding progress. Nevertheless, plant breeding still groups. Foresight and vision are their constant involves a lot of manual work. companions – because the plants here in the green- house are the starting material for a new variety in The next chamber contains sugarbeet plants that are around ten years’ time. in blossom. A number of sprays of the around one- and-a-half meter high inflorescences are covered KWS’ breeders work with clear strategic targets by bags made of what looks like sandwich wrap and are tasked with developing variety components paper. “The mother lines of the starting material are with precisely defined traits and improvements in sterilized and protected with these isolating bags in yield. To do that, they need a good education, a order to prevent self-pollination in this stage,” explains sound understanding of genetics, statistics and the Loock. To ensure that, each flower (up to 20 a bag) is use of biotechnology methods, as well as passion, opened by hand before maturity and the tiny anthers a capacity for suffering and a lot of patience. “A bearing the pollen are removed using tweezers. At good breeder also has to be able to say goodbye to the same time, the pollen on the male plants is like- material. I start with 100 plants and end up with one. wise collected in bags. Once the flowers are mature, That’s a success rate of one percent. We throw the isolating bags are removed, the bags containing most away until finally the combination of the best the pollen are put over them, and so the plants are candidates produces the new variety.” Sugarbeet systematically pollinated. breeding has lost none of its fascination for Loock even after 25 years. “What’s so wonderful is that The best seed from this breeding step is then crossed everyone can truly make their own decisions in their with itself in several cycles. Around 50 plants, closely sphere of responsibility and help shape things here – packed together and completely wrapped in white and that goes for every level. We not only act as sheaths, are awaiting self- pollination in the next glass an independent company in the eyes of outsiders. room. The resultant homozygous parental lines are This spirit of personal responsibility and teamwork then tested in the field under different conditions. “The is also practiced here – and that’s what makes my wonderful thing is that we can always track and verify work exciting and makes our company strong.” The goal is sterility: To avoid self-pollination, calm hands are needed to open the sugar- beet flower with tweezers and remove the tiny anthers bearing the pollen. The female part of the flower on the intended male plant is now ready to receive the pollen. That is called hybrid breeding. 24 Fundamentals of the KWS Group 24 26 27 29 Group Structure and Business Activity Objectives and Strategies Control System Research & Development 34 Employees 39 Economic Report 39 41 Business Performance Earnings, Financial Position and Assets 41 42 44 Earnings Financial Situation Assets 45 Segment Reports 45 46 48 50 52 Reconciliation with the KWS Group Corn Segment Sugarbeet Segment Cereals Segment Corporate Segment 53 Opportunity and Risk Report 60 Forecast Report 64 Corporate Governance 64 64 65 70 Corporate Governance Report and Declaration on Corporate Governance Compliance Declaration in Accordance with Section 161 AktG (German Stock Corporation Act) Compensation Report Explanatory Report of the Executive Board in accordance with Section 176 (1) Sentence 1 AktG (German Stock Corporation Act) on the Disclosures in Accordance with Sections 289 (4) and 315 (4) HGB (German Commercial Code) 74 KWS SAAT SE (Explanations in Accordance with 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 The Corn Segment is the KWS Group’s largest Since it was founded in 1856, KWS has specialized in division in terms of net sales and the market leader breeding, producing and distributing high-quality va- for silage corn in Europe. It covers production and rieties and seed for agriculture. From our beginnings distribution of seed for corn, rapeseed, soybean, in sugarbeet breeding, we have evolved into an inno- sunflower and sorghum. Its operating performance vative, international supplier with an extensive port- depends significantly on the spring sowing season folio of crops. We cover the complete value chain of in the northern hemisphere. That means most of the a modern seed producer – from developing new vari- segment’s net sales are generated in the second eties, multiplication and processing, to marketing the half of the fiscal year (January to June). The segment seed and consulting for farmers. KWS’ core compe- generates a lower share of its revenue in the first two tence is in breeding new, high-performance varieties quarters, mainly from corn varieties in South America that are adapted to regional needs, such as climatic and from winter rapeseed (which will be managed and soil conditions. Every new variety delivers added under the Cereals Segment as of fiscal 2017/2018; value for the farmer. Our business model is based on see the forecast report on page 61) in Europe. this added value – which is ultimately attributable to breeding progress, optimization of seed quality and The Sugarbeet Segment comprises sugarbeet seed consulting founded on a spirit of trust. production and distribution, as well as the develop- ment of diploid hybrid potatoes. Our high-quality Organization and segments of the KWS Group sugarbeet varieties are some of the highest yield- KWS SAAT SE is the parent company of the ing in the industry, which is why we are the clear KWS Group. It is responsible for strategic manage- leader in the field of sugarbeet seed, with a global ment and, among other things, breeds, multiplies and market share of 55%. Our main sales markets are distributes sugarbeet and corn seed. It finances basic North America, a region where genetically modi- research and breeding of the main range of varieties fied, herbicide-tolerant sugarbeet varieties are used at the KWS Group and provides its subsidiaries with exclusively, and the EU, Russia and Turkey, where new varieties every year for the purpose of multiplica- KWS likewise has a very good market position with tion and distribution. An overview of the subsidiaries conventionally bred, multiple-resistant varieties. and associated companies included in the consoli- Sugarbeet is sown in the spring, which means that dated financial statements of the KWS Group is pro- net sales in this segment are largely generated in the vided in the Notes on pages 91 to 93. second half of our fiscal year (January to June). The KWS Group’s operational business is conducted in the three product segments Corn, Sugarbeet and Cereals. 24 Combined Management Report | Fundamentals of the KWS Group Annual Report 2016/2017 | KWS GroupThe Cereals Segment includes production and dis- Locations and sales markets tribution of seed for rye, wheat, barley and rapeseed. KWS SAAT SE’s headquarters are located in Hybrid rye accounts for the largest share of revenue Einbeck, Lower Saxony. We have 62 subsidiaries from cereals (40%), followed by wheat and barley and associated companies at present, operating (each around 20%). We generate the remainder from in more than 70 countries, largely in the moderate other crops such as rapeseed, peas and triticales. In climatic zone. You can find a detailed breakdown of our core markets for cereal seed (Germany, Poland, net sales by region on page 41. the UK, France and Scandinavia), farmers predom- inantly sow the crops in the fall. Consequently, we Products and consulting on varieties generate most of our revenue in this segment in the We offer our customers – farmers – a broad range of first half of our fiscal year (July to December). agricultural crops that have been adapted by breeding to the conditions of their specific location. These The Corporate Segment supports the operating crops include corn, sugarbeet, the cereals rye, wheat segments with research activities and provides central and barley, oil plants such as sunflower, soybean and functions for controlling the group. Its relatively low rapeseed, and catch crops. The varieties are mainly net sales come from the revenue from our own farms. adapted to the moderate climatic zones. Since we Since all cross-segment function costs and research entered the Brazilian market in 2012, corn and soybean expenditure are charged to this segment, its income at varieties for subtropical regions have also been part the end of the fiscal year is regularly clearly negative. of our portfolio. In addition to selling seed, our field Information on the net sales and income contributed choosing and cultivating varieties. We also offer digital by the segments, including our joint ventures, can be consulting with our KWS CULTIVENT Farm Service found in our segment reports starting on page 45. in mobile form or on our website www.kws.com. staff is also on hand to offer farmers consulting on What steps are involved in seed multiplication? Planning Field production Seed processing Cultivation Up to three years elapse until cultivation. Fundamentals of the KWS Group | Combined Management Report 25 KWS Group | Annual Report 2016/2017Breeding is the essential business process Significant changes in the KWS Group’s KWS’ breeding processes are geared toward exploiting composition plants’ potential as much as possible and leveraging The adjustments to the consolidated group are it to tackle the challenges of modern sustainable explained in the Notes to the annual financial state- agriculture. Whether it is plants for producing food, ments on page 91; they do not constitute significant fodder or energy, conventional, organic or genetically changes to the KWS Group’s composition. modified, we offer farmers the ideal variety for their purposes. It takes at least ten years to breed a new New organizational structure variety. Thanks to our large network of breeding and KWS is gearing its global administrative organization trial stations in all the world’s key markets, we can more strongly toward functional responsibility – as test the individual candidates under a wide range of well as harmonizing and standardizing processes – climatic and local conditions to determine whether the to help it continue growing profitably and sustainably varieties are suitable for cultivation. In most markets, in the coming years. The new model will replace the variety development ends in an official approval current, region-based organization. The core objec- process in which candidates have to meet high quality tive is to bundle administrative services and control standards, usually for three years. Only then can the business processes for 70 countries more efficiently. varieties be marketed to our customers via the various The project, which was launched in 2016, is going distribution channels. according to plan. The structures for the individual functions are currently being fleshed out in detail and External influences on our business the transformation will be accomplished in the com- Our breeding and seed multiplication activities are ing years. No job cuts are envisaged as part of the subject to weather influences that cannot always reorganization. KWS plans to create more than 300 be quickly compensated for with countermeasures. additional jobs worldwide next fiscal year. Economic policy decisions in the agricultural indus- try, which is strongly regulated worldwide, may also Objectives and Strategies impact our business. You can find more details on Our strategic planning is the foundation for the these external factors in our opportunity and risk KWS Group’s further development. It defines stra- report beginning on page 53 to 59. tegic objectives, initiatives and core measures for existing activities and for potential new fields of busi- ness. The planning is based on a long-term horizon (ten years) and includes an analysis and assessment of market trends, competitors and the KWS Group’s position. Strategic planning is carried out regularly The KWS Group’s medium- and long-term objectives Objectives Profitable growth Research & 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% process in yields p.a. for our customers and developmet 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 ration of 20% to 25% of the KWS Group´s net income for the year 26 Combined Management Report | Fundamentals of the KWS Group Annual Report 2016/2017 | KWS Groupon a rolling basis. We believe that strategic success KWS’ business model is geared toward sustainable factors are, in particular, our intensive research, success. We are currently working to internationalize breeding of new, high-yielding varieties and continu- our sustainability reporting, with the objective of ous expansion of our global footprint so that we are expanding it so that it covers the entire KWS Group on the ground in regional markets with their special and combining it in the Annual Report by fiscal climatic conditions. 2017/2018. You can find more information on the cur- rent reporting on pages 16 to 17. Corporate objectives of the KWS Group The corporate objectives listed on the previous page The KWS Group’s profitable growth is the basis of were retained without changes in the year under our dividend policy. Thanks to our successful per- review. Our business developed essentially in line formance over the past years, we have been able to with these objectives in the year under review. Only pay our shareholders an annual dividend of 20% to our net sales failed to reach the envisaged growth 25% of the KWS Group’s net income for the year. target of at least 5%. We deal with this in more detail This policy is to be retained in the future. in the explanation of our business performance on page 39. Control System Detailed annual and medium-term operational plans Our investments and expenditure for research & are used to control the Group and the three segments development are the foundation for profitable Corn, Sugarbeet and Cereals. The medium-term plan growth. We aim to increase the KWS Group’s net covers the time frame of the annual plan and the three sales by an average of 5% to 10% each year and subsequent fiscal years. It is linked to the strategic achieve an EBIT margin of at least 10%. In line with planning, which covers a timescale of ten years. the principles of our long-term corporate strategy, we use our earnings strength to expand research The targets set in the annual and medium-term & development, our production capacities and our planning are arrived at on the basis of the strategic distribution operations. As a result, we bolster the planning, regional economic and legal situation, KWS Group’s potential and lay the foundation for anticipated market trends and assessments of the future growth. company’s position in the market and the potential product performance. In a subsequent bottom-up The objective of our research & development is process, which also includes the development of our to obtain new varieties that are tailored to different joint ventures, we use these premises to define figures needs and changing agricultural requirements. Our for sales volumes and net sales, production capacities most important objectives across all crops are to and quantities, the allocation of resources (including increase yield, breed resistance to plant diseases capital spending and personnel), the level of material and pests and improve plants’ quality of processing. costs and internal charge allocation and the resultant Conservation of plant genetic resources is also a key balance sheet data, along with the financial budget. In concern of ours. Expressed in hard and fast figures, principle, part of the planning documentation is also our goal with the new varieties we supply to our cus- an opportunity/risk assessment that every manager tomers is to deliver an average yield progress of 1% must conduct for his or her unit. to 2% a year. We will push further ahead with the internationali- zation of our company. Our commitment in the subtropical market of Brazil and the joint venture with our partner Kenfeng in China are part of that. Markets such as Brazil, with several harvests a year, not only offer attractive sales potential – especially for our corn business – but also enable us to cushion the highly seasonal nature of our business in the medium to long term. Fundamentals of the KWS Group | Combined Management Report 27 KWS Group | Annual Report 2016/2017The planning is compared every quarter with the performance of the KWS Group and its operating company’s actual business performance and the units. The main indicators for the KWS Group are net updated estimates on the underlying general condi- sales, operating profitability (EBIT margin) and R&D tions. If necessary, we initiate suitable countermea- intensity. KWS’ product segments, which are divided sures and make adjustments. We update the forecast into Business Units, are in turn geared toward the for the current fiscal year at the end of every quarter. main indicators of net sales and EBIT margin. Since At the end of each fiscal year, all the units conduct a the year under review, our Business Units have been detailed variance analysis of the budgeted and actual the cash-generating units in accordance with the results. That serves to optimize our internal planning actual management reporting structure. Please also processes. refer to our explanations in the Notes on page 100 of Controlling is responsible for coordinating and documenting all planning processes and our current Management and control the Annual Report. expectations. It monitors compliance with adopted KWS SAAT SE has a system of dual management and budgets and analyzes the efficiency and cost-effec- supervision, consisting of the Executive Board and the tiveness of business processes and measures. Con- Supervisory Board. Both bodies have strictly separat- trolling also advises decision-makers on economic ed responsibilities and different members. While the optimization measures. In particular the heads of the Executive Board manages the company, the Super- product segments, the regional directors and the visory Board supervises and advises the Executive heads of research & development activities and the Board. These responsibilities have also been retained central functions are responsible for the content of the following the company’s conversion into a European planning and current forecasts. Stock Corporation (Societas Europaea/SE). The The Executive Board uses various indicators for with Section 289a of the German Commercial Code planning, controlling and monitoring the business (HGB) contains detailed information on the extensive declaration on corporate governance in accordance Breeding and distribution activities of the KWS Group in over 70 countries 28 Combined Management Report | Fundamentals of the KWS Group Breeding stations Test locations for trial cultivation Annual Report 2016/2017 | KWS GroupAutomated high throughput – a growing population, climate change and demand for sustainability make breeding increasingly complex. and close cooperation between the Executive Board Research & Development and the Supervisory Board and has been published The objective of our research & development work at www.kws.com/corporate-governance. is to create high-performance varieties that meet various environmental and application requirements Guidelines for the company’s day-to-day work and ensure a continuous increase in yield. To enable Our guiding principles define the framework for our that, we continue to invest in expanding our research goal of creating sustainable and profitable growth and breeding capacities. In fiscal 2016/2017 alone, for our customers, employees and investors. Our our R&D expenditure totaled €190.3 (182.4) million. strategic decisions and day-to-day actions in opera- The result was that new KWS varieties were awarded tional business are guided by the following company around 357 (397) marketing approvals. principles: Plant breeding is a very research-intensive and ■■ We increase genetic potential through outstanding long-term business. Promising parent lines have to research and top-class breeding programs. be crossed for each new variety and their progeny ■■ We supply our farmers with seed of the very best examined and selected with regard to the desired quality. traits over a period of several years. At the end of the ■■ We aim to be a strong partner who earns the trust development process come variety tests in which the of our customers. traits of new varieties are determined and compared ■■ We create entrepreneurial freedom and help people with standard varieties. An average of more than ten unfold their talents. years elapse between the first crossing and the actu- al marketing of a variety. The KWS Group owes its innovativeness and success to a growing workforce worldwide. With To develop new varieties, we maintain our own long- our central policy framework – Rules, Guidelines term breeding programs organized in a crop-specific and Procedures (RGPs) – we create a common structure. Our breeders are assisted in that by a global understanding of the freedoms and decision-making network of various breeding and trial stations. That processes within KWS. The RGPs are continuously means candidate varieties can be tested under the improved by means of constant monitoring and location-specific conditions in their target markets. feedback. They complement our existing guiding principles, with the objective of preserving KWS’ As part of our own research activities, scientists at unmistakable profile, also against the backdrop of KWS continuously work on new molecular biology, the Group’s increasing internationalization. IT or technical approaches that enable us to develop Fundamentals of the KWS Group | Combined Management Report 29 KWS Group | Annual Report 2016/2017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 new, improved product traits and further optimize Increase in sugarbeet’s competitiveness through our breeding methods. So that the latest scientific development of a powerful variety portfolio findings and methods can be integrated faster in our More and more combinations of resistances, coupled breeding work, we also complement our research with a stable and high sugar yield, are required activities with partnerships with public research for growing sugarbeet. In order to tackle increasing institutes and private enterprises. requirements, we have developed a wide-ranging portfolio of high-yielding varieties that is a very good Activities in the past fiscal year fit for the individual markets. Resistance to rhizo- mania – a viral disease that can cause losses in yield Strengthening of KWS’ corn breeding activities of up to 80% – is still the most important trait. KWS We were able to strengthen our variety development is protecting sugarbeet crops successfully by rolling activities in Europe by establishing two new breeding out a second resistance based on the new strategy programs for southwest France and Serbia. As a re- RIZO 2.0. Moreover, the varieties with tolerance sult, we not only cover all maturity zones, but also the to nematodes (threadworms), coupled with better most important corn regions in Europe. Apart from resistance to leaf diseases such as Cercospora, their significance for the markets in southern France contribute to sustainable and high-yielding sugar- and Serbia, the new breeding programs are also beet cultivation. important for developing varieties in earlier maturity groups and for improving tolerance to leaf diseases. First milestones on the path to the hybrid potato achieved We were able to expand corn breeding in Argentina KWS has pursued a long-term, research-intensive by establishing a new breeding station near the city goal since 2011, to develop diploid hybrid potatoes of Cordoba and a second breeding program in the that can be multiplied and marketed in the form of country’s main northern cultivation region. We are seed. Hybrid potato breeding and multiplication thereby addressing the growing importance of a mar- using seed instead of tubers is a completely new and ket that has grown to 4.9 million hectares in the past highly promising approach. Diploid potatoes permit two years. We have already captured a market share far more effective breeding. The cost and effort of of 5% in Argentina with our own hybrids, which have transporting seed potatoes and cold storage of them additional traits for corn from our license agreement would be eliminated. Seed is also at far less risk of with one of the world’s leading providers. being infested with pests. 30 Combined Management Report | Fundamentals of the KWS Group Annual Report 2016/2017 | KWS GroupWe were able to achieve initial milestones last fiscal Successful restructuring of wheat breeding year. We have now successfully incorporated self- in France fertility, a vital requirement for developing diploid France is one of the key markets for winter wheat in inbred lines. We have also been able to create Europe. Since acquiring Momont in full three years powerful diploid breeding material, which will be ago, we have therefore made considerable invest- developed further in subsequent product-oriented ments in our wheat breeding program, in order to phases. As a result, the foundations for hybrid potato improve our competitiveness. We have since been breeding have been established. However, there is able to significantly improve the program’s structure, still a long way to go before it is ready for market. for example, by splitting it up into different breed- The first competitive varieties that can be sold in the ing zones for northern France and for central and form of seed are expected in ten years. southern France. That permits more focused culti- vation of the different market segments. In addition, First commercial seed production operations we expanded our breeding activities in the south of for sunflower the country. The breeding process was also further We are now again producing seed for new commercial optimized by intensive integration of state-of-the-art sunflower varieties in 2017 – seven years after we breeding methods, such as marker or double haploid resumed breeding sunflower – so that sunflower (DH) technology. We expect the breeding cycle to be marketing can begin in southeastern Europe in the reduced by one year in the future as a result of an coming 2018 sowing season. A key requirement for increase in DH production and other measures. As that was successful approval of seven varieties for a result, we have laid the foundation for improving the southeastern and Eastern Europe regions, of our competitive position and becoming one of the which four are currently being prepared for marketing leading companies in this important market segment in 2018. The varieties have thus achieved competitive- long term. ness in terms of yield and agronomic characteristics in the past years. Further successive strengthening of these young product ranges is envisaged in the coming years. Key figures for research & development in € millions R&D employees Ratio of R&D employees R&D expenditure R&D intensity1 Marketing approvals for new varieties 1 In % of net sales avg. in % in % 2016/2017 2015/2016 1,889 38.3 190.3 17.7 357 1,830 37.8 182.4 17.6 397 +/– 3.2% 1.3% 4.3% 0.6% –10.1% Fundamentals of the KWS Group | Combined Management Report 31 KWS Group | Annual Report 2016/2017 Farmers are not customers for us. They’re partners. Your crop. Your choice. Our dedication. Making decisions. That is independence. You know what’s best for your farm. We have the fitting variety. Can emotions always be captured in words? KWS employees at a “Make yourself grow” event. Employees Over six generations, our employees have made 38.3% of the total workforce. The average length KWS what it is today: an innovative, world-leading of service in Germany was 13.5 years. The ratio of plant breeding company. That is due in great women remained virtually unchanged. measure to their skills, mindsets, ideas and their satisfaction. As a family-run business, we attach Employer brand importance to a work culture of respect, foster We pursue of a policy of positioning KWS clearly as employees’ personal and professional development, part of our presence in international labor markets. yet also demand a high degree of personal initiative In doing that, we address interests and needs that from them. Openness, trust and team spirit define are important to our current and future employees. our culture. Employment trends Among other things, we are committed to fostering employees’ personal and professional development in a targeted manner as well as an appropriate work- We employed an average of 4,9371 people world- life balance. Our values of team spirit, closeness, wide in the year under review, a slight increase of reliability, independence and foresight accompany us 94; 1,911 (1,908), or around 39% of the workforce, in all our internal and external activities. Establishing were employed in Germany. While the headcount networks and nurturing contacts with professional in Europe (excluding Germany) remained virtually groups of importance to us are key elements of our unchanged, it rose in North and South America and HR strategy. We launched a cooperation with the in the rest of the world. Once again, the area that prestigious Chinese Agricultural University in Beijing accounted for the most employees was research & in the last fiscal year, for example. development: Our colleagues in this field made up 1 All details in this section do not include our equity-accounted companies. Including these companies, the average headcount is 5,621 (+149). 34 Combined Management Report | Employees Annual Report 2016/2017 | KWS GroupEmployees by function1 Number of employees 4,937 Administration 13.3% Distribution 23.0% 38.3% Research & Development 25.5% Production Employees by region1 Number of employees 4,937 Rest of world 5.8% North and South America 26.1% 38.7% Germany 29.5% Europe (excluding Germany) 1 Average number of employees Development of young talents Advantages for employees We give school pupils and students the chance to KWS is a modern employer, offering its employees gain initial insights into working life by means of varied and attractive conditions. Flexible hours and internships or excursions. We also support talents the possibility of working from home are established early on by awarding various scholarships. Like everyday practices at KWS and help staff reconcile every new employee, career starters are given a work and private life. We promote a healthy working comprehensive introduction to our global, strongly world through local activities at our sites. Medical networked business processes when they join us. checkups, dietary advice and sports courses are The training KWS offers helps employees develop offered, for example. There is the opportunity to practical skills. There are diverse options to choose obtain “Job Bikes” or join fitness studios at special from – from vocational training to a dual course terms. Under our Employee Stock Purchase Plan, of study. Our instructors and trainee supervisors employees can acquire shares in their company at supported a total of 95 young people in seven preferential conditions. A family-friendly spirit is also different fields of training on their path to gaining writ large at KWS. Among other things, KWS gives their vocational qualifications in fiscal 2016/2017. We parents financial support for childcare. KWS won offer university graduates two highly popular spring- an award in Germany as a family-friendly company boards for starting their careers – our international in June 2017, for instance. We also support our trainee program and the Breeders Academy, which employees in their involvement in non-profit orga- is geared specifically to plant breeding. nizations or work for social causes by giving them additional freedom to pursue these activities. Employees | Combined Management Report 35 KWS Group | Annual Report 2016/2017“Tea kitchen talk” – dialogue and communication are part and parcel of our company. Employee development There are also several development programs aimed Global growth and regional markets mean that a high at specific target groups. “Sparring Circles” enable degree of adaptivity is always required. Our range a profitable sharing of ideas, while “KWS on Board” of further training measures is therefore open to provides a comprehensive insight into our corporate all employees. It is reviewed regularly to ensure it strategy, culture and values, and shows what we reflects practical needs and adapted if necessary. expect from the employee group in question. The The measures aim, in particular, to enhance our “Orientation Center” enables us to verify individual employees’ professional expertise and are discussed potential and draw up pinpointed development plans. and defined together with their supervisors in annual For its part, the “International Development Program” performance and career development reviews. offers experts and executives an additional oppor- tunity to enhance their personal and professional strengths – also with the aid of internal mentors – in the international environment. 36 Combined Management Report | Employees Annual Report 2016/2017 | KWS GroupDiversity interests of KWS SAAT SE’s workforce, always be- KWS operates in more than 70 countries. This inter- comes actively involved if matters affecting employees national range involves more than having a variety from at least two EU countries are discussed. The first of languages at KWS. Different cultures, disciplines new elections to the EEC will be held in the fall of and personal backgrounds join to enrich our working 2017, two years after it was founded. The period of climate. We value this individuality and give it our ap- office will be five years in the future. preciation, support and respect. KWS also implements the statutory requirements on equal participation of At the national level, negotiations on the company women and men in management positions. collective bargaining agreement for Germany were held between the construction, agricultural and Dialogue with the Works Councils environmental workers’ union Bauen Agrar Umwelt The working relationship with our Works Councils (IG BAU) and KWS SAAT SE in May 2017. Key as- is close and based on trust. In meetings with man- pects of the results were a non-recurring payment agement, issues are discussed openly and common of €1,500 for fiscal 2017/2018 and a pay increase solutions are found constructively. Our European of 3% effective July 1, 2018. Employee Committee (EEC), which represents the Welcome to KWS! Around 1,300 employees work at our Einbeck location – the figure was 30% lower 10 years ago. Employees | Combined Management Report 37 KWS Group | Annual Report 2016/2017Occupational safety pany’s needs and continuously improved by being Early identification and initiation of measures relating incorporated in the Integrated Management System, to occupational safety and health for our employees for example. In Germany, experts in occupational has top priority for KWS. Work safety is pursued in a safety and healthcare provide support in these fields. structured manner, organized to reflect the com- They are assisted by external service providers. Key figures for employees in Germany1 Number of employees of which part-time employees Ratio of men Ratio of women Number of apprentices Apprentice ratio Average age (in years) Length of service (in years) 1 Average number of employees in % in % in % 2016/2017 2015/2016 1,911 1,908 415 51.3 48.7 95 5.0 40.8 13.5 392 50.9 49.1 97 5.1 40.5 13.2 +/– 0.2% 5.9% 0.8% –0.8% –2.1% –2.0% 0.7% 2.3% Ready, set, go! The motivational shout of “Dragon! Seed!” was raised back in 2014, when the paddles hit the water for the first time. Apart from regular training, KWS’ “Dragonseeds” team also takes part in dragon boat races. 38 Combined Management Report | Employees Annual Report 2016/2017 | KWS GroupEconomic Report Business Performance Guidance versus actual business performance of the KWS Group General developments and business perfor- In November 2016, we lowered our guidance for mance of the KWS Group the KWS Group’s EBIT margin in our 1st Quarterly KWS faced an economic environment similar to Report for 2016/2017. That was due to additional that of the previous year. There was still a high level distribution projects and inventory write-downs. The of supply on international commodity exchanges, improvement in the KWS Group’s cost of sales ratio which exerted pressure on prices of agricultural raw anticipated at the start of the year under review was materials and – to a varying extent for the different also slightly lower at the time as a result of the higher regions and crops – on cultivation area. An exception cost of sales at the Corn Segment. The increase in was the sometimes sharp rises in the price of sugar sugarbeet area in the 2017 cultivation year was well due to high demand and the increase in sugarbeet above our expectations. That, and the good perfor- cultivation area. The latter increased significantly in mance of our varieties, had a positive effect on the all important cultivation regions – with the exception course of our business and was the main reason why of North America – and also in the EU due to the end we subsequently raised the net sales and margin of the European Sugar Market Regime. Exchange expectations for the KWS Group and for the level of rates in the KWS Group’s business arena remained earnings we ultimately generated. Our performance volatile, with different trends regionally and in some in Europe and South America in the fourth quarter cases (in Brazil and Argentina) with a significant was below expectations, causing the Group’s net impact on the KWS Group’s net sales, which are sales to fall below the anticipated 5% growth mark. consolidated in euros. Political impact on our busi- ness came from the reduction in state-guaranteed prices for corn in China, resulting in a decline in the cultivation area in an important region for KWS. The Brexit vote had a negative impact, in particular on cereals business, due to the sharp devaluation of pound sterling. Guidance versus actual business performance of the KWS Group Results for 2015/2016 Guidance for 2016/2017 Adjustments to the guidance during the year Results for 2016/2017 Annual Report (10/25/2016) Quarterly Report Q1 (11/24/2016) Semiannual Report (03/07/2017) Quarterly Report 9M (05/23/2017) Net sales R&D intensity EBIT margin €1,036.8 million <+5% 17.6% Around 17% – – Still almost +5% Just over +5% €1,075.2 million; +3.7% – – 17.7% 12.2% 10.9% ≥11% 10.0 – 10.5% ≥10.5% ≥11% Economic Report | Combined Management Report 39 KWS Group | Annual Report 2016/2017 Searching for clues in the plant’s genetic makeup: We use cutting-edge chip technology to uncover a daily trove of data so as to ensure breeding success. Summary of the segments’ course of business lowered our guidance for the segment’s EBIT margin and comparison with the guidance 1 in November 2016. The increase in net sales in the Every year, the fall sowing season determines the year under review and the EBIT margin were ultimately main business trends of the Cereals Segment. The slightly below the guidance we last published. The key crop in that is hybrid rye, which accounts for a reason for that was that our performance in South very significant share of the segment’s net sales and America and Europe in the fourth quarter was below earnings. Net sales of hybrid rye seed fell in the year expectations. under review, also due to declines in the cultivation area in Germany. The devaluation of pound sterling The main sales season for the Sugarbeet Segment is also had a negative impact on net sales. These trends in the third and fourth quarters (January to June). High led us to adjust our net sales and earnings expecta- demand for sugar, the related significant expansion in tions for the Cereals Segment during the year. the cultivation area for sugarbeet and the performance of our sugarbeet varieties were the main factors that In South America, the sales season for the Corn influenced the successful course of the segment’s Segment is in the first half of the fiscal year (June to business. These trends surpassed our expectations December), whereas we generate most of our sales and were the reasons why we raised our guidance for in the other regions in the spring due to the sowing net sales and income during the year. season there. The main increases in this segment’s net sales were in South America. Our oil seed business There were no adjustments to the guidance for the in Europe also went well. A rise in the cost of sales, Corporate Segment during the year. Its net sales and higher inventory write-downs and additional research earnings were largely in the range we expected. & development projects were the reasons why we 1 Including equity-accounted companies. Details on the segments’ business performance and their economic environment can be found in the segment reports. 40 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS GroupEarnings, Financial Position and Assets Earnings the KWS Group was positive. Although the KWS Group’s cost of sales rose to €493.9 (480.9) million, Continued growth in net sales the cost of sales ratio fell to 45.9% (46.4%). That was We were able to continue the growth of the the result of an improvement in the cost of sales KWS Group and increase our net sales in the period in the Sugarbeet and Cereals Segments. However, under review by 3.7% to €1,075.2 (1,036.8) million. the cost of sales ratio at the Corn Segment rose. We That is mainly attributable to our successful busi- increased our function costs aimed at securing our ness performance in the Corn and Sugarbeet Seg- future growth – i.e., expenditure on distribution and ments. These gains were made in the regions South on research & development – by a total of around America (corn and soybean) and Europe (sugarbeet €12 million and so in line with our planning. Addi- and winter rapeseed). However, net sales in the tional distribution activities focused on the growth Cereals Segment fell, in particular due to the decline regions of Brazil, Argentina and Russia. The planned in hybrid rye business in Germany. Exchange rate increase in research & development spending to influences varied from region to region, but all in all €190.3 (182.4) million resulted in an R&D intensity at had a slightly positive impact on the KWS Group’s 17.7% (17.6%). Administrative expenses rose mod- net sales as a result of the performance of the US erately to €79.8 (76.4) million. The balance of other dollar and Brazilian real. Assuming constant ex- operating income and other operating expenses change rates at the level of the previous year, net increased by 68.8% to €21.1 (12.5) million. The re- sales would have been €1,070.3 million. lated individual items are explained in detail in the Strong earnings – increase in EBIT was lower expenses as part of receivables manage- The weather is an external factor that impacts our ment. All in all, in fiscal 2016/2017 the KWS Group’s cost of sales, especially in our local seed production EBIT increased by 16.7% to €131.6 (112.8) million, and operations. There were various trends regionally in the EBIT margin was at 12.2% (10.9%). Notes on pages 120 to 121. One of the key factors the year under review, but all in all the impact for Net sales by segment Total net sales €1,075.2 million Corporate 0.4% Cereals 10.2% 47.1% Corn 42.3% Sugarbeet Net sales by region Total net sales €1,075.2 million Rest of world 6.2% North and South America 29.5% 21.0% Germany 43.2% Europe (excluding Germany) Economic Report | Combined Management Report 41 KWS Group | Annual Report 2016/2017Abridged income statement in € millions Net sales Operating income Net financial income/expenses Result of ordinary activities Income taxes Net income for the year Earnings per share EBIT margin 2016/2017 2015/2016 1,075.2 1,036.8 131.6 16.6 148.2 50.5 97.7 112.8 14.8 127.6 42.3 85.3 +/– 3.7% 16.7% 12.2% 16.1% 19.4% 14.5% in € in % 14.78 12.92 14.4% 12.2 10.9 Improvement in net financial income/expenses Financial Situation – stable tax rate – net income up well over the The task of financial management is to ensure previous year the KWS Group’s earnings strength and secure Our net financial income/expenses is made up of its financial assets long-term. Among other things, the net income from equity investments and the extensive liquidity planning, monitoring of cash interest result. One component of income from equity flows and hedging the risk of interest rate changes investments is the income from equity-accounted and currency risks contribute to that. financial assets, which fell to €24.9 (26.5) million due to lower contributions to earnings from our Higher net income year on year, before allowing equity accounted companies. The interest result for noncash expenses and income, coupled with a improved to €–8.3 (–11.7) million, mainly due to reduction in long-term provisions, resulted in a re- better borrowing terms and the lower level of debt duction in cash earnings to €105.4 (107.3) million. The capital that was raised. Net financial income/expenses increase in other liabilities and lower dividends from was thus €16.6 (14.8) million. Earnings before taxes our equity-accounted companies had a major impact (EBT) rose by 16.1% to €148.2 (127.6) million. Income on net cash from operating activities, which totaled taxes were €50.5 (42.3) million, giving a tax rate of €122.4 (125.9) million. 34.1% (33.1%). Overall, the KWS Group generated net income of €97.7 (85.3) million in the year under The net cash from investing activities totaled review. The number of shares was unchanged, €–64.8 (–92.2) million in fiscal 2016/2017. The main giving earnings per share of €14.78 (€12.92). focus of our capital spending in the year under review was on erecting and expanding production and research & development capacities. Among other things, expansion of sugarbeet seed production and of the greenhouse complex was completed in Germany. A new corn seed plant was erected in Ukraine. We also restructured our ERP license land- scape in the year under review. Total capital spending in fiscal 2016/2017 was €63.3 (99.6) million. Some of the investments planned for the year under review 42 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS Groupwere shifted to fiscal 2017/2018, which is why our investment planning for the coming year envisages a sharp increase in capital spending. Depreciation and amortization increased slightly to €49.4 million. Since short-term commercial papers were issued for the first time in the fiscal year in order to finance business operations during the year and more capi- tal debt was repaid than raised compared with the previous year, the net cash from financing activities was €–29.6 (21.4). Commercial papers have lower interest terms than our available credit lines, which enhances the attractiveness of this financing instru- ment. The KWS Group’s cash and cash equivalents at the end of fiscal 2016/2017 rose to €191.4 (163.9) million. A syndicated loan with a total volume of €200  million and running until 2021 still exists with KWS SAAT SE’s principal bankers to finance operating resources during the year. It was not utilized in the year under re- view; the covenants were fulfilled by KWS at all times. Capital expenditure by segments Total capital expenditure €63.3 million1 KWS’ transparent spirit is reflected in our building. Corporate 33.3% Cereals 7.8% 32.3% Corn 26.6% Sugarbeet Capital expenditure by region Total capital expenditure €63.3 million1 Rest of world 2.8% North and South America 23.3% 41.8% Germany 32.0% Europe (excluding Germany) 1 Without capital expenditures of our at equity consolidated companies Economic Report | Combined Management Report 43 KWS Group | Annual Report 2016/2017Selected key figures on the financial position in € millions Cash and cash equivalents Net cash from operating activities Net cash from investing activities Net cash from financing activities 2016/2017 2015/2016 191.4 122.4 –64.8 –29.6 163.9 125.9 –92.2 +/– 16.8% –2.8% –29.7% 21.4 < –100.0% Assets €194.9 (185.8) million, meaning their ratio relative The KWS Group’s balance sheet is impacted by the to total assets increased slightly. That was due to seasonal nature of our business. In the course of the good yields from our seed production operations. year, there are usually balance sheet items that differ Current assets at the balance sheet date totaled significantly from the corresponding figures at the €815.1 (768.7) million. Net debt at the end of the fis- balance sheet date, in particular in relation to work- cal year was €48.5 (87.9) million due to higher cash ing capital. and cash equivalents and repayments of borrowings. Total assets at June 30, 2017, were €1,495.2 (1,436.6) The allocation to the other reserves meant that equity million. Changes in working capital had a particular rose to €836.9 (767.9) million. As a result, noncurrent impact here. Like in the previous year, the increase assets were again fully covered by equity. Partial re- in cash and cash equivalents is attributable to the payment of the borrower’s note loan and repayment expansion in our business activities and reversal of of other long-term loans reduced noncurrent liabilities securities positions. The increase in trade receiv- to €358.8 (393.6) million. The equity ratio increased ables to €302.6 (293.9) million was in line with the to 56.0% (53.5%) as a result. We have consequently growth in net sales. Inventories rose by 4.9% to strengthened our solid financial structure even further. Abridged balance sheet in € millions Assets Noncurrent assets Current assets Equity and liabilities Equity Noncurrent liabilities Current liabilities Total assets 06/30/2017 06/30/2016 +/– 680.1 815.1 836.9 358.8 299.5 667.9 768.7 767.9 393.6 275.1 1.8% 6.0% 9.0% –8.8% 8.9% 1,495.2 1,436.6 4.1% 44 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS GroupSegment Reports Reconciliation with the KWS Group contributed by the equity-accounted companies are The KWS Group’s consolidated financial statements instead included under net financial income/ expenses. are prepared in accordance with the International In addition, their assets are included separately in the Financial Reporting Standards (IFRS). The segments KWS Group’s balance sheet. Our equity- accounted are presented in the Management Report in line companies are included proportionately in the segment with our internal corporate controlling structure in reports in line with our internal corporate controlling accordance with GAS 20. The main difference is structure. that we no longer carry the revenues and costs of our equity-accounted companies in the statement of The difference from the KWS Group’s statement of comprehensive income (in accordance with IFRS 11). comprehensive income is summarized for a number The KWS Group’s net sales and EBIT will therefore of key indicators in the reconciliation table: be lower than the total for the segments. The earnings Reconciliation table in € millions Net sales EBIT Number of employees Capital expenditure Total assets avg. Segments Reconciliation KWS Group 1,394.0 –318.8 1,075.2 158.8 5,621 67.9 –27.2 –684 –4.7 131.6 4,937 63.3 1,628.8 –133.6 1,495.2 The reconciliation between the KWS Group’s from corn and EBIT were lower there in the year statement of comprehensive income and the report- under review, which therefore had an impact on the ing by segments in fiscal 2016/2017 is impacted reconciliation. The Chinese company KENFENG – by our equity-accounted companies in the North KWS SEEDS CO., LTD. Increased its contribution American and Chinese corn markets. That applies to net sales and income in the year under review, to all key figures in the above table, with the main although that still had a minor effect on the  influences coming from North America. Net sales reconciliation. Marke Eigenbau. In unserer Werkstatt in Einbeck werden mit einer zyklengesteuerten Drehbank Ersatzteile für Maschinen gefertigt. Economic Report | Combined Management Report 45 KWS Group | Annual Report 2016/2017Corn Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2016/2017 2015/2016 825.3 58.2 7.1 25.0 728.0 8.0 795.2 63.6 8.0 119.1 654.4 9.7 +/– 3.8% –8.5% –79.0% 11.2% in % in % Economic environment: high level of supply in the cultivation area there. All in all, exchange rate in most markets influences had a positive impact on net sales. If ex- The situation on international corn markets continues change rate effects had remained constant, the seg- to be shaped by a high level of supply of goods for ment’s net sales would have risen by 2.7% to €816.9 consumption. Corn prices on the commodity ex- million. changes therefore remained under pressure. Large corn seed inventories at breeding and distribution The segment’s income was €58.2 (63.6) million. companies intensified the fierce competition already There was a slightly above-proportionate increase in prevailing. The corn cultivation area declined in the cost of sales, due among other things to the sig- Europe, mainly because growing other crops, such nificant expansion in our corn activities in Brazil and as oil seed (rapeseed, sunflower, soybean) proved negative weather influences. The main factor influ- more attractive for farmers. In China, a reduction in encing income remained the increase in our function state-guaranteed prices for corn led to a sharp drop costs: We increased expenditure on distribution and in the cultivation area in Heilongjiang, an important on research & development – which are key to en- province for us in the country’s northeast. In Argen- abling our future growth – by a total of €15 million. tina, however, there was a significant increase in the corn cultivation area as a result of a change in agri- The regions: flourishing business in South cultural export policy. The uncertain political situation America – high demand for oil seed in Brazil has had hardly any effect on our business to Following the extremely good harvest of the previ- date. The Brazilian real appreciated significantly year ous year, the corn cultivation area in North America on year. The US dollar and Russian ruble also gained came under pressure as a result of low consumer in value on average for the year. In contrast, the Ar- prices and fell by 3% to around 37 million hectares gentinean peso, pound sterling and the Turkish lira in the 2017 cultivation year. The cultivation area for depreciated sharply. soybean rose by 7% and almost has the size of the area for corn. This climate meant that our corn busi- The segment’s performance: continued increase ness declined, while net sales of soybean increased. in net sales Our 50:50 joint venture AgReliant generated total net In the year under review, we increased net sales in sales of €307.4 million, a drop of 1%. the Corn Segment – for the 18th time in a row. They were €825.3 (795.2) million, an increase of 3.8%. We We increased our net sales in Brazil to more than generated most of the growth through our corn and €100 million, among other things thanks to our oil seed business in South America, although our products’ good performance. The negative impact winter rapeseed in Europe also helped increase net of the weather resulted in good prices for corn for sales. However, net sales of corn seed in Europe, consumption and thus a sharp increase of more than North America and China declined, reflecting the fall 10% in the cultivation area there. The significant 46 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS Group Corn appreciation in the Brazilian real made a significant contribution to the rise in net sales. Growth in net sales was dampened slightly by a fourth quarter that came in below expectations. We grew our net sales sharply in Argentina. We also benefited here from the license agreement concluded with a leading provider of corn traits in 2015, which had a positive effect on the cost of sales. In Europe, the Corn Segment was able to maintain its net sales, despite the fact that the market environ- ment remained difficult. The very good performance of our oil seed business helped in that. However, our net sales from corn seed dropped by 1.6%. In partic- ular, our performance in the final quarter was below expectations. In China, the previously mentioned decline in area in our important cultivation region in the country’s northeast resulted in a sharp drop in net sales in the year under review. However, our corn varieties remained the leaders in the markets of relevance for KENFENG – KWS SEEDS CO., LTD. We are making good progress with developing new varieties and expect further variety approvals and growth in sales volumes in the coming years. Sharp expansion in oil seed business – reduction in capital spending Oil seed business in the Corn Segment mainly comprises the crops soybean (in North and South America), as well as winter rapeseed and sunflower (in Europe). There was high demand in all of KWS’ markets, resulting in an increase in net sales of 33.1% to €125.5 (94.2) million. In particular, winter rapeseed business in Europe went very well. The segment’s capital spending was far lower year on year at €25.0 (€119.1) million. That was mainly due to the fact that the second tranche for corn traits is due in fiscal 2017/2018. Capital expenditure on property, plant and equipment mainly related to completion of the seed production plant in Ukraine and purchase of a soybean production plant in North America. Just one hectare of corn supplies the annual oxygen needs of 50 to 60 people as a by-product. KWS Group | Annual Report 2016/2017Sugarbeet Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2016/2017 2015/2016 454.6 150.9 33.2 16.8 260.4 58.0 439.5 118.6 27.0 17.2 242.9 48.8 +/– 3.4% 27.2% –2.3% 7.2% in % in % Economic environment: increasing cultivation Following the decision made the previous year, sale area of our seed potato business to Stet Holland B.V. was The European Sugar Market Regime came to an successfully completed with the transfer of its as- end on September 30, 2017, meaning there are no sets in the UK, France, Poland and Russia. The dis- longer any restrictions on production volumes, mini- posal resulted in a reduction of around €27 million in mum prices for sugarbeet or limits on imports and net sales, although that was more than compensated exports. Sugar produced from the 2017 sugarbeet for by our successful sugarbeet seed business. After harvest will therefore be marketed fully under the adjustment for net sales from the potato business, new conditions for the first time. By the end of 2016, net sales from sugarbeet seed rose by 10.3%. We the white sugar price in London increased to €550 grew our net sales mainly in the EU 28 and Eastern per ton due to surplus demand on the world market, Europe. A further factor in this success, apart from the a factor that was given an additional boost by the increase in the cultivation area and good variety per- 15% increase in the cultivation area in the EU. The formance, was our adjusted distribution strategy. All in cultivation area in Eastern Europe also increased, all, we achieved a global market share of 55% (55%) in whereas North America was the only large sugarbeet the year under review. That means KWS remains the cultivation region to record a fall in area. The perfor- world’s market leader by far. mance of the US dollar and the Russian ruble had a positive impact on net sales, which are consolidated The segment’s earnings improved, mainly as a re- in euros. In contrast, the Turkish lira and pound ster- sult of higher net sales. The cost of sales was also ling fell in value year on year. All in all, however, there impacted by special effects (see also the end of were no appreciable exchange rate effects on the the paragraph) and fell on the back of a rise in net segment’s net sales. sales. Selling expenses rose slightly due to additional marketing projects, such as in the U.S. Research & The segment’s performance: increase in net development activities were expanded in line with sales and income our planning. Disease resistance will increase in im- We again successfully grew our operational business portance in the medium to long term – among other in the Sugarbeet Segment and further strengthened things because the use of pesticides may be further our market leadership in the year under review, restricted in the future. Administrative expenses thanks to constantly good variety performance. were kept stable. As part of our stock manage- Net sales rose by 3.4% to €454.6 (439.5) million. ment activities, expenses from write-downs and 48 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS Group Sugar beet destruction of inventories remained at the level of the previous year. The segment increased its EBIT to €150.9 (118.6) million. Positive special effects also had a significant impact on that. The main ones were the disposal of our potato business the year before and a one-off credit as part of our seed production. The regions: competitiveness thanks to strong variety performance at a high level In the segment’s key region, the EU 28, we grew our net sales from sugarbeet seed by 22% to €182.4 (149.7) million. Thanks to our consistently high-yielding portfolio of varieties, the KWS brand was able to maintain its high market share of 40% (40%). Our market share in North America remained largely unchanged at well over 80%, despite an approximately 3% decline in the cultivation area and a slight fall in net sales. We gained market share sharply in Eastern Europe thanks to good variety performance and an adjusted distribution strategy, and also benefited from a sharp increase in the cultivation area. We also gained market share in  Turkey and the Middle East. Investments in seed production – market launch of CONVISO® SMART draws closer We pressed ahead with renovating and expanding our seed production plant at Einbeck in the year un- der review. The first part of the project was accom- plished with completion of the new logistics center. Other investments were the construction of a new cold store and expansion of a greenhouse complex in the U.S. Preparations to launch our new sugarbeet herbicide technology CONVISO® SMART – a joint project with Bayer CropScience – progressed further in the year under review. For fiscal 2017/2018, plans call for the start of successive launches in initial countries. A square meter is not enough space for a car to drive, but it can produce 1½ to 2 kilograms of sugar. KWS Group | Annual Report 2016/2017Cereals Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2016/2017 2015/2016 109.3 10.3 9.4 5.0 114.9 9.0 118.0 9.0 7.6 9.2 120.7 7.5 +/– –7.4% 14.4% –45.7% –4.8% in % in % Economic environment: Cereal commodity The lower cost of sales year on year had a positive prices remain low impact on the segment’s earnings and was able to The main external factors that influenced our cereal more than offset the negative impact on them from operations in the year under review included stag- the reduction in net sales. That was mainly attribut- nating cereal prices, devaluation of pound sterling able to two effects: Negative weather influences in as a result of the Brexit vote and the declining rye the previous year led to higher material costs for cultivation area in Germany. The generally low level hybrid rye – a situation that returned to normal in the of cereal prices – in particular that of rye compared year under review – and there was also a positive with bread wheat – meant that farmers in Germany impact from a higher proportion of revenue from tended to grow less rye, instead preferring wheat. licenses. While selling expenses were reduced in line However, the cultivation area for rye, wheat, bar- with the decline in net sales, our research & develop- ley and oil seed remained largely stable in other ment expenditure remained at the level of the previ- markets. ous year. The segment’s EBIT rose to €10.3 (9.0) mil- lion, giving an EBIT margin of 9.4% (7.6%). The segment’s performance: slight decline in net sales, but an increase in earnings The regions: KWS still has good market positions We were not able to compensate fully for the ef- While we recorded steadily positive business in our fects of the devaluation of pound sterling and lower key markets of the UK, Poland, France and Scan- net sales of rye in Germany with growth in other dinavia – which accounted for just over 55% of the markets, so net sales in the Cereals Segment de- segment’s net sales – the decline in the segment’s clined to €109.3 (118.0) million. If exchange rates net sales was due in particular to lower demand had remained constant, there would have been a for hybrid rye seed in Germany. KWS remains the lower reduction of 4.7% to €112.5 million. Our wheat clear leader here with 50% of the market, despite a business was able to follow up on the results of the slight fall in its share. Our business performance in previous year thanks to consistently good variety our strategic growth markets of Ukraine, Russia and performance and relatively good prices for wheat for Canada was positive overall. consumption compared to those for other types of cereal. In contrast, our net sales from rye fell by 7.0% France is one of the world’s largest cereal markets in on the back of a sharp drop in rye cultivation area. terms of cultivation area (around 5.6 million hectares Net sales from rapeseed and barley also declined of wheat and approximately 1.8 hectares of barley). slightly, mainly due to the devaluation of pound We successfully integrated the MOMONT Group sterling. Rye remained the mainstay of the Cereals in our Cereals Segment following its acquisition in Segment, contributing 40% of net sales, followed by September 2014 and can look back on a  successful wheat, barley and rapeseed. operating performance there. We were able to 50 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS GroupCereals cement our market share in a challenging environ- ment. That was mainly attributable to our good variety performance and establishment of the KWS brand in our cereals activities. Our breeding pro- grams for wheat were focused even more strongly on addressing local market requirements, and we also expanded our activities in southern France. We were also able to launch highly promising new rapeseed varieties on the market in the year under review. Development of new cereal varieties – increase in marketing approvals for the near future Our capital spending on production plants and breeding stations – their expansion and moderni- zation – totaled €5.0 (9.2) million in the year under review. Our focus remains on the quality of our vari- eties and seed. With our investments, we are sticking to our long-term strategy of developing new, con- tinuously improved varieties to suit our customers’ needs. We also increased the number of new variety approvals year on year. Long-term research & development projects, along with conventional breeding, are vital to the segment’s future. The positive trends in Eastern Europe and Canada are due to successful adaptation of our vari- eties to the demanding growth conditions there. Our focus in these highly promising regions is on tailored hybrid rye varieties to tap further market potential. Another long-term goal is to build and develop hybrid breeding activities for barley and wheat. Our variety candidates for hybrid rye occupy top rankings in terms of yield in the official tests, so we have good prospects to keep on growing our strong market position in Germany and other EU countries in the short term. Wheat – all a question of type? Wheat’s high starch content means it has excellent baking properties; it is the number one staple food in many countries. KWS Group | Annual Report 2016/2017Corporate Building bridges, bringing people together and fostering communication – that’s the goal of this building on the KWS campus in Einbeck. Segment Corporate Key figures in € millions Net sales EBIT Capital expenditure 2016/2017 2015/2016 4.8 –60.6 21.1 4.1 –50.1 14.6 +/– 17.1 % –21.0 % 44.5 % The Corporate Segment’s net sales are generated net sales cannot cover these expenses. As a result, mainly from our farms in Germany. In the past fiscal the EBIT reported by the segment is impacted every year they were €4.8 (4.1) million. All cross-segment fiscal year by regularly increasingly costs, depending costs are also allocated to the segment. They include on our business activity. It was €–60.6 (–50.1) million expenses for all central functions of the KWS Group at the end of the year under review. and for long-term research projects. The segment’s 52 Combined Management Report | Economic Report Annual Report 2016/2017 | KWS Group Opportunity and Risk Report As an international seed company, the KWS Group We see diverse opportunities for the KWS Group to operates in a dynamically changing environment. develop the company further in line with our strategy. That results in risks as well as opportunities, which To succeed in achieving sustainable, profitable we have to weigh as the foundation for our entrepre- growth in the future as well, our prime goal must neurial decisions. Opportunities be to retain and increase our innovativeness. The latter is expressed in seed business by continuous increases in the yields of new varieties. The plants’ We understand an opportunity as a development yield potential can be increased or their resistance that might have a positive impact on our earnings, to detrimental influences, of whatever type, can financial position and assets. At the KWS Group, be improved. Our goal is to offer our customers an opportunity management is an integral component increase in yield of 1% to 2% per annum with our of the established controlling system between the new varieties. That is why we constantly expand our subsidiaries/associated companies and company research & development activities. In the approval management. Strategic opportunities of major im- processes, our varieties are compared directly with portance, such as joint ventures and acquisitions, rival products in official performance tests. are jointly discussed by the KWS Group’s Executive Board. Even though the strategic orientation is main- There are also market opportunities as a result of our ly based on organic growth, selective acquisitions intensified activities in subtropical regions. Our corn may also round out KWS’ portfolio. activities in Brazil and China will enable us to tap Operational opportunities are identified and exploited medium to long term, including in other subtropical in the Business Units of the segments, since they markets, by developing varieties tailored precisely to additional sales potential for the KWS Group in the have the most extensive knowledge of their markets their climatic conditions. and products. Targeted measures are formulated together with the Executive Board so that strengths Investing in expansion of our production capacities can be leveraged and strategic growth potentials and modernization of our seed processing offers tapped. Extensive strategic planning covering a 10- additional opportunities to grow further. Further year time frame is the basis for opportunity manage- development of our variety portfolio and expansion ment. In keeping with our earnings-oriented growth of capacities are accompanied by expansion of our strategy, we exploit the industry-specific and strate- international distribution structures to enable even gic opportunities that arise by means of pinpointed more tailored and intensive information and advice investments in production capacities, research & for our customers on the possible uses of our seed, development activities, and expansion of distribution. and so allow us to leverage further sales potential. In addition, continuous optimization of processes offers the KWS Group the opportunity to increase produc- tivity and optimize cost structures. Opportunity and Risk Report | Combined Management Report 53 KWS Group | Annual Report 2016/2017 Risks Our risk management system is based on the inter- We define a risk as a potential future event that might nationally recognized COSO II model (Committee have a negative impact on our earnings, financial of Sponsoring Organizations of the Treadway Com- position and assets. mission). The principles of risk management are enshrined in our Group-wide “Rules, Guidelines & Organizational structure of the risk Procedures.” Core contents of it define the scope management system of application, responsibilities and reporting lines. Responsibility for risk management lies with the Opportunity management is not part of the risk Executive Board. The group functions Corporate management system. Finance, Corporate Compliance Office, Corporate Development & Communications and Corporate As part of its audit of the annual financial statements Controlling operate actively and report to the for fiscal year 2016/2017, Ernst & Young GmbH Executive Board (see the figure). The Corporate Wirtschaftsprüfungsgesellschaft confirmed the Management Circle, consisting of the first working order of our system for early detection of and second management tiers, forms the Risk risks in accordance with Section 91 (2) of the German Committee of KWS. Stock Corporation Act (AktG). 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 ■■ Internal revision ■■ Planning/budget ■■ Current expectation ■■ Integrated Management System ■■ Rules, Guidelines & Procedures (RGPs) ■■ Auditing and Case Management ■■ Excellence Through Stewardship (ETS) ■■ Compliance Management System ■■ Compliance Risk Assessment ■■ Compliance training ■■ Auditing ■■ Examinations 54 Combined Management Report | Opportunity and Risk Report Annual Report 2016/2017 | KWS Group Our commitment to you – a preview. Corn seed production at our Serbian plant. Objectives and brief description of the of assessment has been changed from the expected risk management system damage rating method to a new system. It assesses The objective of the risk management system is to risks as moderate, significant or critical on the basis record and assess all the main risks. Moreover, the of their potential level of damage and likelihood of identified risks are to be countered by appropriate, occurrence. proactive measures to reduce or avoid negative impacts on our corporate objectives so that we can Risk management process survive and thrive on the world market. The risk management process at KWS consists of the phases of identification, assessment, control and The persons responsible for the Group companies monitoring of risks and risk reporting. As part of risk and specific functions within the Group are integrat- identification, the persons responsible for the Group ed in KWS’ risk management system. They identify companies and specific functions record individual and quantify the risks in their sphere of responsi- risks in their sphere of responsibility on an electronic bility and formulate measures to control them. This platform. In doing so, they quantify the likelihood of enables risks to be identified, quantified, assessed, the risk occurring and its potential financial impact reported on and controlled promptly. Risk Manage- measured by its effect on EBIT. ment coordinates this process and supports the de- partments. Risks are assessed by Risk Management The individual risks are classified as follows as part and the Risk Committee. Since last year, the method of the assessment: Assessment of the risk categories Very low < €1 million 1 k s i r T B E I Low €1 million – €2.5 million Middle €2.5 million – €10 million High ≥ €10 million 1 Before measures Low < 20% Moderate Likelihood of occurrence Moderate 20% – 60% Moderate High ≥ 60% Moderate Moderate Moderate Substantial Substantial Substantial Critical Critical Critical Critical Opportunity and Risk Report | Combined Management Report 55 KWS Group | Annual Report 2016/2017 Appropriate countermeasures are formulated and Overview of the risks analyzed for all risks where possible. They may be The table below presents the risks, aggregated into measures to reduce risks, constant monitoring of risk categories. them or taking out insurance. The measures are weighed on the basis of economic aspects and initi- Assessment of the risk categories ated. The individual risks are analyzed in aggregated form using risk categories and assessed, taking the Risk category Likelihood of occurrence Extent of damage initiated measures into account. Risks are controlled systematically by regular checks, which review whether they are still appli cable and whether the measures and control activities are effec tive. In addition, experienced independent auditors examine compliance with the measures and controls using a risk-based approach. A report on the status and the process is given to the Audit Committee of the Supervisory Board every year. The Group function Corporate Finance reports regu larly to the Risk Committee on the current risk Market risks High Production risks High Procurement risks Product risks Environmental risks Liquidity risks Low Low Low Low Legal risks Moderate Personnel risks Moderate High Moderate Low High High Low High Low IT risks Low Moderate situation at the KWS Group and business segments. In addition, the following deals with the risk catego- On that basis, the Risk Committee discusses how ries that we see as having a greater influence on our to deal with the risks and provides stimuli on how to future business performance. control them. Market risks Risk management and the internal control KWS faces regional political risks due to the regulat- system in the accounting process ed nature of the agricultural industry in many coun- The risk management and internal control system tries. There is uncertainty in Ukraine, and continued comprises structures and processes designed to sanctions against Russia might negatively impact make sure that business transactions are included in our business activities there. We generated net sales accounting consistently, promptly and correctly. The totaling €68.3 (59.9) million in these two countries in following are examined regularly: the completeness fiscal 2016/2017. Other important growth countries, of financial reporting, the Group’s uniform account- such as Brazil and China, currently face economic ing, measurement and account allocation stipula- and political difficulties, too. The economic impact of tions, and the authorization and access regulations the United Kingdom’s decision to leave the EU (Brexit) for IT systems used in accounting. Intra-Group trans- is not significant for our business as far as can be actions are consolidated appropriately and in full. seen at present. The Group functions Corporate Finance, Group Our business success depends, among other things, Accounting and Corporate Controlling are respon- on the type of market access, our own variety perfor- sible for consolidated accounting at KWS. A con- mance and the competitive environment. However, sistent system tool that is subject to the Group’s the global economy has an indirect influence on our regulations on accounting makes it easier to ensure net sales and income. We address these challeng- that the consolidated financial statements comply es with systematic analyses of the market and the with the rules. competition and by developing high-yielding varieties optimized for different climatic zones. 56 Combined Management Report | Opportunity and Risk Report Annual Report 2016/2017 | KWS GroupCurrency risks arise in particular from receivables and Production risks liabilities denominated in foreign currency. There are Seed production is dependent on the weather. We interest rate risks as a result of potential changes to reduce the risk of crop failures by multiplying seed market interest rates. The interest payable on financial in separate locations and regions in Europe, North obligations with a variable rate of interest may in- and South America and Asia. In order to prevent crease. We address currency risks and the risk of in- and avoid bottlenecks in seed production, we main- terest rate changes to a reasonable extent through the tain appropriate stocks and can carry out contra- usual hedging instruments, to reduce the influence seasonal multiplication in the winter half-year in the on the KWS Group’s earnings and assets situation. southern hemisphere. In fiscal 2016/2017, we hedged our research & devel- opment expenditure and intra-group loans to a large We counter the outage of seed processing plants by part in order to avoid exchange rate risks. means of preventive maintenance, risk inspections and organizational and technical damage prevention Some of the consolidation projects in the agricultural programs. To cover economic loss, we have Group- industry have now been completed. We do not expect wide property and business interruption insurance. any negative impact on our business in the short term. There are opportunities and risks from further We have established detailed checks and tests to market consolidation in the medium to long term. For determine the performance and quality of our seed. example, market opportunities may arise for KWS in Quality controls, such as germination and sprouting general as a result of carve-outs and divestments by strength tests, are conducted at all stages of produc- the new groups due to antitrust considerations. tion. The aim of that is to avoid claims for damages To grow into a plant under a layer of soil, a seed needs enough strength – our mighty cereals being tested. The acquisition or licensing of technologies is cus- tomary and necessary in the industry. We reduce the related risks by developing our own innovations, which may also be attractive to competitors. Legal risks KWS faces risks from official proceedings and legal disputes. Legal disputes are possible, in particular, with suppliers, licensors, customers, employees, lend- ers and investors, and may result in payments or other obligations. There were no significant legal proceed- ings in fiscal 2016/2017. Under our compliance policy and the Code of Busi- ness Ethics, we not only obligate our employees to undertake to act in accordance with laws, contracts, internal guidelines and our corporate values, but also ensure they have the requisite awareness for such issues. In addition, we regularly hold international compliance training courses. Manual detail work is also vital in research into and development of new, high-yielding varieties. due to product liability. We also have product liability Personnel risks insurance to defend against unjustified claims and to Our HR strategy aims to recruit and keep qualified settle justified claims. Product risks employees at KWS. KWS also faces the increasingly challenging task of competing for staff with compa- nies from outside the industry, too. That may result Our quality controls of conventional seed include in the risk of losing employees or not being able to fill an examination to determine that it is free of GMOs. vacancies promptly. We counter these risks by con- Very strict requirements must be met regarding tinuously further developing our HR strategy. Among management of genetically modified products, in other things, we are committed to fostering talents, particular, to prevent GMOs becoming mixed with growing our brand as an attractive employer, and conventional seed. In the absence of a standardized expanding the KWS Group at new locations in urban legal threshold value, a number of European coun- centers. tries practice a policy of zero tolerance. KWS is a member of the “Excellence Through Stewardship” IT risks (ETS) initiative, an internationally standardized qual- The KWS Group’s business and production process- ity management program. It defines how genetically es, as well as its internal and external communica- modified plant material is used throughout the prod- tions, are run on globally networked IT systems. Any uct lifecycle. By being a member, we signal our clear outages or attacks can sometimes result in significant commitment to the responsible use of transgenic interruptions to business operations. In addition, theft plant material. of sensitive data can entail a loss of reputation for us. 58 Combined Management Report | Opportunity and Risk Report Annual Report 2016/2017 | KWS GroupOn the basis of our IT security policies, our IT secu- in personnel risks as a result of the  challenging con- rity organization monitors access to company data. ditions for finding and keeping qualified employees. Firewall, antivirus and other programs are kept up The most important risks are still related to the mar- to date to avoid losses and damage as a result of ket and products. Our business in emerging countries hacking and malware. There is also an extensive and in foreign currency continues to grow in impor- authorization concept. We commission IT service tance and harbors additional, yet calculable currency providers to constantly examine our IT security and and political risks. The identified risks do not jeopar- system authorizations in order to obtain recommen- dize the existence of the KWS Group, neither individ- dations for optimization measures through an external ually nor in their entirety. risk assessment. Overall statement on the risk situation by the novative strength and the quality of our products, Executive Board we can seize opportunities and successfully counter Our risk situation remained essentially the same in risks as they arise. Risks that jeopardize the compa- fiscal 2016/2017. There has been a further increase ny’s existence are not currently discernible. We feel sure that, thanks to our global footprint, in- Every plant is different – every variety is special. Finding the right one for you is our goal, motivation and focus. Opportunity and Risk Report | Combined Management Report 59 KWS Group | Annual Report 2016/2017Forecast Report The expectations of management outlined here are horizon. The signs for our corn business in South based on our corporate planning and the information America remain positive and we expect to continue it takes into account, including market expecta- to grow net sales there. There is a high level of sup- tions, strategic decisions, regulatory measures or ply in the European corn seed market, accompanied exchange rate trends. They are subject to the same by continuing pressure on seed prices. Nevertheless, premises as the consolidated financial statements we also assume here that our corn seed business and forecast our business performance up to the end will grow its net sales slightly. In fiscal 2017/2018, we of fiscal 2017/2018 on June 30, 2018. In our forecast will probably not be able to maintain the very good for the KWS Group’s statement of comprehensive net sales and earnings from our sugarbeet seed income in accordance with IFRS, we deal with the business, meaning net sales and earnings will likely KWS Group’s anticipated net sales, EBIT and R&D be lower. In our cereals business, we expect to grow intensity. Our forecast for the segments contains revenue from hybrid rye and wheat seed. comments on our net sales and EBIT expectations, including the contributions made by our equity- Due to the strongly seasonal nature of our business accounted companies, which are included pro- as a result of the great importance of the spring portionately in the segment reports in line with our sowing season and external factors that are difficult internal corporate controlling structure. to anticipate, such as the weather and fluctuations in cultivation area, detailed statements on our net Changes in the KWS Group’s composition that sales and earnings performance cannot yet be made are significant for the forecast with sufficient reliability. All in all, we currently expect From fiscal 2017/2018 on, we will pool our rapeseed the KWS Group to increase its net sales slightly over activities, which have been managed so far partly fiscal 2016/2017 and to post a double-digit EBIT mar- in the Corn Segment and partly in the Cereals Seg- gin, albeit below the previous year’s 12.2%. As far as ment, in one unit and transfer it completely to the can be seen at present, our research & development Cereals Segment. Consequently, all net sales and projects will result in an increase in the R&D intensity. earnings contributed by our rapeseed business will We are also increasing our capital spending sig- be allocated to the Cereals Segment. nificantly. Among other things, we are beginning to Forecast for the KWS Group’s statement of tinuing expansion of the sugarbeet seed production comprehensive income plant and modernizing a sugarbeet breeding station expand a research complex at the Einbeck site, con- We do not expect any significant change to the eco- in North America. nomic environment in the coming fiscal year. We also anticipate largely similar exchange rate influences as Forecast for the segments in the previous year – although we have considered As far as can be seen at present, the Corn Segment significant changes in the expected average rates in will grow its net sales in the coming fiscal year. Our our interim reports. We expect slight devaluations in anticipated positive business performance will more local currencies in South America, Eastern Europe than compensate for the decline in net sales due to and Turkey. As far as can be seen at present, cultiva- the previously mentioned transfer of rapeseed busi- tion area is subject to the usual regional fluctuations. ness to the Cereals Segment (the segment generated We do not anticipate significant changes at present; net sales from rapeseed of just over €20 million in however, a more concrete picture of the actual trends the year under review). We assume that net sales will will largely emerge toward the end of the forecast increase in Europe on the back of higher volumes, 60 Combined Management Report | Forecast Report Annual Report 2016/2017 | KWS Group Research today – reap success tomorrow. We like looking into the future, so as to live up to the standards our customers and we ourselves demand. despite the fact that there will still be perceptible (previous year: 33.2%) despite lower license pay- pressure on prices. We expect to increase our net ments for American sugarbeet technology. sales from corn and soybean seed in North and South America, but will not be able to do so in South The Cereals Segment will benefit in the coming fis- America to the same extent as in the very successful cal year from taking over the Corn Segment’s rape- previous year. The other regions will also likely con- seed activities. That should increase its net sales by tribute to the segment’s growth in net sales – thanks around €20 million. As far as can be seen at present, to a slight increase in revenue from corn seed in revenue from rye and wheat will increase and barley China, for instance. The segment’s EBIT margin business will remain stable. Just about all important should likewise improve slightly over the previous cereal regions are expected to contribute to this year (7.1%). growth. Net sales for the Cereals Segment will there- fore probably rise by at least 20% year on year. The In view of the constant strength of our variety port- segment’s income will also be strengthened by the folio and the fact that the cultivation area will remain planned growth in net sales and earnings from rape- largely stable, we expect the Sugarbeet Segment seed business. We currently expect an EBIT margin to again post very good net sales and earnings in at around the level of the previous year (9.4%). the coming fiscal year. However, we will not be able to replicate our success of the previous year as far Revenue from our farms in Germany is grouped as can be seen at present. Our large market share in in the Corporate Segment. It should be around North America will probably decline slightly. Demand €4 million. Since all cross-segment costs for the in Turkey will likely be lower since our customers KWS Group’s central functions and basic research have large stocks of seed. We will be able to offer expenditure are charged to the Corporate Segment, our new CONVISO® SMART sugarbeet varieties in a its income is regularly negative. In our corporate number of Eastern European countries for the first planning for fiscal 2017/2018, its costs will tend to time, albeit it in small quantities to begin with. All in rise due to the planned expansion of our business all, the segment’s net sales will therefore probably be activity and so its income is expected to be between lower than in the year under review (€454.6 million). €–65 and €–75 million. Its EBIT margin will also probably decline slightly Forecast for the 2017/2018 fiscal year Statement of comprehensive income of the KWS Group Slight increase Double-digit EBIT margin below previous year Net sales growth EBIT margin R&D intensity Slight increase Forecast Report | Combined Management Report 61 KWS Group | Annual Report 2016/2017Only people who like their job do it well. Your job. Your passion. Our respect. Being passionate about your job. That is independence. We not only respect that, it unites us. Corporate Governance Corporate Governance Report and Declaration the following declaration of compliance was issued on Corporate Governance1 to the effect that the company complies almost fully Responsible corporate governance has always been with the code’s recommendations. of great importance at KWS SAAT SE. Since it was founded more than 160 years ago, our company’s You can find detailed information on corporate gov- successful development has been based on thinking ernance, also with the contents in accordance with in the long term and acting in terms of sustainability. Clause 3.10 of the German Corporate Governance The Executive Board and the Supervisory Board Code, in our Corporate Governance Report (which run and accompany KWS with the goal of ensur- is also the declaration on corporate governance in ing it creates sustainable value added. They once accordance with Section 289a of the German Com- again examined in the year under review whether mercial Code (HGB)), which is available in full on our the company complies with the stipulations of the website at www.kws.com/corporate-governance. You German Corporate Governance Code. As a result, can find the compensation 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 2 of KWS SAAT SE declare, in compliance with Section the German Corporate Governance Code, the Super- 161 AktG (German Stock Corporation Act), that the visory Board is to set a limit on the length of time company has complied with the recommendations members can serve on the Supervisory Board. of the German Corporate Governance Code in the This recommendation is not complied with, since version dated May 5, 2015, since the last compliance in a business with a tradition of family ownership declaration in October 2016, and with the recom- like KWS SAAT SE, it would significantly restrict mendations of the German Corporate Governance the rights of the family shareholders, who hold a Code in the version dated February 7, 2017, since its majority stake in the company. publication in the official section of the Federal Offi- cial Gazette, and does now comply and will comply Clause 7.1.2 Sentence 3 of the German Corporate with them in the future, with the following exceptions: Governance Code states that the consolidated finan- cial statements shall be publicly accessible within In accordance with Clause 4.2.2 (2) Sentence 3 of the 90 days of the end of the fiscal year and interim German Corporate Governance Code, the Supervisory reports within 45 days of the end of the reporting Board shall consider the relationship between the period. KWS SAAT SE publishes its consolidated compensation of the Executive Board and that of financial statements and interim reports within the senior management and the workforce overall, particu- period of time defined in the regulations for the Prime larly in terms of its development over time, whereby the Standard of the German Stock Exchange. The com- Supervisory Board shall determine how senior man- pany’s seasonal course of business means that it agers and the relevant staff are to be differentiated. cannot ensure compliance with the recommended This recommendation is not complied with, since the periods in the German Corporate Governance Code. compensation of the Executive Board, senior manage- ment and staff is based on variable criteria that defy Einbeck, October 2017 rigid definition. These criteria include not only generally applicable yardsticks such as degree of responsibility, The Supervisory Board The Executive Board tasks, personal performance, expertise and the like for the Executive Board, but also the company’s econom- ic situation, success and future prospects. 1 Not part of the audited Combined Management Report 64 Combined Management Report | Corporate Governance Annual Report 2016/2017 | KWS Group Compensation Report The total compensation of the Executive Board comprises The compensation report contains explanations on the following components: the salient features, structure and level of the com- pensation paid to members of the Executive Board 1. A basic fixed annual salary and the Supervisory Board of KWS SAAT SE. It is (if applicable with a CEO bonus) based on the relevant statutory provisions and ori- 2. Fringe benefits ented toward the pertinent recommendations of the 3. A variable payment in the form of a performance- German Corporate Governance Code. related bonus Compensation for members of the incentive (LTI) based on the KWS stock price 4. A variable payment in the form of a long-term Executive Board 5. Any special payments The compensation system for members of the 6. Pension arrangements Execu tive Board was set by the Supervisory Board in 2010 and approved by the Annual Shareholders’ The performance-related bonus (including fringe benefits), Meeting. Compensation for the members of the the LTI payment and the total compensation of every Execu tive Board is based on the size and activity of member of the Executive Board is limited individually to a the company, its economic and financial situation, and maximum amount. the level and structure of compensation for managing board members at comparable companies. The basic annual salary in the year under review for all Executive Board members was €300 thousand. The Chief Executive Officer receives an extra “CEO bonus” of 25% on top of the basic annual salary. The basic compensation is paid as a monthly salary. It’s how you look at things ... Whatever your viewpoint: Our seed stands for quality. Corporate Governance | Combined Management Report 65 KWS Group | Annual Report 2016/2017Apart from these fixed salaries, there is also bonus payment in shares of KWS SAAT SE. The non-monetary compensation in the form of fringe long-term incentive (LTI) is paid in the form of cash benefits (such as a company car and a mobile compensation after a holding period of five years. phone), contributions to health and nursing care It was paid for the first time at the beginning of insurance, and accident insurance in favor of mem- 2017. This payment is calculated on the basis of the bers of the Executive Board. share’s performance over the holding period and The variable payment for Executive Board mem- ment reporting), measured as the ratio of operating on the average return on sales (ROS, based on seg- bers (performance-related bonus) is calculated income to net sales. on the basis of a fixed percentage and depends on the average net income of the KWS Group for The LTI payment is limited to a maximum of the past three years (“sustained net income”). The one-and-a-half times (two times for Dr. Hagen object of that is for the compensation to reflect the Duenbostel) of the capital used to acquire the company’s performance, positive or negative. Addi- shares. tional payments for any duties performed in subsidi- aries and associated companies are offset against Additional special payments were not granted to the variable payment (performance-related bonus). the members of the Executive Board in the year This – including the fringe benefits – is limited to an under review. amount of €500 thousand for each Executive Board member per fiscal year. If sustainable net incomes Pension obligations are granted in the form of a of more than €100 million in each year are gener- direct obligation to provide benefits, with the annual ated in two successive years, the upper limit for anticipated pensions ranging between €13 thousand the bonus is increased to €600 thousand for each and €130 thousand, and a defined contribution plan. Executive Board member as of the following fiscal In fiscal 2016/2017, €306 (306) thousand was paid to year. a provident fund backed by a guarantee for pension commitments to members of the Executive Board. Since fiscal year 2010/2011, there has also been A further €–204 (423) thousand was allocated to a stock-based bonus system (the first reference the pension provisions in accordance with IAS 19 point for which was in January 2012). It is intended (of which €18 thousand was interest expenses and to act as a long-term incentive and thus support the €–222 thousand from revaluation effects). Pension company’s sustainable development. Every member provisions totaling €1,180 (1,384) thousand were thus of the Executive Board is obligated to invest a freely formed for the members of the Executive Board of selectable amount ranging between at least 20% KWS SAAT SE. and at most 50% of the gross performance-related Pension commitments in € Dr. Hagen Duenbostel Dr. Peter Hofmann Total 06/30/2017 06/30/2016 Interest expenses Revaluation effects 852,085.00 1,015,005.00 13,195.00 –176,115.00 327,562.00 368,618.00 4,792.00 –45,848.00 1,179,647.00 1,383,623.00 17,987.00 –221,963.00 66 Combined Management Report | Corporate Governance Annual Report 2016/2017 | KWS GroupThe total compensation to be reported for the basic annual salary, including fringe benefits, 47.9% Executive Board in accordance with Section 314 (1) (45.4%) by annual variable components and 15.4% No. 6a of the German Commercial Code (HGB) in (15.8%) by multi-year variable components. The conjunction with German Accounting Standard tables below provide an overview of the total com- No. 17 (GAS 17) was €3,772 (3,531) thousand in fiscal pensation granted in the fiscal year on an individual- 2016/2017. 36.7% (38.8%) was accounted for by the ized basis (excluding pension costs). Total compensation for the Executive Board 2016/2017 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 375,000.00 29,316.14 451,457.68 855,773.82 199,823.52 1,055,597.34 316,943.04 Dr. Léon Broers 300,000.00 23,801.47 451,457.68 775,259.15 199,823.52 975,082.67 245,241.93 Dr. Peter Hofmann 300,000.00 22,623.40 451,457.68 774,081.08 82,991.22 857,072.30 25,831.79 Eva Kienle Total 300,000.00 32,828.59 451,457.68 784,286.27 99,911.76 884,198.03 47,097.33 1,275,000.00 108,569.60 1,805,830.72 3,189,400.32 582,550.02 3,771,950.34 635,114.09 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 1 Long-term incentive fair value 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 Compensation of former members of the Executive The target compensation, including the agreed Board and their surviving dependents amounted to lower and upper limits, is shown under “Grant.” The €1,774 (1,334) thousand, of which €96 (97) thousand LTI grants are assessed at the present value at the was payment under a consultancy agreement. Pen- time of acquisition of the last tranche of shares. The sion commitments in accordance with IAS 19 (2011) details on the receipts show the same figures as recognized for this group of persons amounted to under “Grant” for the fixed compensation and fringe €7,337 (8,027) thousand as of June 30, 2017. The pen- benefits. The receipt for fiscal years 2016/2017 and sion commitments for three former members of the 2015/2016 (amounts paid) is stated for the one-year Executive Board are backed by a guarantee. No loans variable payment (performance-related bonus), as is were granted to members of the Executive Board and the amount for the multi-year variable payments (LTI), the Supervisory Board in the year under review. whose planned term ends in the year under review. In turn, the benefit expense is presented in accordance In the tables below, we present the individual grants with IAS 19 and does not constitute a receipt in the and receipts separately for each member of the narrower sense, but serves to illustrate the overall Executive Board, as incurred in the year under review compensation. and in the previous year in accordance with the recommendations in Clause 4.2.5 (3) of the German Corporate Governance Code (DCGK) in the version dated February 7, 2017. Corporate Governance | Combined Management Report 67 KWS Group | Annual Report 2016/2017Executive Board compensation in keeping with Clause 4.2.5 (3) of the German Corporate Governance Code (DCGK) in € Grant Receipt 2016/2017 2015/2016 2016/2017 2015/2016 min. max. Dr. Hagen Duenbostel (Chief Executive Office) Fixed payment Fringe benefits Subtotal 375,000.00 375,000.00 375,000.00 375,000.00 375,000.00 375,000.00 29,316.14 29,316.14 29,316.14 21,522.58 29,316.14 21,522.58 404,316.14 404,316.14 404,316.14 396,522.58 404,316.14 396,522.58 Performance-related bonus 449,253.30 0.00 470,683.86 419,876.27 451,457.68 421,671.27 Total cash compensation 853,569.44 404,316.14 875,000.00 816,398.85 855,773.82 818,193.85 Multi-year variable payment LTI 2010/2011 LTI 2014/2015 LTI 2015/2016 Subtotal Pension costs1 414,433.23 205,561.20 199,823.52 0.00 421,140.01 1,053,392.96 404,316.14 1,296,140.01 1,021,960.05 1,270,207.05 818,193.85 103,195.00 103,195.00 103,195.00 107,059.00 103,195.00 107,059.00 Total compensation 1,156,587.96 507,511.14 1,399,335.01 1,129,019.05 1,373,402.05 925,252.85 Maximum compensation2 1,765,000.00 1,765,000.00 Dr. Léon Broers Fixed payment Fringe benefits Subtotal 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 23,801.47 23,801.47 23,801.47 23,126.34 23,801.47 23,126.34 323,801.47 323,801.47 323,801.47 323,126.34 323,801.47 323,126.34 Performance-related bonus 449,253.30 0.00 476,198.53 419,876.27 451,457.68 421,671.27 Total cash compensation 773,054.77 323,801.47 800,000.00 743,002.61 775,259.15 744,797.61 Multi-year variable payment LTI 2010/2011 LTI 2014/2015 LTI 2015/2016 Subtotal Pension costs1 221,364.43 205,561.20 199,823.52 0.00 315,855.01 972,878.29 323,801.47 1,115,855.01 948,563.81 996,623.58 744,797.61 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,044,878.29 395,801.47 1,187,855.01 1,020,563.81 1,068,623.58 816,797.61 Maximum compensation2 Dr. Peter Hofmann Fixed payment Fringe benefits Subtotal 1,547,000.00 1,547,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 22,623.40 22,623.40 22,623.40 22,835.78 22,623.40 22,835.78 322,623.40 322,623.40 322,623.40 322,835.78 322,623.40 322,835.78 Performance-related bonus 449,253.30 0.00 477,376.60 335,901.02 451,457.68 337,337.02 Total cash compensation 771,876.70 322,623.40 800,000.00 658,736.80 774,081.08 660,172.80 Multi-year variable payment LTI 2010/2011 LTI 2014/2015 LTI 2015/2016 Subtotal Pension costs1 0.00 64,567.30 82,991.22 0.00 131,181.72 854,867.92 322,623.40 931,181.72 723,304.10 774,081.08 660,172.80 76,792.00 76,792.00 76,792.00 78,953.00 76,792.00 78,953.00 Total compensation 931,659.92 399,415.40 1,007,973.72 802,257.10 850,873.08 739,125.80 Maximum compensation2 1,247,000.00 1,047,000.00 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. 68 Combined Management Report | Corporate Governance Annual Report 2016/2017 | 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 2016/2017 2015/2016 2016/2017 2015/2016 min. max. 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 32,828.59 32,828.59 32,828.59 27,966.54 32,828.59 27,966.54 332,828.59 332,828.59 332,828.59 327,966.54 332,828.59 327,966.54 Performance-related bonus 449,253.30 0.00 467,171.41 419,876.27 451,457.68 421,671.27 Total cash compensation 782,081.89 332,828.59 800,000.00 747,842.81 784,286.27 749,637.81 Multi-year variable payment LTI 2010/2011 LTI 2014/2015 LTI 2015/2016 Subtotal Pension costs1 0.00 82,224.48 99,911.76 0.00 157,927.50 881,993.65 332,828.59 957,927.50 830,067.29 784,286.27 749,637.81 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 953,993.65 404,828.59 1,029,927.50 902,067.29 856,286.27 821,637.81 Maximum compensation2 1,247,000.00 1,247,000.00 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 members of the Supervisory Board receive €5 thou- Supervisory Board sand p.a. for their work on the Committee for Exec- The Supervisory Board’s compensation was set by utive Board Affairs and €10 thousand p.a. for their the Annual Shareholders’ Meeting on December 17, work on the Audit Committee. The members of the 2009, and has remained unchanged since then. It Supervisory Board are reimbursed for all expenses is based on the size of the company, the duties and – including value-added tax – that they incur while responsibilities of the members of the Supervisory carrying out the duties of their position. Board and the company’s economic situation. The remuneration includes not only a fixed payment of The compensation for the Supervisory Board in €28 thousand p.a. and a fixed payment for work on the year under review was slightly below that of the committees, but also a performance-related com- previous year due to the changes in composition ponent. This component is geared toward the com- confirmed by the Annual Shareholders’ Meeting in pany’s long-term development. In keeping with that, December 2016. Total compensation was €504 (516) members of the Supervisory Board receive €400 for thousand exclusive of value added tax. In all, 47% each full €0.10 by which the average consolidated (46%) or €238 (238) thousand of the total compen- annual earnings per share before minority interests sation is performance-related. for the past three fiscal years, starting with the fiscal year for which the compensation is granted, exceeds At the end of fiscal 2016/2017, the Executive the amount of €4.00. The performance-related pay- Board and the Supervisory Board commenced ment is limited to the amount of the fixed payment. deliberations on converting the compensation of KWS SAAT SE’s Supervisory Board to a purely fixed The Chairman of the Supervisory Board receives compensation effective the start of fiscal 2017/2018 three times and his or her deputy one-and-a-half (July 1, 2017) in line with recent trends for the re- times the fixed compensation of an ordinary mem- muneration of Supervisory Board members at large ber. There is no extra compensation for them for listed companies in Germany. The company believes work on committees. The Chairman of the Audit that a fixed compensation structure that is there- Committee receives €25 thousand p.a. Ordinary fore no longer linked to the company’s business KWS Group | Annual Report 2016/2017 Corporate Governance | Combined Management Report 69 Total compensation for the Supervisory Board in € Dr. Andreas J. Büchting1 Dr. Arend Oetker2 Dr. Marie Theres Schnell3 Fixed 84,000.00 21,000.00 14,000.00 Work on committees Performance- related Total 2016/2017 Total 2015/2016 0.00 0.00 0.00 84,000.00 168,000.00 168,000.00 21,000.00 42,000.00 84,000.00 14,000.00 28,000.00 0.00 Hubertus von Baumbach4 35,000.00 12,500.00 35,000.00 82,500.00 81,000.00 Jürgen Bolduan 28,000.00 10,000.00 28,000.00 66,000.00 66,000.00 Cathrina Claas-Mühlhäuser Dr. Berthold Niehoff 28,000.00 28,000.00 5,000.00 28,000.00 61,000.00 61,000.00 0.00 28,000.00 56,000.00 56,000.00 238,000.00 27,500.00 238,000.00 503,500.00 516,000.00 1 Chairman 2 Deputy Chairman until 12/15/2016 3 Since 12/15/2016 4 Deputy Chairman since 12/15/2016, Chairman of the Audit Committee performance means that the Supervisory Board Act (WpHG). In addition, no voting rights accrue to can better exercise its control function. The change the company on the basis of the shares it holds (Sec- is also intended to reflect the greater sphere of re- tion 71b AktG). The Executive Board is not aware of sponsibility of the Supervisory Board and its bodies, any contractual restrictions relating to voting rights especially that of the Audit Committee. Subject to or transfer of shares. If there are no restrictions to the consent of the Annual Shareholders’ Meeting on voting rights, all shareholders who register for the December 14, 2017, the compensation system would Annual Shareholders’ Meeting in time and have sub- thus be adjusted for the first time since 2009. It would mitted proof of their authorization to participate in still comply with the recommendations of the German the Annual Shareholders’ Meeting and exercise their Corporate Governance Code in its new form. voting rights are authorized to exercise the voting rights conferred by all the shares they hold and have A resolution to this effect is currently being prepared. registered. If members of the Executive Board or executive employees have acquired shares as part Explanatory Report of the Executive Board in of the long-term incentive programs, these shares accordance with Section 176 (1) Sentence 1 are subject to a lock-up period until the end of the AktG (German Stock Corporation Act) on the fifth year after the end of the quarter in which they Disclosures in Accordance with Sections 289 (4) were acquired. The lock-up period for shares that and 315 (4) HGB (German Commercial Code) em ployees have acquired as part of the Employee Stock Purchase Plans runs until the end of the fourth Composition of the subscribed capital year as of when they are posted to the employee’s The subscribed capital of KWS SAAT SE is €19.8 mil- securities account. lion. It is divided into 6.6 million bearer shares. Each share grants the holder the right to cast one vote at Direct and indirect participating interests in the Annual Shareholders’ Meeting. excess of 10% of the voting rights Restrictions relating to voting rights or the following direct or indirect participating interests the transfer of shares in the capital of KWS SAAT SE in excess of 10% of There may be restrictions relating to voting rights or the voting rights in accordance with Section 21 and the transfer of shares as a result of statutory or con- Section 22 of the German Securities Trading Act The company has been informed by shareholders of tractual provisions. For example, shareholders are (WpHG) or elsewhere. barred from voting under certain conditions pursuant to Section 136 of the German Stock Corporation Act The voting shares, including mutual allocations, of (AktG) or Section 28 of the German Securities Trading the members and companies of the families Büchting 70 Combined Management Report | Corporate Governance Annual Report 2016/2017 | KWS Groupand Arend Oetker listed below each exceed 10% and Article 46 of the Council Regulation on the Statute for total 54.5%: a European Company (SE Regulation) and Sections 84 and 85 AktG (German Stock Corporation Act). Section ■■ Dr. Drs. h. c. Andreas J. Büchting, Germany 6 of KWS SAAT SE’s Articles of Association also con- ■■ Christiane Stratmann, Germany ■■ Dorothea Schuppert, Germany tains provisions that relate to the appointment of mem- bers of the Executive Board by the Supervisory Board ■■ Michael C.-E. Büchting, Germany and that correspond to the statutory regulations. ■■ Annette Büchting, Germany ■■ Stephan O. Büchting, Germany ■■ Christa Nagel, Germany ■■ Bodo Sohnemann, Germany Amendments to the Articles of Association The company’s Articles of Association can be amended by a resolution adopted by the Annual ■■ Matthias Sohnemann, Germany Shareholders’ Meeting in accordance with Article 59 ■■ Malte Sohnemann, Germany ■■ Arne Sohnemann, Germany ■■ AKB Stiftung, Hanover of the Council Regulation on the Statute for a Euro- pean Company (SE Regulation) and Section 179 (1) AktG (German Stock Corporation Act). In accordance ■■ Büchting Beteiligungsgesellschaft mbH, Hanover with Article 51 of the SE Implementation Act (SEAG), ■■ Zukunftsstiftung Jugend, Umwelt und Kultur, Section 179 (2) AktG (German Stock Corporation Einbeck Act) and Section 18 of the Articles of Association of ■■ Kommanditgesellschaft Dr. Arend Oetker Vermö- KWS SAAT SE, amendments to the Articles of Asso- gensverwaltungsgesellschaft mbH & Co., Berlin ciation require that at least half the capital stock be ■■ Dr. Arend Oetker, Germany represented and that a resolution be adopted by the ■■ Dr. Marie Theres Schnell, Germany Annual Shareholders’ Meeting by a simple majority of ■■ Johanna Sophie Oetker, Germany the capital stock represented in adoption of the reso- ■■ Leopold Heinrich Oetker, Germany lution, unless obligatory statutory regulations speci- ■■ Clara Christina Oetker, Germany ■■ Ludwig August Oetker, Germany fy otherwise. If at least half the capital stock is not represented in adoption of the resolution to amend the Articles of Association, the resolution must be The voting shares, including mutual allocations, of passed with a majority of at least two-thirds of the the shareholders stated below each exceed 10% and votes cast. The power to make amendments to the total 15.4%. Articles of Association that only affect the wording (Section 179 (1) Sentence 2 AktG) has been conferred ■■ Hans-Joachim Tessner, Germany on the Supervisory Board in accordance with Section ■■ Tessner Beteiligungs GmbH, Goslar 22 of the Articles of Association of KWS SAAT SE. ■■ Tessner Holding KG, Goslar Shares with special rights and voting control relation to issuing or buying back shares Shares with special rights that grant powers of control The Executive Board is not currently authorized to Powers of the Executive Board, in particular in have not been issued by the company. There is no issue or buy back shares. special type of voting control for the participating in- terests of employees. Employees who have an interest Significant agreements in the event of a change in the company’s capital exercise their control rights of control, compensation agreements in the same way as other shareholders. Significant agreements subject to the condition of a change in control pursuant to a takeover bid have Appointment and removal of members not been concluded. The compensation agreements of the Executive Board between the company and members of the Execu- Members of the Executive Board of KWS SAAT SE tive Board governing the case of a change in control are appointed and removed in accordance with Article stipulate that any such compensation will be limited 9 (1) and Article 39 (2) of the Council Regulation on to the applicable maximum amounts specified by the the Statute for a European Company (SE Regulation), German Corporate Governance Code. Corporate Governance | Combined Management Report 71 KWS Group | Annual Report 2016/2017Others think in quarters. We think in generations. Your farm. Your heritage. Our reliability. Doing something you are fully convinced of since generations. That is independence. That’s why you can rely on us – since 1856. KWS SAAT SE (Explanations in Accordance with HGB) References to KWS SAAT SE in the KWS Group’s which also contains the compliance declaration in Annual Report accordance with Section 161 AktG (German Stock The Management Reports of KWS SAAT SE and Corporation Act), has been published in the Internet the KWS Group are combined. The declaration on at www.kws.com/ir. The following disclosures are corporate governance in accordance with Section identical to those of the KWS Group and are printed 289a of the German Commercial Code (HGB), in this Annual Report: 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 & development Page(s) 65 to 71 24 to 52 15 29 to 31 KWS SAAT SE is the parent company of the KWS revenues under the German Accounting Directive Group. It is responsible for strategic management Implementation Act (BilRUG) that was applied for and, among other things, multiplies and distributes the first time in the fiscal year and relates to reclassi- sugarbeet and corn seed. It finances basic research fication of parts of other operating income to sales and breeding of the main range of varieties at the revenues. The increase in net sales would be 5.2% KWS Group and provides its subsidiaries with excluding the effect from reclassification of €26.5 new varieties every year for the purpose of multi- million. Research & development expenditure, plication and distribution. On October 26, 2016, which is pooled at KWS SAAT SE, was increased KWS SAAT SE concluded profit and loss transfer to €165.0 (158.0) million. Selling expenses rose agreements with Agromais GmbH, Betaseed GmbH, slightly to €60.6 (59.2) million. Most of the adminis- Delitzsch Pflanzenzucht Gesellschaft mit beschränk- trative expenses at the KWS Group are incurred ter Haftung, Kant-Hartwig & Vogel Gesellschaft mit at KWS SAAT SE – general and administrative ex- beschränkter Haftung and KWS Services Deutsch- penses in the year under review totaled €50.1 (57.0) land GmbH, each of which applies retroactively as million. The balance of other operating income and of July 1, 2016. The Shareholders’ Meetings of the other operating expenses was €11.0 (100.8) million. individual companies on October 27, 2016, and the Significant changes to this item resulted from the Annual Shareholders’ Meeting of KWS SAAT SE on amendments in accordance with the German Ac- December 15, 2016, approved conclusion of the prof- counting Directive Implementation Act (BilRUG) and it and loss transfer agreements; as a result, a profit reclassification of the profit of €67.7 million from the of €10.5 million was paid to KWS SAAT SE for the merger of KWS MAIS GMBH as other operating in- first time for fiscal year 2016/2017 on the basis of the come last year. Overall, KWS SAAT SE’s operating agreements. Earnings income was thus €23.4 (85.8) million. Net financial income/expenses is made up of the net income from equity investments from eleven (eight) companies KWS SAAT SE’s net sales increased in fiscal and the interest result. Net income from equity in- 2016/2017 by 11.0% to €508.4 (€458.0) million. This vestments rose by €7.6 million to €29.9 (22.3) mil- rise is mainly attributable to the increase in revenue lion, in particular due to the profits paid over under from sugarbeet seed and the new definition of sales the profit and loss transfer agreements concluded 74 Combined Management Report | KWS SAAT SE (Explanations in Accordance with HGB) Annual Report 2016/2017 | KWS Groupin the year under review. The interest result was Forecast report €4.2 (4.3) million, on a par with the previous year. KWS SAAT SE generates the main part of its net Taking into account tax expenditures, net income sales from sugarbeet and corn seed business and for the year was €34.6 (100.8) million. The previous royalties from basic corn seed. The further develop- year’s income included a profit of €67.7 million from ment of sugarbeet seed business depends, among the merger of KWS MAIS GMBH with KWS SAAT SE. other things, on the performance of our varieties, cultivation areas in our key markets and develop- Financial position and assets ments in our growth markets in Eastern Europe. We KWS SAAT SE’s total assets increased in fiscal currently antici pate a slight increase in net sales from 2016/2017 by €24.5 million to €909.7 (885.2) million. this business. As a result of a continued challeng- Fixed assets at the balance sheet date were €498.7 ing environment in the EU and the reassignment of (485.4) million or, as in the previous year, 54.8% net sales of rapeseed to the Cereals Segment (see of total assets. The increase is due in particular to page 63), we anticipate that the net sales of corn at property, plant and equipment and financial assets. KWS SAAT SE will decline slightly. Overall, we expect Among other things, a new warehouse was built at net sales for KWS SAAT SE to rise slightly year on Einbeck, the company cafeteria expanded and ERP year. KWS SAAT SE’s operating income is mainly im- licenses acquired in the year under review. Current pacted by the costs of central functions of the KWS assets rose to €71.9 (67.0) million due to the increase Group and cross-segment research & development in inventories, while receivables and other assets activities. The planned increase in research & devel- rose to €211.4 (206.4) million. KWS SAAT SE’s equity opment spending and a slight decline in income from increased by €17.0 million to €281.3 (266.4) million, sugarbeet will probably reduce KWS SAAT SE’s EBIT giving an equity ratio of 30.9% (30.1%). In addition, significantly. liabilities to affiliated companies rose to €266.8 (237.3) million, mainly due to financing activities. KWS SAAT SE’s total liabilities at the balance sheet date were €495.3 (493.0) million. Employees An average of 1,434 (1,424) people were employed at KWS SAAT SE in the year under review, of whom 114 (116) were trainees and interns. Risks and opportunities The opportunities and risks at KWS SAAT SE are es- sentially the same as at the KWS Group. It shares the risks of its subsidiaries and associated companies in accordance with its respective stake in them. You can find a detailed description of the opportunities and risks and an explanation of the internal control and risk management system (Section 289 (5) of the German Commercial Code (HGB)) on pages 53 to 59. Employees from all over the world are our foundation. Dedicated and grounded – we instill and encourage home-grown talent, our most important asset. KWS SAAT SE (Explanations in Accordance with HGB) | Combined Management Report 75 KWS Group | Annual Report 2016/2017Annual Financial Statements for the KWS Group 2016/2017 78 Statement of Comprehensive Income 79 Balance Sheet 80 Statement of Changes in Equity 82 Cash Flow Statement 83 Notes for the KWS Group 2016/2017 85 91 94 98 119 125 126 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 130 Independent Auditor’s Report 135 Declaration by Legal Representatives 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 €) 78 Annual Financial Statements | Statement of Comprehensive Income Note no. 2016/2017 2015/2016 (20) 1,075,244 1,036,774 (21) (22) (23) (24) (27) (12) 493,922 581,322 200,676 190,327 79,833 69,706 48,601 480,864 555,910 196,818 182,360 76,402 70,372 57,938 131,591 112,764 3,101 11,410 24,935 –27 16,599 148,190 50,478 97,712 2,662 14,347 26,466 3 14,784 127,548 42,271 85,277 –262 354 –13,194 –3,817 –17,273 8,459 8,459 –8,814 88,898 97,549 163 97,712 88,735 163 88,898 –18,743 –469 –18,858 –17,049 –17,049 –35,907 49,370 85,261 16 85,277 50,681 –1,311 49,370 14.78 12.92 Annual Report 2016/2017 | 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. 06/30/2017 06/30/2016 (2) (3) (4) (6) (7) (24) (8) (8) (9) (10) (11) (9) (9) (9) 87,432 389,345 151,769 3,069 2,011 32 46,535 680,193 194,919 13,562 302,571 9,455 181,913 59,975 40,573 12,064 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 12,090 815,032 768,674 1,495,225 1,436,631 Note no. 06/30/2017 06/30/2016 (13) (12) (24) 19,800 5,530 809,132 2,534 836,996 125,408 200,828 1,217 12,721 1,306 17,405 (14) 358,885 72,774 39,065 75,400 25,620 16,318 70,167 299,344 658,229 (15) 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 Total equity and liabilities 1,495,225 1,436,631 Balance Sheet | Annual Financial Statements 79 KWS Group | Annual Report 2016/2017Statement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Accumulated 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 07/01/2015 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 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests 06/30/2017 19,800 5,530 724,943 –19,800 85,261 3,233 9,930 –91 1,456 731,050 10,424 –1,878 0 –17,395 85,261 –17,395 –469 –469 333 333 –17,049 –17,049 0 0 50,681 16 –1,348 19,800 5,530 3,596 794,000 –19,800 97,549 –14,162 9,461 242 –50,800 1,456 765,527 0 0 97,549 –13,194 –3,817 –13,194 –3,817 –262 –262 8,459 8,459 19,800 5,530 871,749 –27,356 5,644 –20 –42,341 1,456 834,462 0 0 Revaluation of defined benefit plans –33,751 Other trans- actions Adjustments Revaluation from of defined currency translation benefit plans –329 16 –6,728 3,383 0 163 –19,800 85,261 –34,580 3,596 –19,800 97,549 –8,841 0 88,735 163 0 –61 3,485 –1,348 3,132 –94 0 0 0 –94 Other trans- actions –878 21 21 0 –857 0 0 7,668 –329 16 –1,327 –1,311 –3,596 2,432 163 0 0 163 –857 –61 2,534 0 0 0 0 0 738,718 –20,129 85,277 –35,907 49,370 0 767,959 –19,800 97,712 –8,814 88,898 –61 836,996 80 Annual Financial Statements | Statement of Changes in Equity Annual Report 2016/2017 | KWS GroupStatement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Accumulated 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 Revaluation of defined benefit plans Other trans- actions Adjustments from currency translation Revaluation of defined benefit plans 19,800 5,530 –33,751 1,456 731,050 10,424 –1,878 0 –17,395 85,261 –17,395 –469 –469 333 333 –17,049 –17,049 0 0 –329 16 –19,800 85,261 –34,580 –1,348 50,681 16 –1,348 19,800 5,530 –14,162 9,461 242 –50,800 1,456 765,527 3,596 Adjustments from currency translation of equity- accounted financial assets 9,930 Reserve for available- for-sale financial assets –91 Adjustments from currency translation 3,233 724,943 –19,800 85,261 3,596 794,000 –19,800 97,549 07/01/2015 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 Dividends paid Net income for the year Other comprehensive income after tax (losses) Total consolidated gains Change in shares of minority interests 06/30/2017 0 0 97,549 –13,194 –3,817 –13,194 –3,817 –262 –262 8,459 8,459 19,800 5,530 871,749 –27,356 5,644 –20 –42,341 1,456 834,462 0 0 0 –61 3,485 –6,728 3,383 0 163 –19,800 97,549 –8,841 0 88,735 163 3,132 –94 0 0 0 –94 Other trans- actions –878 21 21 0 –857 0 0 7,668 –329 16 –1,327 –1,311 –3,596 2,432 0 163 0 163 –857 –61 2,534 738,718 –20,129 85,277 –35,907 49,370 0 767,959 –19,800 97,712 –8,814 88,898 –61 836,996 0 0 0 0 0 Statement of Changes in Equity | Annual Financial Statements 81 KWS Group | Annual Report 2016/2017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 Income tax expense (+)/-income (–) Income tax payments (–)/-refunds (+) 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 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. 2016/2017 2015/2016 97,712 85,277 49,353 –10,906 –30,751 105,408 –4,594 –1,692 54,077 48,187 1,184 –27,351 107,297 5.562 849 40,803 –52,610 –46,916 –26,590 –26,973 31,494 16,861 122,354 2,840 –57,125 2,930 –12,752 626 –1,279 0 –64,760 –19,860 125,256 –151,345 16,345 –29,604 27,990 –525 163,903 191,368 (1) (2) (3) (4) 19,560 25,682 125,864 1,101 –67,745 87 –29,699 348 –266 4,000 –92,174 –47,215 144,758 –71,066 –5,092 21,385 55,075 644 108,184 163,903 82 Annual Financial Statements | Cash Flow Statement Annual Report 2016/2017 | KWS GroupNotes for the KWS Group 2016/2017 The consolidated financial statements of KWS SAAT SE and In addition, the following standards had to be applied for the its subsidiaries were prepared under the assumption that first time in fiscal year 2016/2017: Amendments to IFRS 11 – the operations of the companies will be continued and ap- Joint Arrangements: Accounting for Acquisitions of Interests plying Section 315a of the German Commercial Code (HGB). in Joint Operations; Amendments to IFRS 10, IFRS 12 and They comply with the International Financial Reporting Stan- IAS 28 – Investment Entities: Applying the Consolidation dards (IFRS) as applicable in the European Union (EU). Exception; Annual Improvements to the International Finan- cial Reporting Standards (2010–2014 cycle); Amendments KWS SAAT SE, the ultimate parent company of the KWS to IAS 16 and IAS 38 – Property, Plant and Equipment and Group, is an international company based in Germany, has Intangible Assets: Clarification of Acceptable Methods of its headquarters at Grimsehlstrasse 31, 37574 Einbeck, Depreciation and Amortization; Amendments to IAS 16 and Germany, and is registered at Göttingen Local Court under IAS 41 – Property, Plant and Equipment and Agriculture: the number HRB 204567. Since it was founded in 1856, Bearer Plants; Amendments to IAS 27 – Separate Financial KWS has specialized in developing, producing and dis- Statements: Equity Method in Separate Financial State- tributing high-quality seed for agriculture. KWS covers the ments; Amendments to IAS 1 – Presentation of Financial complete value chain of a modern seed producer – from Statements: Disclosure Initiative. The new standards and breeding of new varieties, multiplication and processing, to interpretations to be applied did not result in any significant marketing of the seed and consulting for farmers. KWS’ core impact. competence is in breeding new, high-performance varieties that are adapted to regional needs, such as climatic and soil The following standards and interpretations, or revisions of conditions. standards or interpretations, were not applied in the year under review, as they have not yet been adopted by the Unless otherwise stated, all the figures in the Notes are in EU or application of them for fiscal 2016/2017 was not yet thousands of euros (€ thousand) and have been rounded in mandatory: accordance with standard commercial practice. To be applied in the future Financial reporting standards and interpretations Mandatory first-time application Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealized Losses Fiscal year 2017/2018 Amendments to IAS 7 – Statement of Cash Flows: Disclosure Initiative Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 4 – Applying IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts Annual Improvements to the International Financial Reporting Standards (2014–2016 cycle) Amendments to IAS 40 – Transfers of Investment Property IFRIC 22 – Foreign Currency Transactions and Advance Consideration IFRS 15 – Revenue from Contracts with Customers IFRS 9 – Financial Instruments IFRS 16 – Leases Fiscal year 2017/2018 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2018/2019 Fiscal year 2019/2020 Notes for the KWS Group 2016/2017 | Annual Financial Statements 83 KWS Group | Annual Report 2016/2017 IFRSs that have been published and adopted by the EU, KWS Group are currently being examined. The quanti- but not yet applied tative effects cannot be estimated reliably at present. The IASB published IFRS 15 (Revenue from Contracts There may be effects, in particular, pursuant to the new with Customers) in May 2014. IFRS 15 is the new standard regulations on impairments. The main balance sheet item for recognizing revenue and must be applied in general for which anticipated losses will have to be recognized as to all contracts with customers. The core principle of an impairment in future are trade receivables. However, IFRS 15 is recognition of revenue to the amount to which the vast majority of them are covered by credit insurance a consideration from the customer for the assumed or other hedging instruments and so, on the basis of an performance obligation (delivery of goods or provision initial assessment, no significant impact on earnings can of services) is expected. This principle is delivered in a be expected. The new regulations on hedging relation- five-step model framework. In step 1, the contract with a ships do not have any impact, since the KWS Group customer is identified. In step 2, the distinct performance does not currently report any transactions that qualify for obligations in the contract are identified. In step 3, the hedge accounting. In addition, IFRS 9 entails new obliga- transaction price is determined and is then allocated to tions to disclose qualitative and quantitative information. the separate performance obligations in the contract in The KWS Group will apply IFRS 9 for the first time for the step 4. In step 5, revenue is recognized when (at a point fiscal year starting on July 1, 2018. in time) or as (over time) the identified distinct perfor- mance obligation is satisfied. IFRS 15 replaces IAS 11 IFRSs that have been published, but not yet adopted by (Construction Contracts), IAS 18 (Revenue), IFRIC 13 the EU or applied (Customer Loyalty Programmes), IFRIC 15 (Agreements In January 2016, the IASB published the standard IFRS 16 for the Construction of Real Estate), IFRIC 18 (Transfers (Leases), which is intended to replace the current standard of Assets from Customers) and SIC-31 (Revenue-Barter IAS 17 (Leases) and the related interpretations IFRIC 4 (Deter- Transactions Involving Advertising Services). The KWS mining Whether an Arrangement Contains a Lease), SIC-15 Group will apply IFRS 15 for the first time for the fiscal (Operating Leases – Incentives) and SIC-27 (Evaluating the year starting on July 1, 2018. This fiscal year, the KWS Substance of Transactions in the Legal Form of a Lease). Group initiated a Group-wide project to assess the im- IFRS 16 introduces a single lease accounting model, requiring pacts and to implement the new regulations. The quan- lessees to recognize assets and liabilities for all leases. The titative effects cannot be estimated reliably before the previously required distinction between finance and operating project has been completed. Following an initial analysis, leases no longer applies to the lessee. In the future, all rights it is still necessary to examine in detail whether there are and obligations from leases are to be recognized as right-of- further distinct services in addition to seed delivery. As use assets and lease liabilities in the balance sheet. The only far as can be seen at present, no significant impact on the exceptions are for short-term leases of one year or less and KWS Group’s assets, financial position and earnings is for “small ticket leases” (e.g., small items of office furniture expected from application of IFRS 15. In addition, IFRS 15 and business equipment). This balance sheet extension entails new obligations to disclose qualitative and quanti- means that liabilities will increase and the equity ratio be re- tative information. duced accordingly. For leases currently classified as operat- ing leases, the lessee will recognize depreciation and interest IFRS 9 (Financial Instruments) replaces the current stan- expenses instead of leasing costs in the future. Among other dard for reporting financial instruments, IAS 39 (Financial things, this amendment will result in an improvement in oper- Instruments: Recognition and Measurement). Adoption ating income. The approach to lessor accounting adopted in of IFRS 9 means that measurement of financial assets IFRS 16 is substantially unchanged from that in IAS 17. In ad- at “amortized cost” or “fair value” will depend, in future, dition, IFRS 16 entails new obligations to disclose qualitative on the underlying business model and the contractual and quantitative information. The KWS Group will apply IFRS terms giving rise to cash flows. The new regulations in 16 for the first time for the fiscal year starting on July 1, 2019. IFRS 9 relating to recognition of impairments are based This fiscal year, the KWS Group initiated a Group-wide on the premise of providing for expected losses. Up project to assess the impacts and to implement the new to now, impairments have only been recognized if they regulations. The quantitative effects cannot be estimated relate to losses that have already occurred. In addition, reliably before the project has been completed. the regulations on recognition of hedging relationships have been amended. They are now more strongly geared The other published standards that have not yet been adopted to the entity’s risk management strategy. The effects of by the EU are not expected to have a significant impact on IFRS 9 on the consolidated financial statements of the the KWS Group’s assets, financial position and earnings. 84 Annual Financial Statements | Notes for the KWS Group 2016/2017 Annual Report 2016/2017 | KWS Group1. General Disclosures Companies consolidated in the KWS Group Joint ventures are consolidated using the equity method in application of IFRS 11 and IAS 28. The basis for a joint ven- ture is a contractual agreement with a third party to manage a The consolidated financial statements of the KWS Group in- joint venture together. In the case of joint ventures, the parties clude the single-entity financial statements of KWS SAAT SE who exercise joint management have rights to the net assets and its subsidiaries in Germany and other countries, as of the agreement. well as joint ventures and associated companies, which are carried using the equity method, and a joint operation. A In the case of joint ventures carried in accordance with the company is a subsidiary if KWS SAAT SE has existing rights equity method, the carrying amount is increased or reduced that give it the current ability to control its relevant activi- annually by the equity capital changes corresponding to the ties. Relevant activities are the activities that significantly KWS Group’s share. In the case of first-time consolidation affect the company’s returns. Control therefore only exists of equity investments using the equity method, differences if KWS SAAT SE has the ability to use its power to affect from first-time consolidation are treated in accordance the amount of the variable returns. Control can usually be with the principles of full consolidation. The changes in the derived from holding a majority of the voting rights direct- proportionate equity that are recognized in profit or loss are ly or indirectly. Subsidiaries and joint ventures that are included, along with impairment of goodwill, under the item considered immaterial for the presentation and evaluation “Income from equity-accounted financial assets” in the net of the financial position and performance of the Group are financial income/expenses. Associated companies in which not included. Details on the changes in the consolidated a stake between 20% and 50% is held are likewise mea- group are provided in the section “Disclosures on the annual sured using the equity method. financial statements – Consolidated group and changes in the consolidated group.” Consolidation methods As part of the elimination of intra-Group balances, borrow- ings, receivables, liabilities and provisions are netted between the consolidated companies. Intercompany profits not re- The single-entity financial statements of the individual sub- alized at Group level are eliminated from intra-Group trans- sidiaries included in the consolidated financial statements actions. Sales, income and expenses are netted between and the single-entity financial statements of the joint ventures consolidated companies, and intra-Group distributions of and associated companies included using the equity method profit are eliminated. and of the joint operation were uniformly prepared on the basis of the accounting and measurement methods applied Deferred taxes on consolidation transactions recognized at KWS SAAT SE; they were audited by independent auditors. in income are calculated at the tax rate applicable to the For company acquisitions, capital consolidation follows the company concerned. These deferred taxes are aggregated purchase method by allocating the cost of acquisition to the with the deferred taxes recognized in the separate financial Group’s interest in the subsidiary’s remeasured equity at the statements. time of acquisition. Any excess of interest in equity over cost is recognized as an asset, up to the amount by which fair value Minority interests are recognized in the amount of the imputed exceeds the carrying amount. Any goodwill remaining after percentage of equity in the consolidated companies. first-time consolidation is recognized under intangible assets. According to IAS 36, goodwill is not amortized, but tested for impairment at least once a year at the end of the year (impairment-only approach). Investments in unconsolidated companies are carried at cost. 1. General Disclosures | Notes for the KWS Group 2016/2017 | Annual Financial Statements 85 KWS Group | Annual Report 2016/2017 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 independent sheet date entities are translated into euros using the functional currency method and rounded in accordance with standard The following exchange rates were applied in the consoli- commercial practice as follows: dated financial statements for the main foreign currencies relative to the euro: Exchange rates for main currencies 1 EUR/ ARS BRL GBP RUB UAH USD Argentina Brazil UK Russia Ukraine USA Rate on balance sheet date Average rate 06/30/2017 06/30/2016 2016/2017 2015/2016 18.80320 3.76780 0.87865 67.49930 29.78678 1.14030 16.67190 17.03851 3.61730 0.82615 3.52999 0.86129 71.21020 66.48928 27.56354 28.59361 1.11430 1.09302 13.58600 4.11588 0.75290 74.54532 26.60710 1.10631 The difference resulting from the application of annual Recognition of income and expenses average rates to the net profit for the period in the income Net sales include sales of products and services, less statement is taken directly to equity. According to IAS 21, revenue reductions. Net sales from the sale of products are exchange differences resulting from loans to foreign sub- realized at the time at which the opportunities and risks pass sidiaries are reported in the Other comprehensive income to the buyer. Income from service transactions is recognized and are not recognized in profit or loss. if it is likely that the economic benefit will accrue to the Group and the amount of income can be reliably determined. Other Classification of the statement of comprehensive income income, such as interest, royalties and dividends, is recog- The KWS Group has prepared the income statement using nized in the period it accrues as soon as there is a contractual the cost-of-sales method. The costs for the functions or legal entitlement to it. include all directly attributable costs, including other taxes. Research & development expenses are reported separately Performance-based public grants are carried under the other for reasons of transparency. operating income as part of profit/loss. Accounting policies Operating expenses are recognized in the income statement upon the service in question being used or as of the date on Consistency of accounting policies which they occur. The accounting policies are unchanged from the previous year, with the exception of the change for cash-generating units as part of impairment testing. All estimates and assessments as part of accounting and measurement are continually reviewed; they are based on historical patterns and expectations about the future regarded as reasonable in the particular circumstances. 86 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 1. General Disclosures Annual Report 2016/2017 | KWS GroupIntangible assets In addition to directly attributable costs, the cost of self- Purchased intangible assets are carried at cost less produced plant or equipment also includes a proportion of straight-line amortization and impairment losses. It is neces- the overheads and depreciation/amortization. sary to examine whether the useful life of intangible assets is finite or indefinite. Goodwill has an indefinite useful life. Goodwill and intangible assets with an indefinite useful life Useful life of property, plant and equipment are not amortized, but tested for impairment at least once a Buildings year. The Executive Board has adapted internal budgeting and reporting processes due to the fact that the Group’s business activities have been centralized in Business Units across all companies. That resulted in a change in the cash-generating units at the Group, since monitoring and controlling (including of goodwill) has been the responsi bility of the main decision makers at the level of the Business 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 Units and no longer at the level of the legal entities since Low-value assets are fully expensed in the year of purchase; fiscal 2016/2017. In the fiscal year, the impairment test was they are reported as additions and disposals in the year conducted using the old system at the level of the legal of purchase in the statement of changes in fixed assets. entities and using the new system at the level of the Busi- Impairment losses on property, plant and equipment are ness Units, and did not result in any need to recognize an recognized according to IAS 36 whenever the recoverable impairment loss in either case. amount of the asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs Intangible assets acquired as part of business combinations to sell or the value in use. If the reason for an earlier im- are carried separately from goodwill if they are separable pairment loss on property, plant and equipment no longer according to the definition in IAS 38 or result from a contrac- applies, its value is increased to up to the amount that tual or legal right. would have resulted if the impairment loss had not occurred, taking depreciation into account. In accordance with IAS 20, The service life of intangible assets is as follows: government grants for assets are deducted from the costs Useful life of intangible assets Breeding material, proprietary rights to varieties and trademarks Other rights Software Distribution rights Trait licensing agreements Useful life 10 years 5 – 10 years 3 – 8 years 5 – 20 years 15 years of the asset. Any deferred income is not recognized. The residual values, useful economic lives and methods of depreciation for property, plant and equipment are reviewed at the end of each fiscal year and adjusted prospectively, if necessary. Leases A lease is an agreement whereby the lessor conveys the right to use an asset for an agreed period of time to the Property, plant and equipment lessee in exchange for a payment or a series of payments. Property, plant and equipment is measured at cost less A distinction is made between finance leases and operat- straight-line depreciation and impairment losses. Deprecia- ing leases. A finance lease relates to leasing transactions tion of an asset commences when the asset is at its location in which all the risks and rewards incidental to ownership and is in the condition necessary for it to be capable of oper- of an asset are transferred to the lessee. Otherwise a lease ating in the manner intended by management. Depreciation is classified as an operating lease. An assessment as to of an asset ends when the asset has been fully expensed or whether the agreement is a lease or an agreement involves is classified as held for sale in accordance with IFRS 5 or, at a lease is made when the contract is concluded. the latest, when it is derecognized. If property, plant and equipment is sold or scrapped, the of the asset’s fair value and the present value of the mini- profit or loss from the difference between the proceeds and mum lease payments at the start of the lease is capitalized residual carrying amount is recognized under the other oper- in the balance sheet and simultaneously recognized under ating income or other operating expenses. the financial liabilities. The minimum lease payments are If the KWS Group is the lessee in a finance lease, the lower 1. General Disclosures | Notes for the KWS Group 2016/2017 | Annual Financial Statements 87 KWS Group | Annual Report 2016/2017divided into a repayment component of the residual debt The fair value of financial liabilities with a long-term fixed in- and financing costs, which are determined in accordance terest rate is determined as present values of the payments with the effective interest method. The leased asset is related to the liabilities, using a yield curve applicable on the written down using the straight-line method of depreciation balance sheet date. over its estimated useful life or the term of the contract, whichever is shorter. An operating lease is a lease that Derivative instruments are measured at fair value; they does not involve a finance lease. Lease payments under an can be assets or liabilities. Common derivative financial operating lease are recognized as operating expense in the instruments are essentially used to hedge interest rate income statement on a straight-line basis over the lease’s and foreign currency risks. The fair value of the derivative term. Financial instruments financial instruments is measured on the basis of the market information available on the balance sheet date and using recognized mathematical models, such as present value or Apart from equity instruments, financial instruments are, Black-Scholes, to calculate option values, taking their vola- in particular, financial assets and financial liabilities. The tility, remaining maturity and capital market interest rates financial assets consist primarily of bank balances and cash into account. The instruments must also be classified in a on hand, trade receivables, other receivables, other financial level of the fair value hierarchy. assets and securities. The credit risk mainly comprises trade receivables. The amount recognized in the balance sheet is Financial instruments in level 1 are measured using quoted net of allowances for receivables expected to be uncollect- prices in active markets for identical assets or liabilities. In ible, estimated on the basis of historical patterns and the level 2, they are measured by directly observable market current economic environment. The credit risk on cash and inputs or derived indirectly on the basis of prices for similar derivative financial instruments is limited because they are instruments. Finally, input factors not based on observable kept with banks that have been given a good credit rating by market data are used to calculate the value of level 3 finan- international rating agencies. There is no significant con- cial instruments. centration of credit risks, because the risks are spread over a large number of contract partners and customers. The Subsequent measurement of the financial instruments entire credit risk is limited to the respective carrying amount. depends on their classification in one of the following A detailed presentation of the value and age of the finan- categories defined in IAS 39: cial assets can be found in section (9) Current receivables. Comments on the risk management system can be found in ■■ Loans and receivables the Management Report. This category mainly comprises trade receivables, other receivables, loans and cash, including fixed-income short- Available-for-sale financial assets are carried at fair value if term securities. Loans are measured at cost. Loans that that can be reliably measured. Unrealized gains and losses, carry no interest or only low interest are measured at their including deferred taxes, are recognized directly in the present value. Discernible risks are taken into account reserve for available-for-sale financial assets under equity. by recognition of an impairment loss. After their initial Allowances are recognized immediately through the income recognition, the other financial assets in this category are statement. Financial assets belonging to this category of measured at amortized cost using the effective interest financial instruments are measured at cost. The financial method, minus impairments. Receivables that carry no assets include shares in unconsolidated subsidiaries and interest or only low interest and with a term of more than securities classified as noncurrent assets. They are subse- twelve months are discounted. Necessary value impair- quently measured at amortized cost. Borrowings are carried ments are based on the objective criteria of IAS 39 and at amortized cost. are carried in separate impairment accounts. Receivables are derecognized if they are settled or uncollectible. Other The carrying amount of receivables, fixed-income securities financial assets are derecognized at the time they are and cash is assumed as the fair value due to their short term disposed of or if they have no value. and the fixed-interest structure of the investments. ■■ Financial assets at fair value The financial liabilities comprise, in particular, trade pay- being sold in the short term are assigned to this category. ables, borrowings and other liabilities. Derivate financial instruments with a positive market value Held-for-trading securities acquired with the intention of are also categorized as held for trading, unless they are designated hedging instruments. They are measured at fair 88 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 1. General Disclosures Annual Report 2016/2017 | KWS Groupvalue. Changes in value are recognized in income. Secu- Inventories and biological assets rities are derecognized after being sold on the settlement Inventories are measured at the lower of cost or net realiz- date. able value less an allowance for obsolescent or slow-moving ■■ Available-for-sale financial assets items. In addition to directly attributable costs, the cost of This category covers all financial assets that have not been sales also includes indirect labor and materials including assigned to one of the above categories. In principle, se- depreciation under IAS 2. Under IAS 41, biological assets curities are classed as available for sale, unless a different are measured at fair value less the estimated costs to sell. classification is required due to the fact that they have an Immature biological assets are carried as inventories as of the explicit purpose. Equity instruments, such as shares in time they are harvested. The measurement procedure used is (unconsolidated) affiliated companies, which are measured based on standard industry value tables. at amortized cost, and shares held in listed companies, are also included in this category. In principle, financial instru- Deferred taxes ments in this category are measured at their fair value in Deferred taxes are calculated in accordance with IAS 12 subsequent recognition. The changes to their fair value in and Deferred taxes are calculated on differences be- subsequent recognition are recognized as unrealized gains tween the carrying amounts of assets and liabilities in the and losses directly in equity in the reserve for available-for- consoli dated balance sheet and their tax base, and on car- sale financial assets. The realized gains or losses are not ried-forward tax losses. Deferred tax assets are netted off recognized as profit or loss until they are disposed of. If against deferred tax liabilities, provided they relate to the there is objective evidence of permanent impairment on the same tax creditor and have the same due date. Deferred balance sheet date, the instruments are written down to the tax assets are recognized if it can be assumed that they lower value. Any subsequent decreases in the impairment will be used in future. Deferred tax liabilities must be set loss are recognized directly in equity. up for all taxable temporary differences. All deferred taxes ■■ Financial liabilities measured at amortized cost must be assessed individually at each balance sheet date. All financial liabilities, with the exception of derivative finan- Under IAS 12, deferred taxes are calculated on the basis of cial instruments, are measured at amortized cost using the the applicable local income tax anticipated at the time of effective interest method. The liabilities are derecognized at reversal. No discounting is carried out. the time they are settled or when the reason why they were formed no longer exists. Provisions for income taxes ■■ Financial liabilities at fair value The provisions for income taxes comprise obligations from This category covers derivative financial instruments that current income taxes. They are measured on the basis of a have a negative market value and are categorized in prin- best-possible assessment of the future amount to be paid. ciple as held for trading. They are measured at fair value. Deferred taxes are carried in a separate balance sheet Changes in value are recognized in income. Derivatives that item. are designated hedging instruments in accordance with IAS 39 are excluded from this provision. Provisions for pensions and other employee benefits The provisions for pensions and other employee benefits In the case of securities that are classified as available for are calculated using actuarial principles in accordance sale, changes in their fair values that require reporting are with the projected unit credit method. Actuarial gains and taken directly to equity. If securities are carried at their fair losses must be recognized directly in equity in other com- value and have to be recognized in income, changes to the prehensive income. The service costs, including the past fair values are directly included in the net income for the service costs, are recognized in operating income in ac- period. Derivatives cordance with the employees’ assignment to the functions. If there are planned assets, they are netted off against the associated obligations. The derivatives do not meet the requirements of IAS 39 to be designated as a hedging instrument. They are measured at The provisions for semi-retirement include obligations from their fair value. The changes in their market value are recog- concluded semi-retirement agreements. Payment arrears nized in the income statement. Derivatives are derecognized and top-up amounts for semi-retirement pay and for the on their day of settlement. contributions to the statutory pension insurance program are recognized in measuring them. 1. General Disclosures | Notes for the KWS Group 2016/2017 | Annual Financial Statements 89 KWS Group | Annual Report 2016/2017Other provisions Discretionary decisions and estimates Provisions are set up if current obligations have accrued The measurement approaches and amounts to be carried in from past events and it is likely that they will be utilized. In these IFRS financial statements are partly based on estimates addition, it must be possible to estimate the amount of the and specifically defined specifications. This relates in particu- anticipated obligation reliably. lar to the following discretionary decisions: Provisions are measured at their expected amount or ■■ Determination of the useful life of the depreciable asset most likely amount, depending on whether they comprise ■■ Definition of measurement assumptions and future results a large number of items or constitute a single obliga- in connection with impairment tests, above all for capital- tion. Provisions are reviewed regularly and adjusted to ized goodwill reflect new findings or changes in circumstances. If it ■■ Determination of the net selling price for inventories is no longer likely that a provision will be utilized or the ■■ Definition of the parameters required for measuring pen- conditions for why it was set up no longer apply, expense- sion provisions related provisions are reversed against the original ex- ■■ Selection of parameters for the model-based measure- pense item and revenue-related provisions are reversed ment of derivatives against revenue. If the reversal amount is material, and so ■■ Determination whether tax losses carried forward can be the effect not related to the period must be classified as used material, the reversal is carried as income from the reversal ■■ Determination of the fair value of intangible assets, tan- of provisions under other operating income not related to gible assets and liabilities acquired as part of a business the period. combination and determination of the service lives of the purchased intangible assets and tangible assets Long-term provisions are discounted taking into account ■■ Measurement of other provisions future cost increases and using a market interest rate that adequately reflects the risk, insofar as the interest effect is Despite careful estimates, the actual development may devi- material. ate from the assumptions. Contingent liabilities The Executive Board of KWS SAAT SE prepared the con- The contingent liabilities result from debt obligations where solidated financial statements on September 27, 2017, and outflow of the resource is not probable or the level of the ob- released them for distribution to the Supervisory Board. ligation cannot be estimated with sufficient reliability, or from The Supervisory Board has the task of examining the obligations for loan amounts drawn down by third parties as consolidated financial statements and declaring whether it of the balance sheet date. approves them. Borrowing costs In accordance with IAS 23, borrowing costs are capitalized if they can be classified as qualifying assets. 90 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 1. General Disclosures Annual Report 2016/2017 | KWS Group2. Disclosures on the Annual Financial Statements Number of companies including KWS SAAT SE Fully consolidated Equity method Joint operation Total Germany Abroad Total Germany Abroad Total 06/30/2017 06/30/2016 13 0 0 13 46 3 1 50 59 3 1 63 13 0 0 13 46 3 1 50 59 3 1 63 Consolidated group and changes in the consolidated Following acquisition of the remaining shares in DYNAGRI group S.A.R.L. in November 2016, the company has operated KWS SEEDS THAILAND CO., LTD. was included in under the name KLEIN WANZLEBENER SAATZUCHT the consolidated companies for the first time effective MAROC S.A.R.L.A.U. July 1, 2016. In addition, KWS SERVICES NORTH B.V. was liquidated the consolidated financial statements at June 30, 2017. effective September 30, 2016. Three (three) joint ventures and associated companies A total of 59 (59) companies were fully consolidated in were measured using the equity method. One (one) joint The Brazilian company RIBER KWS SEMENTES S.A. was operation has been included proportionately. This is merged with KWS MELHORAMENTO E SEMENTES LTDA. GENECTIVE S.A. effective October 1, 2016, and operates under the name RIBER KWS SEMENTES LTDA. In addition, the company KWS R&D INVEST B.V., Emmeloord, Netherlands, was founded on October 25, 2016, and included in the consolidated companies. KWS Group | Annual Report 2016/2017 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2016/2017 | Annual Financial Statements 91 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% BETASEED INC.2 Bloomington, MN, U.S. KWS FRANCE S.A.R.L. Roye, France DELITZSCH PFLANZENZUCHT GMBH4,9 Einbeck, Germany O.O.O. KWS RUS11 Lipetsk, Russia O.O.O. KWS R&D RUS10 Lipetsk, Russia KWS ITALIA S.P.A. Forlì, 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 Basel, 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 Eski ¸sehir, Turkey BETASEED GMBH4 Frankfurt, Germany KWS POTATO B.V.16 Emmeloord, Netherlands 100% KLEIN WANZLEBENER 100% 100% 100% 100% 100% 100% 100% 100% SAATZUCHT MAROC S.A.R.L.A.U.15 Casablanca, Morocco KWS Podillya T.O.V. 20 Kiev, Ukraine 100% Corn 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 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. Champhol, 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 GMBH4 Everswinkel, Germany KWS MAGYARORSZÁG KFT. Gyo˝ r, Hungary KWS SEMINTE S.R.L.12 Bucharest, Romania KWS ARGENTINA S.A. Balcarce, Argentina RAZES HYBRIDES S.A.R.L.3 Alzonne, France RIBER KWS SEMENTES LTDA19 Curitiba, Brazil KWS PERU S.A.C.7 Lima, Peru KWS R&D CHINA LTD.14 Hefei, China KWS SEEDS THAILAND CO., LTD.14 Chiang Mai, Thailand Cereals Corporate 100 % KWS LOCHOW GMBH4 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 4 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 GMBH4 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.2 100% 100 % Champagne, IL, U.S. KANT-HARTWIG & VOGEL GMBH4 Einbeck, Germany KWS R&D INVEST B.V. Emmeloord, Netherlands 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 92 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 2. Disclosures on the Annual Financial Statements Annual Report 2016/2017 | 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% 50% 50% 50% 50% 50% KWS R&D PRIVATE LIMITED11 Hyderabad, India KWS PARAGUAY S.R.L.21 Asuncion, Paraguay GENECTIVE CANADA INC.22 Montreal, Canada GENECTIVE TAIWAN LTD.22 Taipei City, Taiwan GENECTIVE USA CORP.22 Weldon, U.S. GENECTIVE JAPAN K.K.22 Chiba, Japan GENECTIVE KOREA22 Sangdaewon-dong, Korea 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 Profit and loss transfer agreement. 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 UKRAINE T.O.V. 21 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and RIBER-KWS SEMENTES LTDA. 22 Subsidiary of GENECTIVE S.A. Status: June 30, 2017 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2016/2017 | Annual Financial Statements 93 KWS Group | Annual Report 2016/20173. Segment Reporting for the KWS Group In accordance with its internal reporting system, the Corporate KWS Group is primarily organized according to the Apart from revenue from farms and services for third par- following business segments: ties, net sales from strategic projects are reported in this ■■ Corn ■■ Sugarbeet ■■ Cereals ■■ Corporate segment. The segment also assumes the costs of all central holding functions and expenses for long-term research proj- ects that have not yet reached market maturity. It also includes all management services of KWS SAAT SE, such as the holding company and administrative functions, Considered a core competency for the KWS Group’s entire which are not directly charged to the product segments or product range, plant breeding, including the related biotech- indirectly allocated to them by means of an appropriate cost nology research, is essentially concentrated at the parent formula. company KWS SAAT SE in Einbeck. The breeding material, including the relevant information and expertise about how Segment information to use it, is owned by KWS SAAT SE with respect to sugar- The Executive Board as the main decision-making body is beet and corn and by KWS LOCHOW GMBH with respect responsible for allocating resources and assessing the earn- to cereals. Product-related R&D costs are carried directly in ings strength of the business segments. The segments and the product segments Corn, Sugarbeet and Cereals. Cen- regions are defined in compliance with the internal controlling trally controlled corporate functions are grouped in the Cor- and reporting systems (management approach). The ac- porate Segment. The distribution and production of oil and counting policies used to determine the information for the field seed are reported in the Cereals and Corn Segments, segments are basically the same as used for the KWS Group. in keeping with the legal entities currently involved. The only exception relates to consolidation of the equity- Description of segments Corn accounted joint ventures that are assigned to the Corn Segment, namely AGRELIANT GENETICS, LLC., AGRELIANT GENETICS, INC. and KENFENG – KWS SEEDS CO., LTD. In accordance with internal controlling practices, they are KWS SAAT SE is the lead company in the Corn Segment. included proportionately as part of segment reporting. The production and distribution activities of this segment relate to corn for grain and silage corn, and to oil and field The segment net sales, segment income, depreciation and seed. Apart from KWS SAAT SE, the business activities are amortization, other noncash items, operating assets, oper- conducted by one (one) German company, 15 (15) foreign ating liabilities and capital expenditure on noncurrent assets subsidiaries, two (two) joint ventures, one (one) associated by segment have been determined in accordance with the company and one (one) joint operation of the KWS Group. internal operational controlling structure, with the joint ven- Sugarbeet tures and associated company consolidated proportionately (management approach). In order to permit better compara- In addition to multiplication, processing and distribution bility, they have been reconciled with the figures in the IFRS activities for sugarbeet seed, the breeding activities re- consolidated financial statements. lating to development of a hybrid potato are also report- ed in the Sugarbeet Segment. Under the leadership of Segment sales contains both net sales from third parties KWS SAAT SE, 17 (17) foreign subsidiaries and two (two) (external sales) and net sales between the segments (in- subsidiaries in Germany are active in this segment. tersegment sales). The prices for intersegment sales are Cereals determined on an arm’s-length basis. Uniform royalty rates per segment for breeding genetics are used as the basis. The lead company of this segment, which essentially con- Technology revenues from genetically modified properties cerns the production and distribution of hybrid rye, wheat (“tech fees”) are paid as a per-unit royalty on the basis of and barley, as well as oil and field seed, is KWS LOCHOW the number of units sold, due to their growing competitive GMBH with its four (four) foreign subsidiaries in France, the importance. UK and Poland. 94 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 3. Segment Reporting for the KWS Group Annual Report 2016/2017 | KWS Group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 2016/2017 2015/2016 2016/2017 2015/2016 2016/2017 2015/2016 825,867 454,860 795,320 439,635 111,526 119,046 18,235 17,921 530 319 2,179 13,436 162 88 1,095 13,811 825,337 454,541 795,158 439,547 109,347 117,951 4,799 4,110 1,410,488 1,371,922 16,464 15,156 1,394,024 1,356,766 –318,780 –319,992 1,075,244 1,036,774 The Corporate Segment generates 73.7% (77.1%) of its The Corn Segment is the largest contributor of external sales from the other segments. As in the previous year, sales, accounting for 59.2% (58.6%) of external sales, the sales of this segment represent 0.3% of the Group’s followed by Sugarbeet with 32.6% (32.4%) and Cereals with external sales. 7.8% (8.7%). 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 Net financial income/expenses Earnings before taxes 2016/2017 2015/2016 2016/2017 2015/2016 2016/2017 2015/2016 58,213 150,929 10,310 –60,585 63,570 118,571 9,028 –50,102 27,417 12,994 8,472 10,444 23,199 14,193 8,192 10,343 4,213 –2,482 –4,034 –981 16,080 11,002 5,862 1,555 158,867 141,067 59,327 55,927 –3,284 34,499 –27,276 –28,303 –9,974 –7,740 –3,688 –21,328 131,591 112,764 49,353 48,187 –6,972 13,171 16,599 14,784 148,190 127,548 0 0 0 0 0 0 0 0 The income statements of the consolidated companies Depreciation and amortization charges of €59,327 are assigned to the segments by means of profit center (55,927) 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 2016/2017 | Annual Financial Statements 95 KWS Group | Annual Report 2016/2017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 KWS Group acc. to consolidated financial statements Operating assets Operating liabilities 06/30/2017 06/30/2016 06/30/2017 06/30/2016 742,506 266,734 116,106 113,276 717,419 262,555 118,283 108,600 1,238,622 1,206,857 –250,793 –240,961 987,829 507,396 965,897 470,735 1,495,225 1,436,631 162,508 163,694 83,096 22,481 87,447 355,532 –82,431 273,101 385,128 658,229 91,227 25,772 90,508 371,201 –78,981 292,220 376,452 668,672 The operating assets of the segments are composed of in- Capital expenditure on assets fell to €67,940 thousand tangible assets, property, plant and equipment, inventories, (previous year: €160,048 thousand). Capital expenditure biological assets and trade receivables that can be charged in the Corn Segment (€25,079 thousand; previous year: directly to the segments or indirectly allocated to them by €119,072 thousand) relates mainly to the production plant means of an appropriate formula. in Ukraine. The Sugarbeet Segment’s capital expenditure The operating liabilities attributable to the segments include previous year and relates mainly to expansion of production the borrowings reported on the balance sheet, less provi- capacities at Einbeck. totaled €16,811 thousand following €17,199 thousand in the sions for taxes and the portion of other liabilities that cannot be charged directly to the segments or indirectly allocated to them by means of an appropriate formula. 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 06/30/2017 06/30/2016 25,079 16,811 4,961 21,089 67,940 –4,659 63,281 119,072 17,199 9,174 14,603 160,048 60,472 99,576 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 net in accordance with the accounting policies to be applied to 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. 96 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 3. Segment Reporting for the KWS Group Annual Report 2016/2017 | 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 64.2% (65.1%) of total sales are recorded in Eu- rope (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 2016/2017 2015/2016 226,291 464,283 (113,649) 317,472 (109,914) (173,056) 67,198 1,075,244 223,971 450,817 (107,067) 282,999 (78,557) (180,288) 78,986 1,036,774 06/30/2017 06/30/2016 26,481 20,256 (4,856) 14,743 (2,240) (8,774) 1,800 63,281 48,945 32,220 (10,681) 15,800 (2,710) (9,745) 2,611 99,576 A total of 41.9% (49.1%) of the capital spending was made Europe (excluding Germany) and 2.8% (2.6%) in the rest of in Germany. Of the further capital spending, 23.3% (15.9%) the world. was made in North and South America, 32.0% (32.4%) 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 06/30/2017 06/30/2016 215,945 167,567 (68,576) 238,388 (33,435) (190,954) 9,715 631,615 214,217 163,994 (71,889) 234,253 (37,603) (184,839) 10,976 623,440 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2016/2017 | Annual Financial Statements 97 KWS Group | Annual Report 2016/20174. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand Gross book values Amortization/depreciation Net book values Change in con­ solidated compa­ nies Cur rency trans­ lation Additions of equity­ account­ ed assets Addi­ tions Dis posals of equity account­ ed assets Transfers Dis­ posals Change in con­ solidated compa­ nies Cur rency trans­ lation Planned addi­ tions Value impair­ ments Adjust­ ment not affecting profit and loss Dis­ posals Trans­ fers 07/01/2016 Patents, industrial property rights and software Goodwill 116,986 28,700 –891 –699 Intangible assets 145,686 –1,590 0 0 0 7,306 –1 7,305 295,023 –2,355 21 16,213 230,095 –3,260 3 11,399 94,145 649 27 10,554 38,298 –1,182 0 15,952 657,561 –6,148 51 54,118 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 9,896 0 9,896 8,799 6,838 3,902 372 19,911 0 0 0 0 0 0 0 0 06/30/2017 07/01/2016 06/30/2017 06/30/2017 06/30/2016 1,378 114,883 0 28,000 1,378 142,883 50,588 –799 0 0 50,588 –799 9,092 309,195 89,122 –637 12,632 0 12,632 9,140 6,966 0 6,966 8,561 –4 0 –4 7 55,451 0 55,451 59,432 28,000 87,432 66,398 28,700 95,098 89,072 220,123 205,901 9,788 241,187 130,573 –2,150 17,686 6,893 2,553 141,769 99,418 99,522 545 102,018 59,225 902 –1 9,846 3,310 –2,556 64,106 37,912 34,920 –20,803 31,893 2 –1 1 31,892 38,296 –1,378 684,293 278,922 –1,886 36,672 18,764 294,948 389,345 378,639 155,904 –3,817 2,827 –41 961,979 –11,596 0 –76 –25 0 24,936 1,858 1 0 627 16,861 0 63,281 24,937 30,434 16,861 0 0 0 160,162 3,941 991,280 8,393 635 0 –6 338,539 –2,691 49,353 25,731 359,665 631,615 623,440 8,393 151,769 147,511 873 3,069 2,192 07/01/2015 Patents, industrial property rights and software Goodwill 110,543 36,975 Intangible assets 147,518 –829 –7,712 –8,541 Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity­accounted financial assets Financial assets Assets 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 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 0 0 0 0 0 0 0 0 44 247 26,466 0 23,625 5,451 29,076 1,896 6,631 6,268 228 15,023 0 378 06/30/2016 07/01/2015 06/30/2016 06/30/2016 06/30/2015 1,359 4,888 6,247 116,986 28,700 145,686 56,405 5,452 61,857 –23 0 –23 11,434 2,181 11,434 2,181 19,538 5,452 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 5,921 742 130,573 99,522 91,049 –792 94,145 58,004 –623 5,552 –1,714 59,225 34,920 32,485 –17,295 38,298 2 0 2 38,296 24,481 685 657,561 258,574 –1,664 34,572 13,071 512 278,922 378,639 351,856 0 0 0 0 0 0 0 0 25,682 –5,865 155,904 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 98 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 49 0 0 0 0 16,097 9,110 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 195 195 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 31 0 4 0 0 0 0 0 0 Annual Report 2016/2017 | KWS GroupChange in con­ solidated compa­ nies Cur rency trans­ lation Additions of equity­ account­ Addi­ Dis posals of equity Dis­ account­ tions ed assets posals ed assets Transfers Change in con­ solidated compa­ nies Cur rency trans­ lation Planned addi­ tions Value impair­ ments Adjust­ ment not affecting profit and loss Dis­ posals Trans­ fers Gross book values Amortization/depreciation Net book values 07/01/2016 06/30/2017 07/01/2016 06/30/2017 06/30/2017 06/30/2016 Intangible assets 145,686 –1,590 116,986 28,700 –891 –699 0 0 0 7,306 –1 7,305 1,378 114,883 0 28,000 1,378 142,883 50,588 –799 0 0 50,588 –799 295,023 –2,355 21 16,213 9,092 309,195 89,122 –637 230,095 –3,260 3 11,399 9,788 241,187 130,573 –2,150 0 0 0 1 0 12,632 0 12,632 9,140 17,686 94,145 649 27 10,554 545 102,018 59,225 902 –1 9,846 4. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand 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 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 Intangible assets 147,518 110,543 36,975 –829 –7,712 –8,541 284,248 –5,331 211,210 –3,319 90,489 679 24,483 –307 610,430 –8,278 161,411 2,835 –470 –32 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 9,896 0 9,896 8,799 6,838 3,902 372 0 627 23,625 5,451 29,076 1,896 6,631 6,268 228 15,023 0 378 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 –76 –25 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 38,298 –1,182 0 15,952 –20,803 31,893 2 –1 657,561 –6,148 51 54,118 19,911 –1,378 684,293 278,922 –1,886 155,904 –3,817 0 24,936 16,861 Financial assets 2,827 –41 1,858 Assets 961,979 –11,596 63,281 24,937 30,434 16,861 0 0 0 160,162 3,941 991,280 8,393 635 0 –6 338,539 –2,691 07/01/2015 06/30/2016 07/01/2015 1,359 4,888 6,247 116,986 28,700 145,686 56,405 5,452 61,857 –23 0 –23 6,495 295,023 80,407 –535 12,277 230,095 120,161 –506 –792 94,145 58,004 –623 –17,295 38,298 2 0 685 657,561 258,574 –1,664 922,194 –17,321 99,576 26,466 44,477 25,682 1,223 961,979 329,194 –1,391 26,466 25,682 –5,865 155,904 156 2,827 8,393 370 0 296 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 36,672 0 49 49,353 11,434 2,181 0 0 11,434 2,181 9,365 16,097 9,110 0 34,572 0 0 0 0 0 0 0 0 0 46,006 2,181 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 195 195 0 0 0 0 0 0 0 0 0 0 0 6,966 0 6,966 8,561 –4 0 –4 7 55,451 0 55,451 59,432 28,000 87,432 66,398 28,700 95,098 89,072 220,123 205,901 6,893 2,553 141,769 99,418 99,522 3,310 –2,556 64,106 37,912 34,920 0 18,764 0 0 25,731 0 4 0 0 0 1 31,892 38,296 294,948 389,345 378,639 8,393 151,769 147,511 873 3,069 2,192 359,665 631,615 623,440 06/30/2016 06/30/2016 06/30/2015 19,538 5,452 24,990 129 0 129 50,588 0 50,588 66,398 28,700 95,098 54,138 31,523 85,661 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 38,092 641 338,539 623,440 593,000 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 99 KWS Group | Annual Report 2016/2017(1) Assets The impairment test uses the expected future cash flows on The statement of changes in fixed assets contains a break- which the medium-term plans of the companies, which are down of assets summarized in the balance sheet and shows grouped in segments, are based; these plans, which cover how they changed in 2016/2017. a period of four years, have been approved by the Executive Board. They are based on historical patterns and expecta- (2) Intangible assets tions about future market development. This item includes purchased varieties, rights to varieties and distribution rights, software licenses for electronic data For the European and American markets, the key assump- processing and goodwill. The current additions of €7,305 tions on which corporate planning is based include as- (29,538) thousand related to software licenses and patents. sumptions about price trends for seed, in addition to the Amortization of intangible assets amounted to €12,632 development of market shares and the regulatory frame- (13,615) thousand, of which €0 (2,181) thousand were value work. Company-internal projections take the assumptions impairments. Depending on the operational use of the of industry-specific market analyses and company-related intangible assets, these charges were carried last year growth perspectives into account. in the selling expenses to an amount of €1,737 thousand and in the research & development costs to an amount of The discount rate at the KWS Group has been derived as €444 thousand. the weighted average cost of capital (WACC) and for the cash-generating units is 4.66% (4.48%) after tax. A growth One major intangible asset is the trait licensing agree- rate of 1.5% (1.5%) has been assumed here beyond the ment. Its carrying amount at the balance sheet date was detailed planning horizon in order to allow for extrapolation €22,332 thousand. Its remaining useful life is 13 years. in line with the expected inflation rate. In order to meet the requirements of IFRS 3 in combination The impairment tests conducted at the end of fiscal year with IAS 36, and to determine any impairment of goodwill, 2016/2017 confirmed that the existing goodwill is not im- cash-generating units have been defined in line with internal paired. Even under the old structure (legal entity = cash- reporting guidelines. At the KWS Group, these units were generating unit), all the impairment tests conducted con- the legal entities up to now. In the current fiscal year, the firmed that the goodwill is not impaired. The Business Unit Executive Board adapted internal budgeting and reporting Corn America carries goodwill totaling €17,780 (18,395) thou- processes due to the fact that the Group’s business ac- sand. The Business Unit Corn Europe/Asia carries goodwill tivities have been centralized in Business Units across all totaling €6,304 (6,304) thousand. A total of €3,916 (4,000) companies. That resulted in a change in the cash-generating thousand of the goodwill is carried by the Business Unit units at the Group, since monitoring and controlling (in- Cereals. Sensitivity analyses were also carried out for all cluding of goodwill) has been the responsibility of the main cash-generating units to which goodwill is allocated. In our decision makers at the level of the Business Units since opinion, realistic changes in the basic assumptions would fiscal 2016/2017. To test for impairment, the carrying amount not result in the need to recognize an impairment loss at any of each Business Unit is determined by allocating the assets cash- generating unit whose goodwill is significant relative to and liabilities, including attributable goodwill and intangible the total carrying amount of goodwill. assets. An impairment loss is recognized if the recoverable amount of a Business Unit is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and the value in use of a cash-generating unit. The impairment tests to be carried out for fiscal 2016/2017 determine the recoverable amount on the basis of the value in use of the respective cash-generating unit. 100 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS Group(3) Property, plant and equipment Capital expenditure amounted to €54,118 (69,747) thou- sand and depreciation amounted to €36,672 (34,572) thou- Disclosures on equity­accounted joint ventures (with the partner Vilmorin) in € thousand 06/30/2017 06/30/2016 sand. The main focus of our capital spending in the year Stake in the joint venture under review was on erecting and expanding production Current assets and research & development capacities. Among other things, expansion of sugarbeet seed production and of the greenhouse complex was completed in Germany. A new corn seed plant was erected in Ukraine. The gross carrying amount of the property, plant and equipment that has already been written down in full, but not yet used, is €127,880 thousand. Property, plant and equipment – mainly assets under construction – to an amount of €2,299 (€3,111) thousand are held as security for liabilities. (4) Equity­accounted financial assets Equity­accounted joint ventures 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 The joint ventures AGRELIANT GENETICS, LLC. and Net sales AGRELIANT GENETICS, INC., which KWS operates together with its joint venture partner Vilmorin, are recognized at equity. In the year under review, AGRELIANT GENETICS, LLC. was classified as a significant joint venture. From the Group perspective, AGRELIANT GENETICS, INC. was classified as an insignificant joint venture. The two joint ventures are operating units. The main busi- ness activity of the two joint ventures is the production and Depreciation and amortization Net income for the year Other comprehensive income Comprehensive income (100%) Comprehensive income (50%) Group share of comprehensive income Dividend payment 50% 50% 341,140 310,658 (27,700) 191,468 265,560 (23,428) 206,013 253,654 (88,998) (74,624) 2,570 264,478 132,239 8,802 141,041 631,904 18,765 44,364 0 44,364 22,182 22,182 32,508 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 sale of corn and soybean seed in North America. 1 Thereof AGRELIANT GENETICS, LLC.: €12,721 (5,878) thousand The following disclosures on the joint ventures in accor- dance with IFRS 12.21 (a) and (b) in conjunction with IFRS 12.B12-B13 are only slightly influenced by the insignificant joint venture. If individual items of the information presented are materially influenced by the insignificant joint venture, this information is presented separately. 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 101 KWS Group | Annual Report 2016/2017Equity­accounted associated companies (7) Noncurrent tax assets The disclosures on insignificant associated companies in This mainly relates to the present value of the corporate accordance with IFRS 12.21 (c) in conjunction with IFRS income tax credit balance of the German group compa- 12.B16 are as follows: Disclosures on insignificant associated companies accounted for using the equity method in € thousand 06/30/2017 06/30/2016 Carrying amount for the stake in insignificant associated companies ( aggregated) Net income for the year Other comprehensive income Comprehensive income (100 %) 10,726 5,761 0 5,761 9,059 5,029 0 5,029 In the year under review, this relates to our Chinese joint venture KENFENG – KWS SEED CO. LTD., which is carried in the KWS Group’s consolidated financial statements as an nies, which was last determined at December 31, 2006, and has been paid in ten equal annual amounts since September 30, 2008. (8) Inventories and biological assets Inventories and biological assets in € thousand Raw materials and consumables Work in progress Immature biological assets Finished goods 06/30/2017 06/30/2016 21,965 58,051 13,562 114,903 208,481 18,041 52,206 12,496 115,536 198,279 associated company in accordance with the equity method. Inventories and biological assets increased by €10,202 thou- sand, or 5.1%, a figure that includes cumulative impairment (5) Proportionately consolidated joint operations losses on the net realizable value totaling €54,344 (49,947) Joint operations are based on joint arrangements that thousand. Inventories to an amount of €2,654 (5,225) thou- always exist when the KWS Group jointly conducts opera- sand are held as security for liabilities. Immature biological tions managed together with a third party pursuant to a con- assets relate to living plants in the process of growing (be- tractual agreement. The operation is jointly managed only fore harvest). The field inventories of the previous year have if decisions on significant activities require the unanimous been harvested in full and the fields have been newly tilled consent of the parties involved. The assets and liabilities in the year under review. Public subsidies of €1,275 (1,368) and revenue and expenses from the joint operations are in- thousand, for which all the requirements were met at cluded proportionately (at 50%) in the consolidated financial the balance sheet date, were granted for the total area statements. The main activity of the proportionately consol- under cultivation of 4,308 (4,240) ha and were recognized idated GENECTIVE S.A. is development of its own traits for in income. Future public subsidies depend on the further genetically improving crops. development of European agricultural policy. (6) Financial assets (9) Current receivables Investments in unconsolidated subsidiaries totaling €330 (439) thousand and shares in cooperatives, GmbHs Current receivables and other securities classified as noncurrent assets that are of minor significance are reported, in principle, at their amortized cost totaling €689 (692) thousand since the fair value cannot be reliably determined. Listed shares are carried at their fair value of €0 (452) thousand. This account also includes other interest-bearing loans totaling €144 (230) thousand. MLS Capital Fund II has been carried for the first time at a fair value of €1,603 thousand. The other financial assets totaling €303 thousand are reported at their amor- tized cost, since the fair value cannot be reliably determined. in € thousand Trade receivables Current tax assets Other current financial assets Other current assets 06/30/2017 06/30/2016 302,571 293,881 59,975 40,573 12,064 55,451 45,070 12,090 415,183 406,492 102 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS GroupTrade receivables were €302,571 thousand following €293,881 thousand in the previous year. This amount includes €1,819 (1,386) thousand in receivables from joint ventures and joint operations. Development of trade receivables in € thousand 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 06/30/2017 Trade receivables 302,571 264,486 26,984 1,284 1,051 398 Other current financial assets 06/30/2016 40,573 343,144 33,688 1 0 0 0 298,174 26,985 1,284 1,051 398 Trade receivables 293,881 268,656 15,656 2,748 1,257 Other current financial assets 45,070 338,951 34,559 0 0 0 303,215 15,656 2,748 1,257 0 0 0 4,249 0 4,249 4,521 0 4,521 The already overdue trade receivables that have been partly written down amount to a net total of €4,119 (1,043) thousand. There are no indications on the balance sheet date that customers who owe trade receivables that have not been written down and are not overdue will not meet their pay- ment obligations. 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 103 KWS Group | Annual Report 2016/2017 The following allowances have mainly been made for possible risks of nonpayment of trade receivables: Change in allowances on receivables in € thousand 2016/2017 2015/2016 07/01 Addition Disposal Reversal 26,736 22,627 4,469 9,466 2,213 1,317 2,449 4,040 06/30 26,543 26,736 The receivables include an amount of €639 (450) thousand The other reserves and net retained profit essentially com- due after more than one year. (10) Securities prise the net income generated in the past by the com- panies included in the consolidated financial statements, minus dividends paid to shareholders, and the net retained Securities amounting to €9,455 (30,679) thousand relate profit. The differences from currency translation, the reserve primarily to debt securities and fund shares. for available-for-sale financial assets and the reserve for re- (11) Cash and cash equivalents as well as the reserve for currency translation for equity-ac- Cash and cash equivalents of €181,913 (133,224) thousand counted financial assets, are also carried here. valuation of net liabilities/assets from defined benefit plans, 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. (12) Equity Group in reporting (euro) are carried in the item Adjust- ments from currency translation. The item Revaluation of net liabilities/assets from defined benefit plans and associated The fully paid-up subscribed capital of KWS SAAT SE is still planned assets includes the actuarial gains and losses from €19,800 thousand. The no-par bearer shares are certificated pensions and other employee benefits. Differences from by a global certificate for 6,600,000 shares. The company translation of the functional currency of equity-accounted does not hold any shares of its own. foreign business units into the currency used by the Group The capital reserves essentially comprise the premium currency translation for equity-accounted financial assets. in reporting (euro) are essentially carried in the reserve for obtained as part of share issues. 104 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS GroupThe tax effects on other comprehensive income are as follows: 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 Before taxes –17,323 –312 –13,194 –3,817 12,158 12,158 –5,165 2016/2017 2015/2016 Tax effect After taxes Before taxes Tax effect After taxes 50 50 0 0 –3,699 –3,699 –3,649 –17,273 –18,752 –106 –18,858 –262 460 –106 354 –13,194 –18,743 –3,817 8,459 8,459 –8,814 –469 –24,652 –24,652 –43,404 0 0 –18,743 –469 7,603 –17,049 7,603 7,497 –17,049 –35,907 The objective of KWS’ capital management activities is to of further operating business expansion in the long term. pursue the interests of shareholders and employees in ac- Equity increased by €69,037 thousand to €836,996 (767,959) cordance with the corporate strategy and earn a reasonable thousand. This figure includes a reduction of €17,011 thou- return on investment. One main goal is to retain the trust sand (previous year: reduction of €19,212 thousand) in the of investors, lenders and the market, so as to strengthen reserve for currency translation for foreign subsidiaries and the company’s future business development. KWS’ capital equity-accounted joint ventures and associated companies. management activities intend to optimize the average cost Please refer to the statement of changes in equity for further of capital. Another goal is a balanced mix of equity and effects not recognized in the income statement. debt capital. Consolidated income (after taxes and minority interests) is €97,549 (85,261) thousand. However, there was An important indicator in capital management is the equity a total dividend payout of €19,800 (19,800) thousand in De- ratio. It was 56.0% (53.5%) at June 30, 2017, and thus at a cember 2016. This ensures the adequate internal financing good and solid level. The capital structure is as follows: Capital structure in € thousand Equity Long-term financial borrowings Other noncurrent liabilities Short-term borrowings Other noncurrent liabilities Total capital 06/30/2017 836,996 200,828 158,057 39,065 260,279 1,495,225 Share of total capital 56.0% Share of total capital 53.5% 06/30/2016 767,959 228,712 164,941 23,078 251,941 1,436,631 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 105 KWS Group | Annual Report 2016/2017The focus in selecting financial instruments is on The other provisions mainly comprise provisions by financing with matching maturities, which is achieved by the German companies for semi-retirement and loyalty controlling the maturities. Long-term financial borrowings bonuses. fell by €27,884 thousand (previous year: increase of €46,929  thousand). This is mainly due to the decrease in The pension provisions are based on defined benefit obli- long-term financial loans from banks. gations, determined by years of service and pensionable (13) Minority interest compensation. They are measured using the projected unit credit method under IAS 19 (2011), on the basis of assump- The KWS Group does not have any minority interests that tions about future developments. The assumptions in detail are assessed as being significant. are that wages and salaries in Germany will increase by (14) Noncurrent liabilities 3.00% (3.00%) annually, in the U.S. by 3.75% (3.75%) annu- ally and in the rest of the world by 1.80% to 3.00% (2.00%) Noncurrent liabilities decreased by €34,768 thousand annually. An annual increase in pensions of 2.00% (2.00%) (previous year: increase of €76,922 thousand). That is is assumed in Germany. The discount rate in Germany was mainly attributable to the reduction in long-term financial 1.90% compared with 1.30% the year before, 3.75% in the borrowings from banks and the lower provision for pension U.S. compared with 3.60% the year before, and between commitments. Noncurrent liabilities in € thousand 06/30/2017 06/30/2016 Long-term provisions Long-term borrowings Trade payables Deferred tax liabilities Other noncurrent financial liabilities Other noncurrent liabilities 125,408 200,828 1,217 12,721 1,306 17,405 358,885 136,515 228,712 1,413 9,447 681 16,885 393,653 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 06/30/2016 Changes in the con­ solidated group, currency Interest expenses from com­ pounding Pension provisions Tax provisions Other provisions 126,431 1,636 8,448 136,515 –165 –19 –1,071 –1,255 1,796 0 71 1,867 1.65% and 3.15% (1.05% and 3.00%) in the rest of the world. The following mortality tables were used at June 30, 2017: ■■ In Germany: The 2005G mortality table of Klaus Heubeck ■■ Abroad: Mainly RP-2014 Mortality Table Projection Scale MP-2016 and INSEE TD/TV 12-14 A retirement age of 65 years is imputed for Germany and the U.S. 06/30/2017 Adjust­ ment not affecting profit or loss –12,157 0 0 –12,157 Addition 339 1,000 4,969 6,308 Consump­ tion Reversal 4,346 919 604 5,869 1 0 0 1 111,897 1,698 11,813 125,408 106 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | 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, this rate of interest, the result is a shortfall in the plan. The coupled with benefits from the early retirement pension corporate bonds and share funds are chosen to ensure risk from the statutory pension insurance program diversification and managed by an external fund manager. ■■ An invalidity pension for persons who suffer from occupational disability or incapacity to work as defined Change in interest rates by the 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 insurance the planned assets. company toward three former members of the Executive Board, the planned assets of €9,428 (10,217) thousand cor- Life expectancy respond to the present value of the obligation. In accordance The present value of the defined benefit obligation from the with IAS 19 (2011), the pension commitments are netted off plan is calculated on the basis of the best-possible estimate against the corresponding assets (planned assets). using mortality tables. An increase in the life expectancy of the entitled employees results in an increase in the plan Abroad liabilities. The defined benefit obligations abroad mainly relate to pension commitments in the U.S. Share funds and bonds Salary and pension trends were mainly invested as planned assets to cover them. All The present value of the defined benefit obligation from the employees who have reached the age of 21 are entitled to plan is calculated on the basis of future salaries/pensions. benefits. In addition, each employee must have worked at Consequently, increases in the salary and pension of the en- least one year and at least 1,000 working hours to earn an titled employees results in an increase in the plan liabilities. 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 – backed by a guarantee. The existing obligations, which are to be eligible, the employee must be at least 55 and partly covered by planned assets, are funded from the oper- the minimum 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 2016/2017 | Annual Financial Statements 107 KWS Group | Annual Report 2016/2017 The tables below show the changes in the accrued benefit and planned assets: Changes in accrued benefit entitlements in € thousand 2016/2017 2015/2016 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 30 126,607 23,262 149,869 106,837 18,408 125,245 993 1,613 –10,925 1,186 736 –521 2,179 2,349 –11,446 787 2,608 21,388 917 761 1,704 3,369 3,792 25,180 –10,953 –1,020 –11,973 21,229 3,389 24,618 28 –4,943 499 –534 –449 0 527 –5,477 –449 0 159 –5,013 403 –541 49 –124 562 –5,554 49 –124 113,345 23,680 137,025 126,607 23,262 149,869 Germany Abroad Total Germany Abroad Total 2016/2017 2015/2016 10,217 13,221 23,438 129 437 566 –312 –606 1,024 –525 –284 1,827 712 –1,131 –284 1,827 9,446 229 1,133 –591 13,598 23,044 601 830 –605 –485 48 64 528 –1,076 48 64 9,428 15,700 25,128 10,217 13,221 23,438 In order to allow reconciliation with the figures in the balance sheet, the accrued benefit must be netted off with the planned assets. Reconciliation with the balance sheet values for pensions in € thousand 2016/2017 2015/2016 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 30 113,345 23,680 137,025 126,607 23,262 149,869 9,428 103,917 15,700 7,980 25,128 111,897 10,217 116,390 13,221 23,438 10,041 126,431 108 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | 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) 2016/2017 Germany Abroad 993 1,484 1,186 298 Total 2,179 1,782 Germany Abroad 787 2,379 917 159 2015/2016 Total 1,704 2,538 2,477 1,484 3,962 3,166 1,076 4,242 312 –1,024 –712 –1,133 605 –528 –10,953 –1,020 –11,973 21,229 3,390 24,618 28 499 527 159 403 562 –10,613 –1,545 –12,158 20,255 4,397 24,652 –8,136 –60 –8,196 23,421 5,473 28,894 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 9,428 9,428 Germany Abroad 2016/2017 Total 4,198 10,455 1,047 9,428 4,198 10,455 1,863 1,139 1,127 1,882 1,367 3,077 1,047 15,700 25,128 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 8,842 869 10,217 23,438 The planned assets abroad relate mainly to the U.S. The following sensitivity analysis at June 30, 2017, shows There is no active market for the reinsurance policies in a change in the actuarial assumptions. No correlations Germany. There is an active market for the other planned between the individual assumptions were taken into account assets: the fair value can be derived from their stock market in this, i.e., if an assumption varies, the other assumptions prices. A total of 84.1% (previous year: 82.3%) of the corpo- were kept constant. The projected unit credit method used rate bonds have an AAA rating. to calculate the balance sheet values was also used in the how the present value of the obligation would change given sensitivity analysis. 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 109 KWS Group | Annual Report 2016/2017Sensitivity analysis in € thousand Discount rate Anticipated annual pay increases Anticipated annual pension increase Life expectancy Effect on obligation in 2016/2017 Effect on obligation in 2015/2016 Change in assumption +/– 100 basis points +/– 50 basis points +/– 25 basis points +/– 1 year Decrease Increase 25,306 –19,851 –1,220 1,315 –4,126 –4,883 4,287 4,978 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 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 2016/2017 in € thousand 2015/2016 2017/2018 2018/2019 2019/2020 2020/2021 2021/2022 Germany Abroad 5,123 5,045 5,136 5,011 4,972 698 788 795 981 960 Total 5,820 5,833 5,931 5,992 5,933 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 2022/2023 – 2026/2027 24,355 6,050 30,406 2021/2022 – 2025/2026 24,333 Germany Abroad 5,042 4,979 4,921 5,027 4,941 600 686 789 834 1,083 5,465 Total 5,642 5,665 5,710 5,861 6,024 29,798 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 15.4 (16.6) years in Germany and 17.1 (17.3) 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 2016/2017 were as follows: Pension costs in € thousand Germany Abroad Cost for defined contribution plans 3,080 1,600 Service cost for the defined benefit obligations Pension costs 993 4,073 1,186 2,786 2016/2017 2015/2016 Total 4,680 2,179 6,859 Germany Abroad 2,266 1,302 787 3,053 917 2,219 Total 3,568 1,704 5,272 110 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS GroupIn addition, contributions of €13,955 thousand (previous interest of between 0.9% and 2.25%. In addition, the benefit year: €13,724 thousand) were paid to statutory pension obligation from salary conversion was backed by a guaran- insurance institutions. tee that exactly matches the present value of the obligation of €3,928 (3,581) thousand (defined contribution plan). The costs for defined contribution plans in Germany main- ly related to the provident fund backed by a guarantee. The long-term financial borrowings include loans from banks The contributions to this pension plan were €3,080 (2,016) amounting to €200,828 (228,712) thousand. They have re- thousand. The return and income from the planned assets maining maturities through 2025. depend on the reinsurance policy, which yields guaranteed (15) 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 06/30/2017 06/30/2016 72,774 38,782 65 218 80,914 22,684 65 329 39,065 23,078 1,266 65 74,069 75,400 25,620 16,318 70,167 0 45 74,969 75,014 21,062 13,990 60,961 299,344 275,019 in € thousand 06/30/2016 06/30/2017 Changes in the consoli­ dated group, currency Addition Consump­ tion Reversal Obligations from sales transactions 62,884 –2,243 61,835 54,515 3,552 64,409 Obligations from purchase transactions Other obligations 3,884 14,146 80,914 0 –59 1,534 4,623 –2,302 67,992 3,724 10,843 69,082 100 1,096 4,748 1,594 6,771 72,774 The obligations from sales transactions essentially relate The tax liabilities of €25,620 (21,062) 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 provisions that cannot be assigned to the group of sales transactions or the group of purchase transactions. 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 111 KWS Group | Annual Report 2016/2017Notes for the KWS Group 2016/2017 (16) Derivative financial instruments Hedging transactions in € thousand Currency hedges Interest-rate hedges Commodity hedges 06/30/2017 06/30/2016 Nominal volume Carrying amounts Fair value Nominal volume Carrying amounts Fair value 162,977 34,000 182 –1,881 –311 5 –1,881 143,735 –311 5 34,000 162 197,159 –2,187 –2,187 177,897 2,027 –485 9 1,551 2,027 –485 9 1,551 Of the currency hedges, hedges with a nominal volume fair value. If this market does not exist for the asset or liabil- of €153,196 (140,625) thousand have a remaining maturity ities in question, the market that maximizes the amount that of less than one year, and hedges with a nominal volume would be received to sell the asset or minimizes the amount of €9,781 (3,110) thousand have a remaining maturity of that would be paid to transfer the liability, after taking into between one and five years. Of the interest-rate derivatives, account transaction costs, is used. These are active and hedges with a nominal volume of €34,000 (29,000) thousand accessible markets for identical assets and liabilities, where will mature within one to five years, and hedges with a nomi- the fair value results from quoted prices that are observable nal value of €0 (5,000) thousand will mature in more than five (level 1 input factors). At the KWS Group, this relates to years. The commodity hedges have remaining maturities of securities in the category available-for-sale financial assets, as less than one (one) year. well as fund shares at banks and other financial assets whose price is likewise quoted in active markets. (17) Financial instruments In general, the fair values of financial assets and liabilities The level 2 input factors relate to derivative financial instru- are calculated on the basis of the market data available on ments that have been concluded between KWS companies the balance sheet date and are assigned to one of the three and banks. The prices can thus be derived indirectly from hierarchy levels in accordance with IFRS 13. The principal active market prices for similar assets and liabilities. The level 3 market, i.e., the market with the largest volume of trading input factors cannot be derived from observable market and the greatest business activity, is used to calculate the information. 112 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS GroupThe carrying amounts and fair values of the financial assets (financial instruments), split into the measurement categories in accordance with IAS 39, are as follows: 06/30/2017 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 06/30/2016 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 Fair values 3,069 32 (32) 302,571 9,455 181,913 40,573 (1,653) 537,613 Fair Values 2,192 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 Available-for-sale financial assets Total carrying amount 0 0 (0) 302,571 0 181,913 38,920 (0) 523,404 0 32 (32) 0 0 0 1,653 (1,653) 1,685 3,069 3,069 0 (0) 0 9,455 0 0 (0) 12,524 32 (32) 302,571 9,455 181,913 40,573 (1,653) 537,613 Financial instruments Carrying amounts Loans and receivables Financial assets held for trading Available-for-sale 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 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 113 KWS Group | Annual Report 2016/2017The fair value of financial assets (equity instruments) The fair values of securities classified as current assets are measured at amortized costs cannot be reliably determined. based on the price for them quoted on active markets (level 1). These assets relate to shares in unconsolidated subsidiaries and associated companies. It is assumed that the carrying The fair value of derivative financial instruments is the present amounts are the same as the fair values. In addition, the values of the payments related to these balance sheet items. financial assets include securities classified as noncurrent These instruments are mainly forward exchange deals. assets, whose fair value is measured by their prices on the They are measured on the basis of quoted exchange rates stock market (level 1). and yield curves available from the market data and allowing for counterparty risks (level 2). 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 liabilities carrying amounts as a result of the short time in which these (financial instruments), split into the measurement categories instruments are due. in accordance with IAS 39, are as follows: 06/30/2017 in € thousand Fair values Financial instruments Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading Financial liabilities Long-term borrowings 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 204,649 1,217 1,306 (851) 39,065 75,400 16,318 (3,022) 200,828 1,217 455 (0) 39,065 75,400 13,296 (0) Total 337,955 330,261 0 0 851 (851) 0 0 3,022 (3,022) 3,873 Total carrying amount 200,828 1,217 1,306 (851) 39,065 75,400 16,318 (3,022) 334,134 114 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS Group06/30/2016 in € thousand Fair values Financial instruments Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading Financial liabilities Long-term borrowings 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 1,413 681 (533) 23,078 75,014 13,990 (964) 228,712 1,413 148 (0) 23,078 75,014 13,026 (0) Total 347,734 341,391 0 0 533 (533) 0 0 964 (964) 1,497 Total carrying amount 228,712 1,413 681 (533) 23,078 75,014 13,990 (964) 342,888 The fair value of long-term borrowings was calculated on None of the reported financial instruments will be held to the basis of discounted cash flows. To enable that, interest maturity. rates for comparable transactions and yield curves were used (level 2). The table below shows the financial assets and liabilities measured at fair value: Due to the generally short times by which trade payables and other financial liabilities (excluding derivatives) are due, it is assumed that their carrying amounts are equal to the fair value. Assets and liabilities measured at fair value in € thousand 06/30/2017 06/30/2016 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 1,685 12,182 0 12,182 1,685 0 0 3,873 3,873 0 0 0 0 0 1,685 0 3,046 12,182 32,421 0 13,867 32,421 3,046 3,873 3,873 0 0 1,497 1,497 0 0 0 0 0 3,046 32,421 35,467 1,497 1,497 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 115 KWS Group | Annual Report 2016/2017 The table below presents the net gains/losses carried in In order to control the credit risk resulting from receivables the income statement for financial instruments in each from customers, a regular creditworthiness analysis is measurement category: conducted by the responsible credit manager in accordance Net gain/losses of financial instruments in € thousand 06/30/2017 06/30/2016 with the credit volume. Security is available for some of these receivables and is used depending on the local cir- cumstances. This includes, in particular, credit insurance, down payments and guarantees. In general, reservation of ownership of goods is agreed with our customers. Credit limits are defined for all customers. Credit risks from financial transactions are controlled centrally by Corporate Finance/ Treasury. In order to minimize risks, financial transactions are 29 47 –1,059 –68 –262 –1,349 –11,251 –12,228 exclusively conducted within defined limits with banks and partners who always have an investment grade. Compliance –2,506 1,158 with the risk limits is constantly monitored. The limits are adjusted depending on the credit volume only subject to the approval of the regional or divisional management and the Available-for-sale financial assets Financial assets held for trading Loans and receivables Financial liabilities measured at amortized cost Financial liabilities held for trading The net income from available-for-sale financial assets in- Executive Board. cludes income from equity investments in cooperatives and income from securities. Liquidity is managed in the eurozone by the central Treasury unit using a cash-pooling system. Liquidity requirements are The net gains from financial assets held for trading and generally determined by means of cash planning and are financial liabilities held for trading solely comprise changes covered by cash and promised credit lines. in the market value of derivative financial instruments. The net gain/loss from loans and receivables mainly includes of €70 million for financing purposes in December 2015. The effects from changes in the allowances for impairment. tranches have a maturity of five and seven years; part of the KWS SAAT SE raised a borrower’s note loan for an amount loan has a variable interest rate, but most of it (€43 million) The net losses from financial liabilities measured at amortized has a fixed interest rate. cost result mainly from interest expense. Interest income from financial assets that are not measured syndicated loan of €200 million runs until October 2021, since at fair value and recognized in the income statement was the option of extending it was utilized. This loan only contains €2,900 (2,278) thousand. Interest expenses for financial one financial covenant. In the case of financial covenants, borrowings were €11,251 (12,228) thousand. the dynamic gearing ratio is used as a financial indicator. There are unutilized credit lines totaling €268 million. The Compliance with the covenants is regularly reviewed by KWS SAAT SE’s Treasury unit and reported to the banks every quarter in connection with the quarterly and annual financial statements. 116 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS Group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 flows: Fiscal year 2016/2017 in € thousand Book value Liquidity analysis of financial liabilities 06/30/2017 06/30/2017 Total Financial liabilities Trade payables Other financial liabilities Nonderivative financial liabilities Payment claim Payment obligation 239,893 242,273 76,617 13,751 330,261 76,617 13,751 332,641 112,163 117,830 Derivative financial liabilities 3,873 5,667 Fiscal year 2015/2016 in € thousand 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 Cash flows Due in > 5 years 28,493 0 Due in > 1 year and < 5 years 142,012 1,217 2 143,231 28,493 6,147 7,200 1,053 Due in < 1 year 71,768 75,400 13,749 160,917 106,016 110,630 4,614 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 21,052 23,225 2,173 20,237 21,961 1,724 815 1,264 449 The cash flows of the derivative financial liabilities mainly In order to assess the risk of exchange rate changes, the relate to forward exchange deals and include both interest sensitivity of a currency to fluctuations was determined. payments and redemption payments. These derivative After the euro, the US dollar is the most important currency financial instruments are settled in gross. in the KWS Group. All other currencies are of minor impor- tance. The average exchange rate in the fiscal year was The following sensitivity analyses show the impact on income 1.09 (1.11) USD/EUR. If the US dollar depreciated by 10%, the and equity. The calculated figures relate to the portfolio at financial instruments would be worth €192 (199) thousand. If the balance sheet date and show the hypothetical effect for the US dollar appreciated by 10%, the financial instruments one year. would have a value of €234 (244) thousand. The net income for the year and equity would change accordingly. 4. Notes to the Balance Sheet | Notes for the KWS Group 2016/2017 | Annual Financial Statements 117 KWS Group | Annual Report 2016/2017Interest rate sensitivity is a measure for showing the in- (19) Other financial obligations terest rate risk. The variable-interest components of the There was a €4,610 (13,211) thousand obligation from KWS Group’s interest expenses and interest income were uncompleted capital expenditure projects, mainly relating determined to calculate it. An average rate of interest per to property, plant and equipment. The largest items are the Group company for the past fiscal year was then formed obligations from investments of €0.5 million in expanding for all relevant investments and loans. This average rate of the Biotechnology Center, €1.1 million for conversion of a interest was then used in a scenario analysis to calculate machine hall, and €0.6 million for expansion of the block- the effects on the interest result and equity if the interest type thermal power station at Einbeck. Obligations under rental agreements and leases rate increased by one percentage point (100 base points) or decreased by the same amount. That yielded the following results in the past fiscal year. An increase in the rate of inter- est of one percentage point would result in additional interest in € thousand Due within one year expense of €0.5 million (previous year: income and expense Due between 1 and 5 years canceled each other out); equity would fall by €0.3 (+0.0) Due after 5 years million in the event of such a change in the rate of interest. A reduction in the rate of interest of one percentage point would add a further €0.5 (0.6) million in income. Equity would 06/30/2017 06/30/2016 17,216 34,219 4,399 55,834 16,520 21,353 6,002 43,875 increase by €0.3 (0.4) million in the event of such a change in The leases relate primarily to full-service agreements for IT the rate of interest. (18) Contingent liabilities equipment and fleet vehicles, which also include services for which a total of €4,620 (5,556) thousand was paid in the year under review. The main leasehold obligations relate to As in the previous year, there are no contingent liabilities to land under cultivation. report at the balance sheet date. 118 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 4. Notes to the Balance Sheet Annual Report 2016/2017 | KWS Group5. Notes to the Income Statement Income statement in € millions 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 2016/2017 % of sales 2015/2016 % of sales 1,075.2 493.9 581.3 200.7 190.3 79.8 69.7 48.6 131.6 100.0 45.9 54.1 18.7 17.7 7.4 6.5 4.5 12.2 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 1.4 Net financial income/expenses 16.6 1.5 14.8 Result of ordinary activities 148.2 13.8 127.6 12.3 Taxes Net income for the year Share of minority interest Net income after minority interest (20) Net sales and function costs By product category in € thousand Certified seed sales Royalties income Basic seed sales Services fee income Other sales 50.5 97.7 0.2 97.5 4.7 9.1 0.0 9.1 42.3 85.3 0.0 85.3 4.1 8.2 0.0 8.2 2016/2017 2015/2016 967,736 918,471 59,783 17,843 4,288 25,594 73,006 19,411 3,513 22,373 1,075,244 1,036,774 5. Notes to the Income Statement | Notes for the KWS Group 2016/2017 | Annual Financial Statements 119 KWS Group | Annual Report 2016/2017By region in € thousand Germany Europe (excluding Germany) North and South America Rest of world 2016/2017 2015/2016 226,291 223,972 464,283 450,817 317,472 67,198 282,999 78,986 Selling expenses increased by €3,858 thousand to €200,676 (196,818) thousand, or 18.7% (19.0%) of sales. Research & development is recognized as an expense in the year it is incurred; in the year under review, this amounted to €190,327 (182.360) thousand. Development costs for new varieties are not recognized as an asset because evidence of future economic benefit can only be 1,075,244 1,036,774 provided after the variety has been officially certified. For further details of sales, see segment reporting. €3,431 thousand to €79,833 thousand, representing 7.4% General and administrative expenses increased by of sales as in the previous year. The cost of sales increased by 2.7% to €493,922 (480,864) thousand, or 45.9% (46.4%) of sales. The total cost of goods sold was €289,427 (290,480) thousand. 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: July 1 to June 30 in € thousand Impairment losses Decreases in impairment loss Total 10,746 2,612 (21) 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 The other operating income mainly comprises foreign exchange gains and income from interest rate hedges, as well as miscellaneous other operating income. The performance-based government grants mainly relate to breeding allowances and farm payments. 120 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 5. Notes to the Income Statement 2016/2017 2015/2016 2,693 3,841 26,847 3,777 6,166 7,157 269 18,956 69,706 445 6,748 28,050 4,636 5,924 8,925 132 15,512 70,372 Annual Report 2016/2017 | KWS Group (22) 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 Other expenses In the year under review, allowances for receivables and counterparty defaults of €3,728 (4,132) thousand were recognized as an expense in the Corn Segment, €713 (7,244) thousand in the Sugarbeet Segment and €379 (180) thousand in the Cereals Segment. (23) Net financial income/expenses July 1 to June 30 in € thousand Interest income Interest expenses Income from securities 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 Income from write-ups of subsidiaries, joint ventures and participations Expenses from depreciation of shares of subsidiaries Net income from equity investments Net financial income/expenses 2016/2017 2015/2016 943 4,526 294 29,149 1,001 1,798 10,890 48,601 944 8,263 3,293 28,986 1,294 1,741 13,417 57,938 2016/2017 2015/2016 3,043 9,510 32 26 32 1,794 71 3 –8,309 24,935 3 10 40 24,908 16,599 2,618 11,679 0 44 0 2,547 114 7 –11,685 26,466 3 0 0 26,469 14,784 Net income from equity investments fell year on year by net financial income/expenses rose by €1,815 thousand to €1,561 thousand. Income from equity-accounted financial €16,599 (14,784) thousand. The interest effects from pension assets fell from €26,466 thousand to €24,935 thousand. To- provisions comprise interest expenses (compounding) and the gether with an interest result of €–8,309 (–11,685) thousand, planned income. 5. Notes to the Income Statement | Notes for the KWS Group 2016/2017 | Annual Financial Statements 121 KWS Group | Annual Report 2016/2017 (24) 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 2016/2017 2015/2016 54,077 17,760 36,317 6,741 –3,599 –2,035 –1,564 50,478 40,803 4,666 36,137 –267 1,468 2,831 –1,363 42,271 KWS pays tax in Germany at a rate of 29.0% (29.1%). out in ten equal annual amounts from 2008 to 2017. The Corporate income tax of 15.0% (15.0%) and solidarity tax German Group companies carried these claims as assets of 5.5% (5.5%) are applied uniformly to distributed and at their present value totaling €1,235 (2,470) thousand at retained profits. In addition, trade tax is payable on profits June 30, 2017. A total of €1,235 (1,236) thousand was re- generated in Germany. Trade income tax is applied at a covered in the year under review and recognized directly in weighted average rate of 13.2% (13.3%), resulting in a total equity. tax rate of 29.0% (29.1%). The “Law on Tax Measures Accompanying Introduction are taxed at the rates applicable in the country in which they of the Societas Europaea and Amending Further Tax are based. The tax rates in foreign countries vary between Regulations” (SEStEG), which was passed at the end of 10.0% (10.0%) and 39.0% (39.0%). The profits generated by Group companies outside Germany 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- ing balance sheet items and tax loss carryforwards: Deferred taxes in € thousand Intangible assets Property, plant and equipment Biological assets Financial assets Inventories Current assets Noncurrent liabilities of which pension provisions Current liabilities Deferred taxes recognized (gross) Tax loss carryforward Setting off Deferred taxes recognized (net) Deferred tax assets Deferred tax liabilities 2016/2017 2015/2016 2016/2017 2015/2016 2,706 86 0 279 11,702 5,341 26,892 (20,495) 11,941 58,947 3,752 –16,164 46,535 786 612 0 1,738 8,122 1,618 27,549 (22,734) 14,463 54,888 5,588 –19,437 41,039 4,297 18,005 7 1,472 1,047 2,686 1,246 (1,241) 125 28,885 0 –16,164 12,721 5,957 17,699 4 0 1,013 4,026 1,420 (11) 3 30,122 0 –20,675 9,447 Due to the use of tax loss carryforwards and temporary There is a deferred tax expense of €2,442 (1,616) thousand differences on which no deferred taxes were recognized in from the allowance for deferred taxes on tax loss carryfor- the past, the actual tax expense fell by €100 (0) thousand. wards and temporary differences in the year under review. 122 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 5. Notes to the Income Statement Annual Report 2016/2017 | KWS GroupThe write-up of deferred taxes results in deferred tax In the year under review, there were surpluses of deferred income of €2,754 (95) thousand. tax assets from temporary differences and loss carryfor- wards totaling €15,376 (30,677) thousand at Group com- No deferred taxes were formed for tax loss carryforwards panies that made losses in the past period or the previous totaling €15,772 (24,987) thousand that have not yet been period. These were considered recoverable, since it is utilized. Of these, €4,591 (4,627) thousand must be utilized assumed that the companies in question will post taxable within a period of five years and €2,251 (5,715) thousand profits in the future. The fact is taken into account here that within a period of nine years. Loss carryforwards totaling the KWS Group may realize income with a delay due to the €8,930 (14,645) thousand can be utilized without any time long-term nature of research & development spending. limit. No deferred taxes were formed for deductible temporary the reported income tax expense is derived on the basis of differences totaling €0 (543) thousand. the consolidated income before taxes and the nominal tax The reconciliation of the expected income tax expense to rate for the Group of 29.0% (29.1%), taking into account the There are deferred taxes of €37,331 thousand relating to following effects. temporary differences in connection with shares in sub- sidiaries; they are not recognized pursuant to IAS 12.39. 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: 29.0% 2016/2017 2015/2016 148,190 43,030 3,850 –27 8,073 –13,629 1,868 –688 –464 8,318 147 50,478 34.1% 127,548 37,148 11,709 –393 4,255 –13,155 –330 3,567 –245 –2,385 2,100 42,271 33.1% Other taxes, primarily real estate tax, are allocated to the Personnel costs went up by €14,808 thousand to relevant functions. €246,991 thousand, an increase of 6.4%. The number of employees increased by 94 to 4,937, or by 1.9%. Of the (25) Personnel costs/employees 4,937 (4,843) employees, 3,607 (3,560) are permanent July 1 to June 30 in € thousand Wages and salaries Social security contributions, expenses for pension plans and benefits 2016/2017 2015/2016 198,675 188,170 48,316 246,991 44,013 232,183 employees, 1,193 (1,136) are temporary employees and 137 (147) are trainees. Compensation increased by 5.6% from €188,170 thousand in the previous year to €198,675 thousand. Social security contributions, expenses for pension plans and benefits were €4,303 thousand higher than in the previous year. 5. Notes to the Income Statement | Notes for the KWS Group 2016/2017 | Annual Financial Statements 123 KWS Group | Annual Report 2016/2017Employees1 Germany Europe (excluding Germany) North and South America Rest of world Total 1 Annual average 2016/2017 2015/2016 1,911 1,454 1,287 285 4,937 1,908 1,449 1,280 206 4,843 With our joint ventures, associated company and joint oper- ation consolidated proportionately, the number of employees was 5,621 (5,472). The reported number of employees is greatly influenced by seasonal labor. (26) Share-based payment Long-Term-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 performance-related bonus. Along with that, all members of the first management level below the Executive Board likewise take part in an LTI program. As part of this program, they are obligated to invest in shares in KWS SAAT SE every year in a freely selectable amount ranging between 10% and 40% of the gross performance-related bonus. Employee Share Purchase Plan The members of the Executive Board and the first manage- KWS has established an Employee Share Purchase Plan. All ment level below the Executive Board may sell these shares employees who have been with the company for at least one at the earliest after a regular holding period of five years year without interruption and have a permanent employment beginning at the time they are acquired (end of the quarter relationship that has not been terminated at a KWS Group in which the shares were acquired). The entitled persons are company that participates in the program are eligible to take paid a long-term incentive (LTI) in the form of cash compen- part. That also includes employees who are on maternity sation after the holding period for the tranche in question. leave or parental leave or who are in semi-retirement. This was the case for members of the Executive Board for the first time in January 2017. Its level is calculated on the Each employee can acquire up to 500 shares. A bonus of basis of KWS SAAT SE’s share performance and on the 20% is deducted from the purchase price, which depends KWS Group’s return on sales (ROS), measured as the ratio on the price applicable on the key date. The shares are sub- of operating income to net sales, over the holding period. ject to a lock-up period of four years beginning when they For persons with contracts as of July 1, 2014, the cash com- are posted to the employee’s securities account. The right pensation for members of the Executive Board is a maxi- to a dividend, if KWS SAAT SE pays one out, exists during mum of one-and-half times (for the Chief Executive Officer the lock-up period. Holders can also exercise their right to two times), and for members of the first management level participate in the Annual Shareholders’ Meeting during the below the Executive Board a maximum of two times their lock-up period. They can dispose freely of the shares after own investment (LTI cap). The costs of this compensation the lock-up period. are recognized in the income statement over the period and, taking the cash compensation in January 2017 into account, A total of 11,594 (7,541) shares were repurchased for the were €1,213 (510) thousand in the period under review. The Employee Share Purchase Plan at a total price of €3,354 provision for it at June 30, 2017, was €2,570 (2,680) thousand. (1,952) thousand in the year under review. The total cost for The LTI fair values are calculated by an external expert. issuing shares at a reduced price was €750 thousand in the past fiscal year (previous year: €311 thousand). (27) Net income for the year The KWS Group’s net income for the year was €97,712 (85,277) thousand on operating income of €131,591 (112,764) thousand and net financial income/ expenses of €16,599 (14,784) thousand. The return on sales thus increased to 9.1% (8.2%). Net income for the year after minority interest was €97,549 (85,261) thousand. Earnings per share in the year under review were €14.78 (12.92). 124 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 5. Notes to the Income Statement Annual Report 2016/2017 | KWS Group6. Notes to the Cash Flow Statement The cash flow statement shows the changes in cash and cash equivalents of the KWS Group in the three categories of operating activities investing activities and financing activities. The effects of exchange rate changes and changes in the consolidated group have been eliminated from the respective balance sheet items, except those affecting cash and cash equivalents. (1) Net cash from operating activities The cash proceeds from operating activities are substan- tially determined by cash earnings. In the year under review they were €105,408 (107,297) thousand. The proportion of cash earnings included in sales was 9.8% (10.3%). Since current liabilities rose more sharply than inventories and receivables, there were net cash proceeds of €21,765 thou- sand. The cash proceeds from operating activities also include interest income of €3,035 (2,609) thousand and interest expense of €7,768 (7,871) thousand. Income tax payments amounted to €52,610 (46,916) thousand. The divi- dends received from the joint ventures are also carried here and total €16,861 (25,682) thousand. (2) Net cash from investing activities A net total of €64,760 (92,174) thousand was required to finance investing activities. (3) Net cash from financing activities The net cash used in financing activities was €29,604 thou- sand (previous year: cash proceeds of €21,385 thousand). (4) Supplementary information on the cash flow statement Of the changes in cash and cash equivalents caused by exchange rate, consolidated group, and measurement changes, a total of €–582 (€–1,161) thousand results from exchange rate-related adjustments. As in previous years, cash and cash equivalents are composed of cash (on hand and balances with banks) and current available-for-sale securities. 6. Notes to the Cash Flow Statement | Notes for the KWS Group 2016/2017 | Annual Financial Statements 125 KWS Group | Annual Report 2016/20177. Other Notes Proposal for the appropriation of net retained profits Related party disclosures A proposal will be made to the Annual Shareholders’ Transactions with related parties in accordance with IAS 24 Meeting that, of KWS SAAT SE’s net retained profit of are all business dealings that are conducted with the re- €21,151 thousand, an amount of €21,120 thousand should porting entity by entities or natural persons or their close be distributed as a dividend of €3.20 (3.00) for each of the family members, if the party or person in question controls 6,600,000 shares. the reporting entity or is a member of its key management personnel, for example. There were no business transactions The balance of €31 (41) thousand is to be carried forward to or legal transactions that required reporting for this group of the new account. persons in fiscal 2016/2017. As part of its operations, KWS procures goods and services worldwide from a large number Total remuneration of the Supervisory Board and of business partners, They also include companies in which Executive Board and of former members of the KWS has an interest and on which representatives of KWS’ Super visory Board and the Executive Board of Supervisory Board exert a significant influence. Business KWS SAAT SE dealings with these companies are always conducted on an The compensation of the members of the Supervisory arm’s-length basis and are not material in terms of volume. Board consists of a fixed and a variable component, with As part of Group financing, short- and medium-term term the variable component being limited to the level of the loans are taken out from, and granted to, subsidiaries at fixed compensation. As in the previous year, the total market interest rates. The compensation of members of the compen sation for members of the Supervisory Board Executive Board comprises short-term employee benefits, amounts to €504 (516) thousand, excluding value-added share-based payment benefits and post-employment ben- tax. Some €238 (238)  thousand of the total compensation efits. Individualized disclosures on the compensation of is performance-related. members of the Executive Board and the Supervisory Board are presented in the Compensation Report, which is part of In fiscal year 2016/2017, total Executive Board compensation the audited Combined Management Report. amounted to €3,772 (3,531) thousand. The variable compen- sation, which is calculated on the basis of the net profit for No other related parties have been identified for whom there the period of the KWS Group, is made up of a bonus and a is a special reporting requirement under IAS 24. long-term incentive. The bonus totals €1,806 (1,602) thou- sand; there are contributions from the long-term incentive tranche for 2015/2016 totaling €583 thousand (tranche for 2014/2015: €558 thousand). Pension provisions totaling €1,180 (1,384) thousand were formed for two members of the Executive Board at KWS SAAT SE. Compensation of former members of the Executive Board and their surviving dependents amounted to €1,774 (1,334 thou- sand. Pension provisions recognized for this group of persons amounted to €7,337 (8,027) thousand as of June 30, 2017, before being netted off with the relevant planned assets. 126 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 7. Other Notes Annual Report 2016/2017 | 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 2016/2017 2015/2016 2016/2017 2015/2016 2016/2017 2015/2016 2016/2017 2015/2016 0 0 0 0 0 330 2,935 0 0 4,891 1,862 0 16,058 16,319 12,305 17,323 8,053 133 6,925 132 169 0 439 0 0 0 0 0 0 0 0 0 Disclosure Report on events after the balance sheet date The following subsidiaries with the legal form of a corpora- In order to strengthen the technology platforms of KWS and tion within the meaning of Section 264 (3) of the German Vilmorin & Cie, a licensing agreement relating to additional Commercial Code (HGB) have utilized the exemption pro- corn traits was concluded in October 2015. It authorizes vided in Section 264 (3) of the German Commercial Code KWS and Vilmorin & Cie, separately and independently (HGB) as regards preparation of financial statements and of each other, as well as their joint ventures GENECTIVE their publication: and AGRELIANT, to make worldwide commercial use of corn traits developed and marketed by a leading provider, ■■ KWS LOCHOW GMBH, Bergen including future new developments. As agreed in 2015, fur- ■■ KWS LANDWIRTSCHAFT GMBH, Einbeck ther new approvals by the provider resulted in an additional ■■ BETASEED GMBH, Frankfurt payment by AGRELIANT totaling 75 million US dollars in ■■ DELITZSCH PFLANZENTUCHT GMBH, Einbeck September 2017. ■■ KANT-HARTWIG & VOGEL GMBH, Einbeck ■■ AGROMAIS GMBH, Everswinkel Apart from that, there were no events after June 30, 2017, ■■ KWS SERVICES DEUTSCHLAND GMBH, Einbeck that can be expected to have a significant impact on the KWS Group’s assets, financial position and earnings. KWS SAAT SE prepares the consolidated financial state- ments for the largest and smallest group of companies. Declaration of compliance with the German Corporate Audit of the annual financial statements KWS SAAT SE has issued the declaration of compliance On December 15, 2016, the Annual Shareholders’ Meeting with the German Corporate Governance Code required by of KWS SAAT SE elected for the first time the account- Section 161 Aktiengesetz (AktG – German Stock Corpora- ing firm Ernst & Young GmbH, Hanover, to be the Group’s tion Act) and made it accessible to its shareholders on the auditors for fiscal year 2016/2017. The disclosures for the company’s home page at www.kws.de. Governance Code previous year are based on the work by the independent auditor at the time, Deloitte GmbH, Hanover. Fee paid to the external auditors under Section 314 (1) No. 9 HGB in € thousand 2016/2017 2015/2016 a) Audit of the consolidated financial statements b) Other certification services c) Tax consulting d) Other services Total fee paid 625 0 0 0 625 674 0 0 109 783 7. Other Notes | Notes for the KWS Group 2016/2017 | Annual Financial Statements 127 KWS Group | Annual Report 2016/2017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 (until December 15, 2016) Honorary member of the Supervisory Board of KWS SAAT SE (since December 15, 2016) 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 Deputy Chairman of the Supervisory Board of KWS SAAT SE (since December 15, 2016) Jürgen Bolduan Einbeck Seed Breeding Employee Chairman of the Central Works Council of KWS SAAT SE Cathrina Claas-Mühlhäuser Frankfurt am Main Businesswoman Chairwoman of the Supervisory Board of CLAAS KGaA mbH, Harsewinkel Dr. Berthold Niehoff Einbeck Agricultural Scientist Employee Representative Dr. Marie Theres Schnell Munich Graduate in Communications Mandates (06/30/2017) 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) Membership of comparable German and foreign oversight boards: ■■ DR.SCHNELL Chemie GmbH, Munich (Member of the Advisory Board) 128 Annual Financial Statements | Notes for the KWS Group 2016/2017 | 7. Other Notes Annual Report 2016/2017 | KWS GroupSupervisory Board Committees Committee Audit Committee Chairman Hubertus von Baumbach Committee for Executive Affairs Andreas J. Büchting Nominating Committee Andreas J. Büchting Members Andreas J. Büchting Jürgen Bolduan Hubertus von Baumbach (since 2016/12) Arend Oetker (until 2016/12) Cathrina Claas-Mühlhäuser Marie Theres Schnell (since 2016/12) Arend Oetker (until 2016/12) Cathrina Claas-Mühlhäuser Mandates (06/30/2017) 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 7. Other Notes | Notes for the KWS Group 2016/2017 | Annual Financial Statements 129 KWS Group | Annual Report 2016/2017Independent Auditor’s Report To KWS SAAT SE Basis for opinions Report on the audit of the consolidated financial statements and the group management report in accor- statements and the group management report dance with Sec. 317 HGB and Regulation (EU) No 537/2014 We conducted our audit of the consolidated financial Opinions (EU Audit Regulation) as well as German generally accept- ed standards on auditing promulgated by the Institut der We have audited the consolidated financial statements of Wirtschaftsprüfer [Institute of Public Auditors in Germany] KWS SAAT SE, Einbeck, and its subsidiaries (the Group), (IDW). Our responsibilities under those laws and standards which comprise the consolidated statement of financial are further described in the “Auditor’s responsibilities for the position as of 30 June 2017, the consolidated statement audit of the consolidated financial statements and the group of comprehensive income, the consolidated statement of management report” section of our report. We are indepen- changes in equity and the consolidated statement of cash dent of the group companies in accordance with European flows for the fiscal year from 1 July 2016 to 30 June 2017 and German commercial law and professional provisions, and the notes to the consolidated financial statements, and we have fulfilled our other German ethical responsibili- including a summary of significant accounting policies. ties in accordance with these requirements. Furthermore, in We have also audited the group management report of accordance with Art. 10 (2) f of the EU Audit Regulation, we KWS SAAT SE, which was combined with the management declare that we have not provided any prohibited non-audit report of the Company, for the fiscal year from 1 July 2016 services referred to in Art. 5 (1) of the EU Audit Regulation. to 30 June 2017. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions In our opinion, based on the findings of our audit, on the consolidated financial statements and on the group ■■ the accompanying consolidated financial statements management report. comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German law Key audit matters in the audit of the consolidated pursuant to Sec. 315a (1) HGB [“Handelsgesetzbuch”: financial statements German Commercial Code] and give a true and fair view Key audit matters are those matters that, in our professional of the net assets and financial position of the Group as judgment, were of most significance in our audit of the con- of 30 June 2017 and its results of operations for the fiscal solidated financial statements for the fiscal year from 1 July year from 1 July 2016 to 30 June 2017 in accordance with 2016 to 30 June 2017. These matters were addressed in the these requirements and context of our audit of the consolidated financial statements ■■ the accompanying group management report as a whole as a whole, and in forming our auditor’s opinion thereon, provides a suitable view of the Group’s position. In all and we do not provide a separate opinion on these matters. material respects, this group management report is consistent with the consolidated financial statements, Below, we describe what we consider to be the key audit complies with the provisions of German law and suit- matters: ably presents the opportunities and risks of future development. (1) Goodwill impairment test In accordance with Sec. 322 (3) Sentence 1 HGB, we hereby Reasons why the matter was determined to be state that our audit has not led to any reservations regarding a key  audit matter the compliance of the consolidated financial statements and In fiscal year 2016/2017, management of KWS SAAT SE the group management report. modified the internal budgeting and reporting processes as part of its activities, in particular due to a cross- company centralization of the Group’s operations into divisions. Pursuant to IAS 36, the internal management and reporting structure serves as the basis for designating cash-gener- ating units to which the respective items of goodwill are allocated. There was therefore a change in the cash-gener- ating units in the KWS SAAT SE Group since monitoring and management, including of goodwill, has been performed by 130 Annual Financial Statements | Notes for the KWS Group 2016/2017 | Independent Auditor’s Report Annual Report 2016/2017 | KWS Groupthe chief operating decision makers at divisional instead of Reference to related disclosures legal entity level since fiscal year 2016/2017. With regard to the accounting and valuation bases applied for goodwill, refer to the disclosure on intangible assets in Goodwill is tested for impairment as of 30 June each year. the section “Accounting policies” in the notes to the consoli- The result of these tests is highly dependent on manage- dated financial statements. For the related disclosures ment’s estimate of future cash flows and the respective on judgments by management and sources of estimation discount rates used. uncertainty as well as the disclosures on goodwill, refer to no. 2 “Intangible assets” in section 4 “Notes to the state- In light of the new definition of the cash-generating units, ment of financial position” in the notes to the consolidated the complexity of the valuation and the judgment exercised financial statements. during valuation, the goodwill impairment test was one of the most significant matters we examined during our audit. (2) Revenue recognition from the sale of seeds Audit approach Reasons why the matter was determined to be During our audit, among other things, we obtained an a key  audit matter understanding of the methods used to carry out the impair- In the consolidated financial statements of KWS SAAT SE, ment tests including an examination of the suitability of the revenue from the sale of seeds is recognized when risk procedure for performing an impairment test in accordance passes, taking contractually agreed return deliveries into with IAS 36. In doing so, we analyzed the planning process consideration. Management of KWS SAAT SE has issued and the operating effectiveness of the controls implemented detailed accounting instructions and implemented process- therein. We discussed the significant planning assumptions es for recognizing revenue from seed sales and taking return with management and compared these with the results and deliveries into consideration. In light of the large number of cash inflows realized in the past. With respect to the rollfor- different contractual agreements and judgment exercised in ward of the medium to the long-term plan, we examined in assessing expected return deliveries, we consider revenue particular the assumptions on the growth rate. Our assess- recognition to be complex and therefore to pose an elevated ment of the results of the impairment tests as of 30 June risk of incorrect recognition. was based among other things on a comparison with gen- eral and industry-specific market expectations underlying Audit approach the expected cash inflows. Based on our understanding During our audit, we considered, based on the criteria that even relatively small changes in the discount rates used defined in IAS 18, the accounting and valuation require- can at times have significant effects on the amount of the ments applied in the consolidated financial statements of business value calculated, we analyzed the inputs used to KWS SAAT SE for the recognition of revenue. Our audit determine the discount rates and reperformed the calcula- approach included an examination of whether the significant tion with regard to the relevant requirements of IAS 36. We opportunities and risks passed to the buyers upon the sale also performed sensitivity analyses in order to estimate any of the seeds. We analyzed the process implemented by potential impairment risk associated with a reasonably pos- the management board of KWS SAAT SE and the account- sible change in one of the significant assumptions used in ing and valuation requirements for the recognition of seed the valuation. In addition, we analyzed the test performed by sales, in particular regarding an appropriate consideration KWS SAAT SE’s management to ascertain whether retaining of return deliveries. We tested the operating effectiveness of the previous definition of the cash-generating units would the controls relating to revenue recognition and the correct also have resulted in no impairment. cut-off of revenue. We examined whether the significant revenue items for fiscal year 2016/2017 correlate with the We obtained evidence that the divisions represent the corresponding trade receivables and payments received lowest level within the Group at which independent cash and, based on analytical procedures defined group-wide, inflows are generated and goodwill is monitored for internal analyzed whether the revenue for fiscal year 2016/2017 was manage ment purposes. Moreover, according to our findings, recognized on an accrual basis. We analyzed the recogni- the modification of the cash-generating units is consistent tion of revenue based on the contractual arrangements on with the realignment of the internal budgeting and reporting a sample basis with regard to the requirements of IAS 18 structure. for revenue recognition. We also obtained balance confir- mations from customers. Based on analytical procedures Our procedures regarding the valuation of goodwill did not carried out on historical data, the analysis of the underlying lead to any reservations. contracts and the test of the operating effectiveness of the Independent Auditor’s Report | Notes for the KWS Group 2016/2017 | Annual Financial Statements 131 KWS Group | Annual Report 2016/2017implemented controls in this area, we examined the calcula- Our procedures regarding the recognition of current and tion of expected return deliveries of seeds and their deduc- deferred income taxes did not lead to any reservations. tion from revenue. Based on our test of operating effective- ness, no significant exceptions were noted in terms of the Reference to related disclosures controls implemented at KWS SAAT SE. Overall, our audit With regard to the accounting and valuation bases applied procedures relating to revenue recognition from the sale of for current and deferred income taxes and the related seeds did not lead to any reservations. disclosures on judgments by management and sources of estimation uncertainty, refer to the disclosure on deferred Reference to related disclosures taxes and income tax provisions in the section “Accounting With regard to the accounting and valuation bases applied policies” in the notes to the consolidated financial state- for the recognition of revenue from the sale of seeds, refer to ments and, with regard to the information on income taxes, the disclosure on the recording of income and expenses in no. 24 “Taxes” in section 4 “Notes to the statement of the section “Accounting policies” in the notes to the consoli- financial position” in the notes to the consolidated financial dated financial statements. statements. (3) Current and deferred income taxes Responsibilities of management and the supervisory board for the consolidated financial statements and the Reasons why the matter was determined to be group management report a key  audit matter Management is responsible for the preparation of consol- The KWS SAAT SE Group operates in different legal jurisdic- idated financial statements that comply, in all material re- tions with the resulting complexity of matters affecting the spects, with IFRSs as adopted by the EU and the additional recognition of current and deferred income taxes, namely requirements of German law pursuant to Sec. 315a (1) HGB, the transfer prices used, changes in tax legislation and intra- for the preparation of consolidated financial statements that group financing. To calculate the provision for tax obliga- give a true and fair view of the net assets, financial position tions and deferred tax items, management of KWS SAAT SE and results of operations of the Group in accordance with must exercise judgment in assessing tax matters, estimating these requirements and for such internal control as manage- tax risks and recognizing deferred taxes. ment determines is necessary to enable the preparation of consolidated financial statements that are free from material Audit approach misstatement, whether due to fraud or error. Management of KWS SAAT SE regularly engages external experts to validate its own risk assessment. We called on In preparing the consolidated financial statements, manage- our tax specialists to consider these tax assessments. Our ment is responsible for assessing the Group’s ability to con- specialists also analyzed the correspondence with the com- tinue as a going concern, disclosing, as applicable, matters petent tax authorities and the assumptions used to calculate related to going concern and using the going concern basis provisions for current taxes and deferred taxes, considering of accounting unless management either intends to liquidate in particular the applicable transfer prices, based on their the Group or to cease operations, or has no realistic alterna- knowledge and experience of how the authorities and courts tive but to do so. currently apply the relevant legal provisions. In addition, we involved tax specialists from our international network with In addition, management is responsible for the preparation the relevant knowledge of the respective local jurisdictions of the group management report that as a whole provides and regulations who reported to us on the results of their a suitable view of the Group’s position and, in all material work. We reperformed, based on the requirements of IAS respects, is consistent with the consolidated financial 12, the reconciliation of the profit before tax reported in the statements, complies with the provisions of German law IFRS financial statements to the taxable profit. We reper- and suitably presents the opportunities and risks of future formed the calculation of the deferred tax items with regard development and for such arrangements and measures to the provisions of IAS 12 and considered the assump- (systems) as management deems necessary to enable the tions on the recoverability of deferred tax assets. Our audit preparation of a group management report in accordance approach also included the disclosures in the notes to the with the applicable provisions of German law and to furnish consolidated financial statements of KWS SAAT SE on sufficient appropriate evidence for the assertions in the current and deferred income taxes. group management report. 132 Annual Financial Statements | Notes for the KWS Group 2016/2017 | Independent Auditor’s Report Annual Report 2016/2017 | KWS GroupThe supervisory board is responsible for overseeing the ■■ evaluate the appropriateness of accounting policies used Group’s financial reporting process for the preparation of and the reasonableness of accounting estimates and re- the consolidated financial statements and the management lated disclosures made by management; report. ■■ conclude on the appropriateness of the going concern basis of accounting used by management and, based on Auditor’s responsibilities for the audit of the the audit evidence obtained, whether a material uncer- consolidated financial statements and the group tainty exists related to events or conditions that may cast management report significant doubt on the Group’s ability to continue as a Our objectives are to obtain reasonable assurance about going concern. If we conclude that a material uncertainty whether the consolidated financial statements as a whole exists, we are required to draw attention in our auditor’s are free from material misstatement, whether due to fraud report to the related disclosures in the consolidated finan- or error, and whether the group management report as a cial statements and the group management report or, if whole provides a suitable view of the Group’s position and, such disclosures are inadequate, to modify our respective in all material respects, is consistent with the consolidated opinion. Our conclusions are based on the audit evidence financial statements and our audit findings, complies with obtained up to the date of our auditor’s report. However, the provisions of German law and suitably presents the future events or conditions may cause the Group to cease opportunities and risks of future development, and to issue to continue as a going concern; an independent auditor’s report that includes our opinions ■■ evaluate the overall presentation, structure and content on the consolidated financial statements and the group of the consolidated financial statements, including the management report. disclosures, and whether the consolidated financial state- ments represent the underlying transactions and events Reasonable assurance is a high level of assurance, but is in a manner that achieves a true and fair view of the net not a guarantee that an audit conducted in accordance assets, financial position and results of operations of the with Sec. 317 HGB and the EU Audit Regulation as well as Group in accordance with IFRSs as adopted by the EU generally accepted standards on auditing promulgated by and the additional requirements of German law pursuant the IDW will always detect a material misstatement when it to Sec. 315a (1) HGB; exists. Misstatements can arise from fraud or error and are ■■ obtain sufficient appropriate audit evidence regarding the considered material if, individually or in the aggregate, they financial information of the entities or business activities could reasonably be expected to influence the economic within the Group to express opinions on the consolidated decisions of users taken on the basis of these consolidated financial statements and the group management report. financial statements and the group management report. We are responsible for the direction, supervision and per- formance of the group audit. We remain solely responsible We exercise professional judgment and maintain profes- for our audit opinions; sional skepticism throughout the audit. We also ■■ evaluate the group management report’s consistency with ■■ identify and assess the risks of material misstatement the consolidated financial statements, its compliance with of the consolidated financial statements and the group the legal provisions and the view it gives of the Group’s management report, whether due to fraud or error, design position; and perform audit procedures responsive to those risks, ■■ perform procedures on the forward-looking assertions and obtain audit evidence that is sufficient and appro- made by management in the group management report. priate to provide a basis for our opinions. The risk of not In particular, on the basis of sufficient appropriate audit detecting a material misstatement resulting from fraud evidence, we walk through the significant assumptions is higher than for one resulting from error, as fraud may underlying management’s forward-looking assertions involve collusion, forgery, intentional omissions, misrepre- and assess whether the forward-looking assertions were sentations, or the override of internal control; appropriately derived from these assumptions. We do not ■■ obtain an understanding of internal control relevant to provide a separate opinion on the forward-looking asser- the audit of the consolidated financial statements and the tions and underlying assumptions. There is a significant arrangements and measures relevant to the audit of the unavoidable risk that future events will differ materially group management report in order to design audit proce- from the forward-looking assertions. dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective- ness of these systems; Independent Auditor’s Report | Notes for the KWS Group 2016/2017 | Annual Financial Statements 133 KWS Group | Annual Report 2016/2017We communicate with those charged with governance Report on other legal and regulatory requirements regarding, among other matters, the planned scope and timing of the audit and significant audit findings, includ- Other reporting items in accordance with Art. 10 of ing any significant deficiencies in internal control that we the EU Audit Regulation identify during our audit. We were elected as auditor of the consolidated financial statements by the shareholder meeting on 15 December We provide those charged with governance with a statement 2016. We were engaged by the supervisory board on that we have complied with relevant ethical requirements 8  August 2017. We have been the auditor of KWS SAAT SE regarding independence, and communicate with them all for an uninterrupted period since the audit of the consoli- relationships and other matters that may reasonably be dated financial statements for fiscal year 2016/2017. thought to bear on independence and related safeguards. From the matters communicated with those charged with report are consistent with the additional report to the audit governance, we determine those matters that were of most committee in accordance with Art. 11 of the EU Audit Regu- We confirm that the audit opinions included in this auditor’s significance in the audit of the consolidated financial state- lation (audit report). ments of the current period and are therefore the key audit matters. We describe each key audit matter in our auditor’s Responsible auditor report unless law or regulation precludes public disclosure The auditor responsible for the audit is about the matter. Dr. Christian Janze. Hanover, 27 September 2017 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Ludwig Dr. Janze Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor] 134 Annual Financial Statements | Notes for the KWS Group 2016/2017 | Independent Auditor’s Report Annual Report 2016/2017 | KWS Group 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, 2017 KWS SAAT SE THE EXECUTIVE BOARD H. Duenbostel L. Broers E. Kienle P. Hofmann Declaration by Legal Representatives | Notes for the KWS Group 2016/2017 | Annual Financial Statements 135 KWS Group | Annual Report 2016/2017 Financial calendar Date November 23, 2017 December 14, 2017 February 27, 2018 May 17, 2018 October 24, 2018 November 27, 2018 December 12, 2018 KWS share Key data of KWS SAAT SE Securities identification number ISIN Stock exchange identifier Transparency level Index Share class Number of shares Dividend Dividend payment and dividend ratios of the past 10 years Quarterly Report Q1 2017/2018 Annual Shareholders’ Meeting in Einbeck Semiannual Report 2017/2018 Quarterly Report 9M 2017/2018 Publication of 2017/2018 financial statements, annual press and analyst conference in Frankfurt Quarterly Report Q1 2018/2019 Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 6,600,000 3.00 3.00 3.00 3.00 3.20 Dividend proposal 2017 Dividend payment in € Dividend ratio (total dividends/net income) in % 2.80 2.30 1.80 1.90 1.70 25% 20% 20.5 07/08 23.7 24.3 20.8 21.7 24.7 19.6 23.6 23.2 21.6 16/17 136 Annual Financial Statements | Notes for the KWS Group 2016/2017 Annual Report 2016/2017 | KWS GroupAbout this report The Annual Report can be downloaded on our Internet sites at www.kws.de and www.kws.com. The KWS Group´s fiscal year begins on July 1 and ends on June 30. Unless otherwise specified, figures in parentheses relate to the same period or date in the previous year. There may be rounding differences for percentages and numbers. Contact Investor Relations and Press Financial Press Mandy Schnell Sustainability Andrea Lukas Editor KWS SAAT SE Wolf-Gebhard von der Wense mandy.schnell@kws.com andrea.lukas@kws.com Grimsehlstrasse 31 investor.relations@kws.com Phone: +49 5561 311 334 Phone: +49 5561 311 1393 P.O. Box 1463 Phone: +49 5561 311 968 37555 Einbeck Germany Remarks according with Article 80 EGHGB In accordance with Article 80 of the German Introductory Act to the German Commercial Code (EGHGB), Sections 264, 289, 289a, 314, 315, 315a and 317 of the German Commercial Code (HGB), among others, in the version valid up to April 18, 2017, are to be applied for the last time to management reports and group management reports for the fiscal year commencing before January 1, 2017. Consequently, any reference to a provision of the German Commercial Code specified in Article 80 Sentence 1 EGHGB relates to the version valid up to April 18, 2017. Safe harbor statement This Annual Report includes forward-looking statements based on the assumptions and estimates of KWS SAAT SE’s management. These forward-looking statements may be identified by words such as “forecast,” “assume,” “believe,” “ assess,” “expect,” “intend,” “can/may/might,” “plan,” “should” or similar expressions. These statements are based on current assessments and forecasts of the Executive Board and the information currently available to it and are subject to certain elements of uncertainty, risks and other factors that may result in significant devia- tions between expectations and actual circumstances. These factors may be, for example, changes in the overall economic situation, the general statutory and regulatory framework, and the industry. KWS SAAT SE does not warrant that the future development and actual results achieved in the future match the assumptions and estimates expressed in this Annual Report and shall not assume any liability if they do not. Forward-looking statements must therefore not be regarded as a guarantee or pledge that the developments or events they describe will actually occur. KWS SAAT SE does not intend, nor does it assume any obligation, to update forward-looking statements in order to adapt them to events or developments after the date of this report. Photos/illustrations Uwe Aufderheide ■ Christian Bruch ■ Jan Eric Euler ■ Eberhard Franke ■ Frank Stefan Kimmel ■ Julia Lormis ■ Christian Mühlhausen ■ Dominik Obertreis ■ Spieker Fotografie ■ Alex Telfer ■ KWS Gruppenarchiv Date of publication: October 26, 2017 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. 7 1 0 2 | 6 1 0 2 t r o p e R l a u n n A KWS SAAT SE Grimsehlstrasse 31 P.O. Box 1463 37555 Einbeck/Germany www.kws.com 

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