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The a2 Milk Company9 1 0 2 | 8 1 0 2 t r o p e R l a u n n A Annual Report 2018 | 2019 KWS in Figures The KWS Group (in € millions) 2018/2019 2017/2018 2016/2017 2015/2016 2014/2015 Net sales and income Net sales R&D intensity in % EBIT as a % of net sales (EBIT margin) Net financial income/expenses Net income for the year Key figures on the financial position and assets Capital expenditure Depreciation and amortization Equity Equity ratio in % Return on equity in % Return on assets in % Net debt1 Total assets Capital employed (avg.)2 ROCE (avg.) in %3 Cash flow from operating activities Free cash flow Employees Number of employees (avg.)4 Personnel expenses Key figures for the share Earnings per share in €5 Dividend per share in € 5, 6 Segments (in € millions) Corn +0.7% +0,7 % 734 739 1,113.3 1,068.0 1,075.2 1,036.8 18.5 150.0 13.5 –5.5 104.0 96.6 49.7 963.5 45.5 13.9 7.8 497.9 2,115.0 1,047.1 14.3 72.9 –22.4 4,126 280.7 3.15 0.67 18.5 132.6 12.4 5.4 99.7 71.7 50.1 881.8 58.1 13.3 7.1 37.4 17.7 131.6 12.2 16.6 97.7 63.3 49.4 836.9 56.0 13.1 7.3 48.5 17.6 112.8 10.9 14.8 85.3 99.6 48.2 767.9 53.5 11.9 6.5 87.9 986.0 17.7 113.4 11.5 16.7 84.0 132.5 45.9 738.7 55.2 13.6 7.8 105.9 1,517.7 1,495.2 1,436.6 1,337.1 981.1 13.8 98.1 30.0 3,852 253.9 3.02 0.64 990.1 13.3 122.4 57.6 3,705 247.0 2.96 0.64 906.9 12.4 125.9 33.7 3,693 232.2 2.58 0.60 851.0 13.3 48.1 –75.7 3,663 216.9 2.55 0.60 Sugarbeet Cereals Corporate +1.3% +1,3 % 455 461 +22.2% +22,2 % 47 58 +11.9% +11,9 % 161 180 +13.0% +13,0 % 151 171 +25.0% +25,0 % 18 23 Net sales EBIT Net sales EBIT Net sales EBIT 2017/2018 2018/2019 Reconciliation (in € millions) Net sales EBIT –7.1% –7,1 % 4 4 Net sales –25.6% –27,6 % EBIT –77 –97 Segments Reconciliation KWS Group 1,375.0 163.4 –261.7 –13.4 1,113.3 150.0 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 FTE: Full time equivalents. 5 Earnings and dividend per share of previous periods adjusted due to share split. 6 The dividend for 2018/2019 is subject to the consent of the 2019 Annual Shareholders´ Meeting. l s r e d o h e r a h S r u O o T Contents 2 2 5 14 16 22 22 32 35 49 54 60 74 80 82 1. To Our Share holders Foreword of the Executive Board Report of the Supervisory Board KWS on the Capital Market Spotlight Topic 2. Combined Management Report 2.1 Fundamentals of the KWS Group 2.2 Research & Development Report 2.3 Economic Report 2.4 Environmental Report 2.5 Employee and Social Report 2.6 Corporate Governance 2.7 Opportunity and Risk Report 2.8 Forecast Report 2.9 Report on KWS SE & Co. KGaA and Non-Financial Declaration (Declaration based on the German Commercial Code (HGB)) 90 3. Annual Financial Statements Léon Broers Research & Breeding, Vegetables Felix Büchting Cereals, Oilseed Rape/Special Crops & Organic Seed, Human Resources, Farming Peter Hofmann Sugarbeet, Corn Europe, Marketing & Communications Hagen Duenbostel (CEO) Corn North and South America, Corn China/Asia, Strategy, Compliance, and Governance & Risk Management Eva Kienle Finance & Purchasing, Controlling, Global Services, IT, Legal 2 To Our Shareholders | Foreword of the Executive Board Annual Report 2018/2019 | KWS Group To Our Share holders Foreword of the Executive Board Global conditions and events, some of them with a serious impact, exerted huge pressure on the agricultural industry in the past fiscal year. Given that context, I’m all the more delighted to report that KWS had a strong year. We can see further concentration among the competition, and how some countries are becoming increasingly isolationist and even not shying away from international trade conflicts. We’re facing rulings by the European Court of Justice that derail new precision breeding methods which would deliver eco- nomic as well as ecological benefits. And last but not least – as we can observe literally on our own door- step – farmers are battling with the second successive summer of drought in Europe, while there is flooding in the Midwest of the U.S. and we are suffering weather extremes worldwide at an increasing rate. Times are truly not easy – but KWS’ long-term strategy is paying off yet again. Yet I’d not only say it’s strategy – it’s also our company DNA which enables us not just to stand firm, but also to keep on developing further and adapt to circumstances. Thinking in terms of generations has always defined our day-to-day activities. Staying true to our values, even in challenging times, and giving farmers the assurance of having a reliable, independent partner behind them – that’s what makes KWS what it is. Foreword of the Executive Board | To Our Shareholders 3 KWS Group | Annual Report 2018/2019 We’re one of the major innovation drivers in the seed Thinking long term and acting sustainably. Our com- industry. And we advance research and breeding – mitment to tradition and innovation, the way we work after all, investments in research are investments with farmers as equal partners, and how we act with in the future. I’d like to mention our second Bio- responsibility toward the ecology – that’s the solid technology Center in Einbeck as an example. Over platform for our success. It always has been and it 170 experts will start work there in early 2020 and will always stay that way. establish a further pillar that will drive our long-term innovativeness. I wish to thank all of you – our partners and share- holders – for your trust. You are a key part of KWS. We made a further crucial and seminal step this My special thanks likewise go to all our employees. summer by entering the growth market of vegetable Because behind the many positive developments we seed. Continual changes in consumer behavior, as have the honor of presenting in this Annual Report is well as the world’s growing population, mean we can the passion and creativity of more than 5,500 dedi- expect to see increasing demand for vegetables. cated people worldwide. Backed by this invaluable This market is already growing by 5% a year and asset, I believe we can look to KWS’ future full of has a volume of around €5 billion and is rising (let optimism and motivation. me take this opportunity to refer you to the Spot- light Topic in this Annual Report, where you can find I hope this Annual Report proves an informative and further insightful facts and figures on the subject). enjoyable read. With best regards from Einbeck on In view of these promising prospects, we’ve laid a behalf of the entire Executive Board, stable foundation for our new business segment by acquiring the Dutch company Pop Vriend Seeds, the world market leader in spinach seed. Apart from further suitable acquisitions in this field, we remain committed in particular to boosting our own strength Dr. Hagen Duenbostel in research and our innovativeness. The focus here Chief Executive Officer is on establishing our own vegetable breeding pro- grams – and once more we’re benefiting from far- sighted investments in our research departments. This new segment will help us press ahead with diversifying KWS sensibly, and I feel sure that we’ll gradually capture a strong position in the vegetable seed market. 4 To Our Shareholders | Foreword of the Executive Board Annual Report 2018/2019 | KWS Group Report of the Supervisory Board In fiscal 2018/2019, KWS laid the foundations for The Supervisory Board decided on all significant continuing its growth strategy, while preserving business transactions requiring its consent and our identity as an independent family business. carefully accompanied the Executive Board in By acquiring the Dutch family-owned company all fundamental decisions of importance to the Pop Vriend Seeds, we are pursuing the strategic company. In the year under review, the Supervisory objective of positioning KWS long term in the Board discussed the information and assessments growth market for vegetable seed. To enable that, that influenced its decisions together with the Execu- the company will gradually make additional invest- tive Board. Both boards continued their constructive ments in the coming years and establish its own and trusted cooperation as in the past. Among other breeding programs. things, this was demonstrated by the fact that, as is customary, the Supervisory Board was involved in The change in legal form to KWS SAAT SE & all decisions of vital importance to the company at Co. KGaA, which was adopted by the Annual an early stage. The Supervisory Board was provided Shareholders’ Meeting on December 14, 2018, was with the necessary information in written and oral completed upon its registration in the commercial form regularly, promptly and comprehensively. This register on July 2, 2019. As a partnership limited included all key information on relevant questions of by shares (KGaA), KWS will be able to leverage strategy, planning, the business performance and future growth opportunities with greater agility and the situation of the company and the KWS Group, flexibility and raise the equity required for that, including the risk situation, risk management and without losing the company’s character as a listed compliance. Business transactions requiring consent family business. In addition, the resolution adopted were submitted to, and discussed and approved by, by the Annual Shareholders’ Meeting to carry out a the Supervisory Board in compliance with the bylaws stock split at a ratio of 1:5 by increasing the capital for the Executive Board. stock to €99,000,000 using company funds was implemented on March 22, 2019. Shareholders The company’s business policy, corporate and thus received an additional four new shares for financial planning, profitability and situation, the each existing one. course of business, market trends and the com- petitive environment, research & breeding and, The company still had the legal form of an SE along with important individual projects, risk (Societas Europaea or European Company) at the manage ment at the KWS Group were the subject end of the period under review, fiscal year 2018/2019. of detailed discussions in the year under review. Where periods of time after July 2, 2019, are discussed in this report, the report refers to the new The Chairman of the Supervisory Board continued legal form of a partnership limited by shares. the bilateral discussions with the Chief Executive The Supervisory Board discharged the duties Board in regular talks outside the meetings of the incumbent on it in accordance with the law, the Supervisory Board in the year under review. Officer and individual members of the Executive company’s Articles of Association and the bylaws, regularly advised and monitored the Executive Board in its activities and satisfied itself that the company was run properly and in compliance with the law and that it was organized efficiently and cost-effectively. Report of the Supervisory Board | To Our Shareholders 5 KWS Group | Annual Report 2018/2019 The Supervisory Board and the Management Board continued their constructive and trusting cooperation in the year under review. In addition, there were monthly meetings between the limited by shares. It also decided, as part of the Chairman of the Supervisory Board and the Executive change in legal form, that a stock split at a ratio of 1:5 Board as a whole, where the company’s current by increasing the capital stock to €99,000,000 business development and, in particular, its strategy, from company funds was to be prepared and occurrences of special importance and individual that there was to be an international merger aspects were dealt with. The Chairman of the Super of KWS Services West S.L.U., Barcelona, with visory Board informed the Super visory Board of the KWS SAAT SE & Co. KGaA. results of these meetings. The Supervisory Board did not make use of its right to conduct an examination At the meeting to discuss the financial statements granted by Section 111 (2) AktG (German Stock on October 23, 2018, the Supervisory Board Corporation Act) since the reporting by the Executive examined and approved the financial statements Board meant there was no reason to do so. of KWS SAAT SE and approved the consolidated Focal areas of deliberations financial statements of the KWS Group as of June 30, 2018. The Supervisory Board also The full Supervisory Board of KWS SAAT SE held resolved to propose conversion of KWS SAAT SE six regular meetings in fiscal 2018/2019, each of which to KWS SAAT SE & Co. KGaA and a stock split to the was attended by all its members. The Supervisory Annual Shareholders’ Meeting on December 14, 2018. Board also held one telephone conference. After the In preparation for the change in legal form, the fiscal year had ended, the Supervisory Board – now of Supervisory Board also adopted the nominations KWS SAAT SE & Co. KGaA – convened its meeting to for the shareholder representatives to be elected discuss the financial statements on October 22, 2019. to the Super visory Board of KWS SAAT SE & Co. KGaA by the Annual Shareholders’ Meeting on Following intensive discussion in the telephone December 14, 2018, and the further resolutions it conference on September 3, 2018, the Supervisory wished to propose there. The Supervisory Board Board resolved to take all the measures necessary discussed prospects in the Chinese corn market for the change in legal form to that of a partnership as well. 6 To Our Shareholders | Report of the Supervisory Board Annual Report 2018/2019 | KWS Group On December 13 and 14, 2018, the Supervisory Annual and consolidated financial statements Board also heard reports on the company’s strategic and auditing planning up to 2028/2029, the IT strategy and the Ernst & Young GmbH Wirtschaftsprüfungs- progress of the research projects. In its meeting on gesellschaft, Hanover, the independent auditor who March 26, 2019, the Supervisory Board discussed was chosen at the Annual Shareholders’ Meeting on the current status of the breeding programs and, December 14, 2018, and commissioned by the Audit assisted by an external expert, sounded out Committee and whose appointment – pursuant to options for entering the vegetable seed business. the declaration by the personally liable partner of At an extraordinary meeting on June 13, 2019, the KWS SAAT SE & Co. KGaA – remains in force for the Supervisory Board then approved the acquisition of time after the change in legal form takes effect, has the Dutch vegetable breeding company Pop Vriend audited the financial statements of KWS SAAT SE Seeds, pursuant to which the relevant agreements & Co. KGaA (at the time KWS SAAT SE) that were were able to be concluded on June 19, 2019. As presented by the personally liable partner, KWS SE, usual, the Supervisory Board adopted the annual and prepared in accordance with the provisions planning for fiscal 2019/2020 and the medium-term of the German Commercial Code (HGB) for fiscal planning on June 25, 2019. This planning will be 2018/2019 and the financial statements of the retained after the completion of the change in legal KWS Group (IFRS consolidated financial state- form on July 2, 2019. ments), as well as the Combined Manage ment Report of KWS SAAT SE & Co. KGaA (at the time Registration of the change in legal form meant KWS SAAT SE) and the KWS Group Management that the term of office of the existing members of Report, including the accounting reports, and the Supervisory Board of KWS SAAT SE expired awarded them its unqualified audit certificate. In shortly after the end of fiscal year 2018/2019. The addition, the auditor concluded that the audit of the at December 14, 2018 newly elected Supervisory financial statements did not reveal any facts that Board of KWS SAAT SE & Co. KGaA had already might indicate a misstatement in the declaration of held its constitutive meeting on March 26, 2019. compliance issued by the personally liable partner The resolutions adopted there were ratified in the and the Supervisory Board in accordance with meeting on October 22, 2019. Section 161 AktG (German Stock Corporation Act) with respect to the recommendations of the “German Commission for the Corporate Governance Code.” The Supervisory Board received and discussed the financial statements of KWS SAAT SE & Co. KGaA (at the time KWS SAAT SE) and the consolidated financial statements and Combined Management Report of KWS SAAT SE & Co. KGaA (at the time KWS SAAT SE) and the KWS Group, along with the report by the inde- pendent auditor of KWS SAAT SE & Co. KGaA (at the time KWS SAAT SE) and the KWS Group and the pro- posal on appropriation of the net retained profit for the year made by KWS SAAT SE & Co. KGaA, in due time. Comprehensive documents and drafts were submitted to the members of the Supervisory Board as preparation. For example, all of them were provided with the annual financial statements, Combined Manage ment Report, audit reports by the indepen- dent auditors, corporate governance report, and Report of the Supervisory Board | To Our Shareholders 7 KWS Group | Annual Report 2018/2019 the proposal by the personally liable partner on the Corporate Governance appropriation of the profits. In addition, the Super- The Supervisory Board discussed compliance with visory Board examined the separate non- financial the recommendations of the “German Commission report (Section 289b HGB (German Commercial for the Corporate Governance Code” and – after Code)) and the separate non-financial group report the last compliance declaration in October 2018 – ( Section 315b HGB) with the audit report by the issued a new declaration of compliance with the independent auditor (Section 111 (2) Sentence 4 AktG German Corporate Governance Code in accordance (German Stock Corporation Act)). The Supervisory with Section 161 AktG (German Stock Corporation Board also held detailed discussions of questions Act) together with the personally liable partner in on the agenda at its meeting to discuss the financial October 2019. It can be obtained on the company’s statements on October 22, 2019. The auditor took website at www.kws.com/corporate-governance. part in the meeting. It reported on the main results of the audit and was also available to answer additional The Supervisory Board regularly addressed the questions and provide further information for the question of any conflicts of interest on the part of its Super visory Board. According to the report of the members and those of the Executive Board in the independent auditor, there were no material weak- year under review. In the year under review, there nesses in the internal control and risk management were no such conflicts of interests that had to be system in relation to the accounting process. There disclosed immediately to the Supervisory Board and were also no circumstances that might indicate a lack reported to the Annual Shareholders’ Meeting. of impartiality on the part of the independent auditor. The Supervisory Board also conducted its regular In accordance with the final results of its own exami- efficiency review in the year under review. Whereas nation, the Supervisory Board endorsed the results the efficiency review two years ago was conducted of the audit, among other things as a result of the in the form of a questionnaire, the members of the preliminary examination by the Audit Committee, and Executive Board and Supervisory Board held exten- did not raise any objections. The Supervisory Board sive discussions with the accounting firm Deloitte gave its consent to the annual financial statements GmbH this time. After inspecting the preparatory and and management reports submitted by the personally follow-up documents of the Supervisory Board, and liable partner, and to the consolidated financial state- on the basis of the discussions, Deloitte came to the ments of the KWS Group, along with the Combined conclusion that the Supervisory Board performs its Management Report of KWS SAAT SE & Co. KGaA work on the basis of sound, in-depth information and (at the time KWS SAAT SE) and the KWS Group and nurtures a culture of open discussion. All the recom- recommended that the Annual Shareholders’ Meeting mendations issued by Deloitte – in particular that to on December 17, 2019, approve the annual financial establish an online portal for all the necessary docu- statements of KWS SAAT SE & Co. KGaA (at the time ments – have been implemented in the meantime. KWS SAAT SE) prepared by the personally liable partner. The Super visory Board also endorsed the proposal by the personally liable partner to the Annual Shareholders’ Meeting on the appropriation of the net retained profit of KWS SAAT SE & Co. KGaA after having examined it. 8 To Our Shareholders | Report of the Supervisory Board Annual Report 2018/2019 | KWS Group Andreas J. Büchting, Chairman of the Supervisory Board Supervisory Board committees defined and adopted. The Annual Compliance Report The Supervisory Board of KWS SAAT SE had was also presented and discussed. The quarterly formed three committees in fiscal 2018/2019: The reports and the semiannual report for fiscal 2018/2019 Audit Committee, the Nominating Committee and were the main subject of and were discussed in detail the Committee for Executive Board Affairs. in three telephone conferences. The Audit Committee convened for four joint The Audit Committee convened on meetings in fiscal 2018/2019. It also held three September 24, 2019, to discuss the current annual telephone conferences – on all occasions with financial statements of KWS SAAT SE & Co. KGaA all its members in attendance. In its meeting on (at the time KWS SAAT SE) and KWS’ consolidated September 25, 2018, the Audit Committee discussed financial statements and accounting, along with the the annual financial statements and accounting of Combined Management Report. The independent KWS SAAT SE and consolidated financial statements auditor for fiscal 2018/2019 explained the results of of the KWS Group for the fiscal year 2017/2018, along its audit of the 2018/2019 financial statements and with the Combined Management Report and the pointed out that there were no grounds for assuming proposal by the Executive Board on the appropriation a lack of impartiality on the part of the independent of the profits. The meeting of the Audit Committee on auditor in its audit. The Audit Committee also dealt March 26, 2019, discussed and defined the focus of with the proposal by the personally liable partner the audit for fiscal year 2018/2019 in the presence of on the appropriation of the net retained profit of the appointed independent auditor. In addition, the KWS SAAT SE & Co. KGaA (at the time KWS SAAT SE) report by Internal Auditing for fiscal 2018/2019 was and recommended that the Super visory Board discussed and the audit plan for fiscal 2018/2019 was approve it. Report of the Supervisory Board | To Our Shareholders 9 KWS Group | Annual Report 2018/2019 In addition, the Audit Committee obtained the state- Shareholders’ Meeting that ratifies its acts for fiscal ment of independence from the auditor in accordance year 2021/2022. The Supervisory Board endorsed with Clause 7.2.1 of the German Corporate Governance the proposal and submitted it for approval to the Code, ascertained and monitored the auditor’s inde- Annual Shareholders’ Meeting on December 14, pendence and examined its qualifications. The Audit 2018. In preparation for when the change in legal Committee also satisfied itself that the regulations on form took effect, the Annual Shareholders’ Meeting internal rotation were observed by the independent then elected the existing shareholder representatives auditor and dealt with the issue of any additional on the Super visory Board of KWS SAAT SE to the services rendered by the independent auditor. Supervisory Board of KWS SAAT SE & Co. KGaA. As a result, the latter has the same members as the Since the offices of all existing Supervisory Board previous Supervisory Board of KWS SAAT SE. At members of KWS SAAT SE ended by operation of the constitutive meeting of the Supervisory Board law when the change in legal form took effect, the of KWS SAAT SE & Co. KGaA on March 26, 2019 Nominating Committee had to draw up a list of Dr. Drs. h.c. Andreas J. Büchting was again new candidates to be nominated by the Supervisory elected as Chairman of the Supervisory Board, Board for election as shareholder representatives at Dr. Marie Th. Schnell as Deputy Chairwoman of the the Annual Shareholders’ Meeting. In view of the fact Super visory Board and Victor W. Balli as Chairman of that all shareholder representatives had just recently the Audit Committee. After the change in legal form been elected by the 2017 Annual Share holders’ had been registered in the commercial register, these Meeting, the Nominating Committee proposed that elections were ratified by the resolution adopted the Supervisory Board be put forward for election on October 22, 2019. Dr. Arend Oetker remains an without any changes; however, it would only be elect- honorary member of the Super visory Board. ed for a period of time up to the end of the Annual Supervisory Board Committees Committee Audit Committee Committee for Executive Board Affairs Nominating Committee Marie Th. Schnell Chairman/Chairwoman Members Victor W. Balli Andreas J. Büchting Andreas J. Büchting Jürgen Bolduan Marie Th. Schnell Cathrina Claas-Mühlhäuser Andreas J. Büchting Cathrina Claas-Mühlhäuser In accordance with the provisions of the German Christine Coenen (Chairwoman of the European Act on Employee Co-Determination in Cross- Employees’ Committee) on the Supervisory Board Border Mergers (MgVG), the Supervisory Board of KWS SAAT SE were confirmed as employee of KWS SAAT SE & Co. KGaA still consists of four representatives on the Super visory Board of shareholder representatives and two employee KWS SAAT SE & Co. KGaA by a “Special Negotiating represen tatives. The existing employee represen- Body” of KWS’ European (EU) workforce on tatives Jürgen Bolduan (Chairman of the Central January 30, 2019. Works Council of KWS SAAT SE & Co. KGaA) and 10 To Our Shareholders | Report of the Supervisory Board Annual Report 2018/2019 | KWS Group At the proposal of the Committee for Executive at present, since the Supervisory Board of Board Affairs, Dr. Felix Büchting was appointed KWS SAAT SE & Co. KGaA no longer holds by the Supervisory Board as a full member of personnel responsibility as regards manage ment the Executive Board of KWS SAAT SE effective and, accordingly, authority for issues relating to the January 1, 2019. He was given a five-year contract compensation of the Executive Board has therefore and assumed responsibility for Cereals, Human been in the hands of KWS SE’s Supervisory Board Resources and Agriculture. Felix Büchting previously since the change in legal form. worked for the company from 2005 to 2007 before gaining further professional experience outside KWS. Under Section 7 (4) of the Articles of Association Felix Büchting, who holds a doctorate in agrobiology, of KWS SAAT SE & Co. KGaA, the personally lia- returned to KWS in 2016, where he was previously ble partner shall be compensated for all expens- head of the successfully growing Cereals Segment. es it incurs in connection with management of On June 25, 2019, the Supervisory Board appointed KWS SAAT SE & Co. KGaA’s business, including Dr. Hagen Duenbostel as a member of the Executive the compensation for the members of its manage- Board and its CEO for a further five years effective ment and supervisory bodies. In order to preserve from January 1, 2020. Duenbostel holds a doctorate transparency, the new compensation system for in business management and has been a member of the Executive Board of KWS SE will be submitted KWS’ Executive Board since 2003. He is responsible for approval to the Annual Shareholders’ Meeting of for Corn North and South America, Corn China/ KWS SAAT SE & Co. KGaA on December 17, 2019. Asia, Strategy, Compliance, and Governance & Risk Management. The mandates of the members of the Executive Board of KWS SAAT SE also ended as a result The Committee for Executive Board Affairs also of the change in legal form. The business of dealt in depth with revision of the compensation KWS SAAT SE & Co. KGaA is managed by its system for the Executive Board of KWS SE, which personally liable partner, KWS SE. The latter is in it implemented effective July 1, 2019, pursuant to turn represented by its Executive Board, which the resolution dated June 25, 2019. The resolution has the same members as the previous Executive on the new compen sation system was adopted by Board of KWS SAAT SE. the Supervisory Board of the then KWS SAAT SE in view of the fact that the change in legal form The Supervisory Board expresses its thanks to had not yet been registered on June 25, 2019, and the Executive Board and to all employees of the was thus not yet effective, but it was necessary KWS≈Group for their commitment and contribution to ensure that the compen sation system would to the successful performance and further develop- also apply to KWS SAAT SE as from July 1, 2019, ment of KWS in fiscal 2018/2019. to when the change in legal form took effect. The contents of the resolution were the same as that Einbeck, October 22, 2019 adopted by the Supervisory Board of KWS SE on the compensation system for the Executive Board of KWS SE. KWS SE has conducted the business of KWS SAAT SE & Co. KGaA since the change in legal form took effect. The Supervisory Dr. Drs. h. c. Andreas J. Büchting Board of KWS SAAT SE & Co. KGaA no longer Chairman of the Supervisory Board has a Committee for Executive Board Affairs Report of the Supervisory Board | To Our Shareholders 11 KWS Group | Annual Report 2018/2019 A plant shows its strength when there is little rain. Can you teach plants to be less thirsty? Definitely. The objective of the research of our breeding department is to keep on creating new varieties that also withstand extensive periods of drought and help you conserve water resources. KWS on the Capital Market Performance Stock split The global economy was again impacted by geo- In order to increase the volume of trading in the political conflicts and economic uncertainties in share, the Annual Shareholders’ Meeting on fiscal year 2018/2019 (July 1 to June 30). Interest December 14, 2018, adopted a stock split at a rates were still comparatively low and so shares ratio of 1:5, and bonus shares were issued on remained an attractive investment. March 22, 2019. As a result, each shareholder now holds five shares instead of one, namely one old The DAX peaked at 12,860 points in July 2018, but share and four new ones. KWS’ share price was then fell sharply up to the end of the year, among other accordingly adjusted to one-fifth on March 22, 2019. things due to continuing geopolitical tensions, and The percentage stake held by a shareholder in KWS’ ended the year at just over 10,500 points. Germany’s capital and the pricing ratios of KWS’ share did not benchmark index recovered in the first half of 2019 change as a result. So that the bonus shares could to close at 12,399 points on June 30, 2019, and so be issued, the capital stock had to be increased roughly at the same level as the year before. The SDAX from €19.8 million to €99.0 million by way of a capital fell by around 4% over the same period. KWS’ share increase from company funds. The capital increase price fell up to the end of 2018, but then bounced back was carried out by issuing 26,400,000 new bearer sharply in the first half of 2019. It closed on June 30 shares. Issue of the bonus shares increased the total at €64.20 (60.80)1 or around 6% up year on year. number of KWS shares from 6,600,000 to 33,000,000. The stock price of our larger competitors declined – The new shares are entitled to a share in profits for the sharply in some cases – in the same period of time. past fiscal year 2018/2019. The sector’s performance thus reflects the fact that the environment for agriculture remains strained, as well as the risks from legal disputes in pesticide business. Looking at the past ten years, the price of KWS’ share has increased by 152% and so more than doubled. The KWS share’s performance over 10 years +288% +153% +152% July 1, 2009 KWS SDAX DAX June 30, 2019 450% 400% 350% 300% 250% 200% 150% 100% 50% 1 If not otherwise specified, the figures in parentheses give the previous year`s figures. 14 To Our Shareholders | KWS on the Capital Market Annual Report 2018/2019 | KWS Group Shareholder structure at June 30, 2019 Free float 30.2% Tessner Beteiligungs GmbH 15.4% 54.4% Families Büchting, Arend Oetker Employee Stock Purchase Plan €97.7 million the year before, or an increase of 4.3%. For more than 30 years KWS has offered its employees The Executive and Supervisory Boards will therefore the chance to become a shareholder in the company propose a dividend of €0.67 (0.64) for fiscal year and thus share in its success and identify more 2018/2019 to the Annual Shareholders’ Meeting on strongly with it. The content of our Employee Stock December 17, 2019, which is in line with the develop- Purchase Plan remained unchanged in the year ment in earnings. €22.1 (21.1) million would thus be under review. After adjustment for the stock split, our distributed to KWS SAAT SE & Co. KGaA’s share- employees were able to buy up to 2,500 KWS shares holders. That would correspond to a dividend payout at a price of €44.16 (54.72), including a 20% discount, ratio of 21.3% (21.2%), once again in line with the which the individual employees must pay tax on. KWS Group’s earnings-oriented policy of paying a 442 (407) employees in seven (eight) European dividend of 20% to 25% of its net income. Key figures for the KWS share (Xetra®) countries took up this offer and purchased a total of 54,095 (49,160) shares, corresponding to an average stake per employee of 120 (120) shares. The acquired shares are subject to a lock-up period ISIN Share class of four years. They cannot be sold, transferred or Number of shares pledged during this period. As in previous years, the shares used for the Employee Stock Purchase Plan were acquired in accordance with Section 71 (1) No. 2 of the German Stock Corporation Act (AktG). A total of €3.1 (3.4) million was used to buy back the company’s own shares, giving an average purchase price per share (including fees) of €57.33 (68.93). More details have been published in information Closing price June 30, 2019 June 30, 2018 High and low High (December 11, 2018) Low (September 4, 2018) DE0007074007 Non-par 33,000,000 in € 64.20 60.80 in € 69.40 50.50 released for the capital market and can be viewed on Trading volume in shares/day our website at www.kws.com/ir. Planned appropriation of profits 2018/2019 2017/2018 8,189 10,430 Continuing to grow profitably is one of KWS’ core Market capitalization in € million corporate goals. We were able to surpass the net sales and good after-tax profitability of the previous June 30, 2019 June 30, 2018 year in the year under review. Operating income rose to €150.0 (132.6) million, although that figure included a non-recurring effect of €11.0 million from the sale of shares in KWS Potato B.V. Excluding that, EBIT would have increased by 4.8%. The KWS Group’s net income was €104.0 million following Earnings per share June 30, 2019 June 30, 2018 2,119 2,006 in € 3.15 3.02 KWS on the Capital Market | To Our Shareholders 15 KWS Group | Annual Report 2018/2019 Spotlight Topic Big Appetite for Vegetables By establishing a new business segment for vege- Global consumption of vegetables is on the rise table seed, KWS is positioning itself in a market that The health benefits of this nutrient-rich food have is attractive long term and is in line with the trend been known for a long time, but now there is increasing toward a healthy and sustainable diet. As a result, the awareness of how important a balanced diet is. Plant- company is complementing its existing portfolio and based forms of nutrition, such as a vegetarian, vegan, laying the foundation for further growth. raw food or paleo diet, are gaining in importance. The food that one consumes is becoming an expression Vegetables – a versatile food of a health-conscious lifestyle. The world’s growing Vegetables are regarded as a true all-rounder population and rising incomes mean there is also in among foods: They supply many vital vitamins, trace general greater demand for vegetables. Moreover, elements, minerals and dietary fibers and are usually storage and transportation conditions have improved low in calories. They also have a relatively large further and so consumers have a broad range of volume and so have a satiating effect when eaten. high-quality products to choose from. A diet that is rich in vegetables can prevent over- weight and reduce the risk of high blood pressure, Vegetable seed is a growth market. Market revenue strokes or coronary artery disease, for example. is currently around €5 billion, following the crops corn All in all, eating enough vegetables is important as (€15 billion) and soybean (€8 billion). Experts antici- part of a healthy diet and to prevent malnutrition, pate the market to grow long term by some 5% per both in emerging and developing countries, where annum. there is a narrower range of food available, and in affluent industrialized countries where overweight and obesity are growing problems. The World Health Organization (WHO) recommends eating at least 400 grams of fruit and vegetables a day, for instance. 16 To Our Shareholders | Spotlight Topic Annual Report 2018/2019 | KWS Group Vegetables are in vogue Vegetable seed is the THIRD- LARGEST segment in the global seed market. AROUND 1BILLION TONS of vegetables are harvested every year. MORE THAN 10,000 varieties are offered commercially. The clear favorite among vegetable crops: THE TOMATO THE VEGETABLE MARKET IS BOOMING: annual growth rate One pepper supplies > 100% of our daily vitamin C needs. KWS’ GOAL is to build a significant position in the vegetable seed market long term. It takes at least 7 YEARS to develop a new variety. The five most important crops – tomatoes, peppers, KWS’ strategy in building the business segment is cucumbers, watermelons and melons – account for based on a three-pronged approach: organic growth, approximately half of the global vegetable market. selective acquisitions, and the sale of licensed There is strong segmentation in vegetable farming, commercial varieties. It aims to establish its own which is attributable to the broad diversity of types of breeding programs with stations in the world’s most vegetable, product requirements specific to regions important vegetable cultivation regions in Southern and usage, and different methods of cultivation. This Europe, Asia and Latin America. To create the infra- broad diversification and the high potential for further structure for that, a team of highly qualified experts breeding progress offer KWS good prospects for is first being assembled and the business segment’s being successful in this market. future headquarters is being set up in Wageningen in the Netherlands. The location boasts close ties with A further attractive crop at KWS prestigious universities and research institutes and KWS has taken a major strategic step by entering offers access to skilled workers, experts and potential the vegetable seed business. The newly founded cooperation partners in the field of vegetable breeding. business segment expands the existing portfolio of corn, sugarbeet, cereal, rapeseed and sunflower Acquisition of Pop Vriend Seeds: the market seed and positions the company in a market that is leader in spinach growing sustainably and is also highly profitable. As with its other crops, KWS is thinking long term when it comes to development of the new business segment: It takes an average of seven years from the start of a breeding program for a new variety to be launched. The vegetable seed producer Pop Vriend What is important in vegetable breeding Seeds, which was acquired by KWS on July 1, 2019, A key objective in breeding vegetables is to equip plants has already embarked on this path very successfully. with high tolerance to abiotic stress and minimize the use of resources such as water and chemicals in growing them. The company, which is headquartered in Andijk in Breeding resistant varieties is a vital task, since new dis- the Netherlands, produces seeds for spinach, beans, eases keep on emerging in vegetable cultivation and often Swiss chard and red beet. Pop Vriend Seeds is spread at a fast rate. the world’s market leader in spinach seed. In fiscal 2017/2018, its 80 employees generated revenue of Unlike with crops such as cereals, there is greater emphasis around €75 million and above- average earnings. Like on quality over yield in vegetable breeding. Most of the KWS, Pop Vriend Seeds is a family-run company vegetable harvest is supplied to the retail sector as raw goods that operates internationally. It supplies customers via a small number of stages in the distribution channel. The in more than 100 countries, including China, consumer then expects to be able to buy goods that are the U.S. and Russia. impeccable in terms of taste, freshness and appearance. That is why transportability and storability are also a firm focus in The acquisition of Pop Vriend Seeds gives KWS broad vegetable breeding. New trends in consumer behavior are access to genetic material, an inter national infra- also influencing the work of breeders: Higher demand for structure and expert staff and is already making a convenience products is spurring production of salads that positive contribution to net sales and income targets. can be plucked into leaves of a uniform size, for example. The company is thus a key foundation for developing the new business segment and establishing breeding programs for further vegetable crops and regions. 18 To Our Shareholders | Spotlight Topic Annual Report 2018/2019 | KWS Group 2. Combined Management Report 22 22 25 25 27 28 29 2.1 Fundamentals of the KWS Group 2.1.1 Business Model 2.1.2 Branches 2.1.3 Objectives and Strategy 2.1.4 Control System 2.1.5 Responsible Business Activity 2.1.6 Fundamentals of Research & Development 32 2.2 Research & Development Report 35 35 37 41 49 49 50 50 54 54 54 56 57 60 60 60 60 62 68 74 74 75 80 80 80 81 2.3 Economic Report 2.3.1 Business Performance 2.3.2 Earnings, Financial Position and Assets 2.3.3 Segment Reports 2.4 Environmental Report 2.4.1 Product Innovations 2.4.2 Use of Genetic Resources 2.4.3 Plant and Process Safety 2.5 Employee and Social Report 2.5.1 Employment Trends 2.5.2 Recruitment & Qualification 2.5.3 Good Working Conditions 2.5.4 Social Commitment 2.6 Corporate Governance 2.6.1 Corporate Governance Report and Declaration on Corporate Governance 2.6.2 Compliance Declaration in Accordance with Section 161 AktG (German Stock Corporation Act) 2.6.3 Business Ethics and Compliance 2.6.4 Compensation Report 2.6.5 Explanatory Report of the Personally Liable Partner (KWS SE) of KWS SAAT SE & Co. KGaA in Accordance with Section 176 (1) Sentence 1 AktG (German Stock Corporation Act) on the Disclosures in Accordance with Section 289a (1) and Section 315a (1) HGB (German Commercial Code) 2.7 Opportunity and Risk Report 2.7.1 Opportunities 2.7.2 Risks 2.8 Forecast Report 2.8.1 Changes in the KWS Group’s Composition that Are Significant for the Forecast 2.8.2 Forecast for the KWS Group’s Statement of Comprehensive Income 2.8.3 Forecast for the Segments 82 2.9 Report on KWS SAAT SE & Co. KGaA and Non-Financial Declaration 82 84 (Declaration based on the German Commercial Code (HGB)) 2.9.1 KWS SAAT SE & Co. KGaA 2.9.2 Combined Non-Financial Declaration for the KWS Group t r o p e R t n e m e g a n a M d e n b m o C i Healthy growth is important for us. That’s why we’re setting store by vegetables. We not only aspire to diversity in traditional crops. Our overriding goal – to make a sensible contribution to feeding a growing world population – means ensuring not only a supply of food, but also of vitamins. We are taking an important step in the right direction by establishing our business segment for vegetable seed. 2. Combined Management Report The Combined Management Report also comprises aspects of sustainability reporting in addition to content related to financial reporting. Our objective is to illustrate the relationship between ecological, social and financial factors and highlight their impact on our longterm commercial success. We refer to the report aspects required under Sections 289b et seq. and Sections 315b et seq. of the German Commercial Code (HGB) in our “NonFinancial Declaration” on page 84. The contents of the NonFinancial Declaration were not audited as part of the audit of the annual and consolidated financial statements, but underwent a voluntary external audit. They are indicated by the acronym . The Combined Management Report also includes voluntary components that are not audited separately. These are indicated by footnotes. 2.1 Fundamentals of the KWS Group 2.1.1 Business Model healthy and sustainable diet. The acquisition of Pop Since it was founded in 1856, KWS has specialized Vriend Seeds, which is based in Andijk, the Nether in breeding, producing and distributing highquality lands, and is the market leader in spinach seed as well varieties and seed for agriculture. From our beginnings as a vendor of seed for other vegetable crops, means in sugarbeet breeding, we have evolved into an inno we have taken a major step as part of our strategic vative, international supplier with a broad portfolio of orientation and are strengthening our commercial crops. We cover the complete value chain of a modern independence long term. You can find more informa seed producer – from developing new varieties, multi tion on this subject on page 149. plication and processing, to marketing of the seed and consulting for farmers. KWS’ core competence The Corn Segment is the KWS Group’s largest is in breeding new, highperformance varieties that segment in terms of net sales. It covers production are adapted to regional needs, such as climatic and and distribution of seed for corn, soybeans and sun soil conditions. Every new variety delivers added flowers. Its operating performance depends largely value for the farmer. Our business model is based on on the spring sowing season in the northern hemi this added value – which is ultimately attributable to sphere. That means most of the segment’s net sales breeding progress, optimization of seed quality and are generated in the second half of the fiscal year pinpointed consulting. ( January to June). The segment generates a lower share of its revenue in the first two quarters, mainly Organization and segments of the KWS Group from corn and soybean varieties in South America. In fiscal 2018/2019, the KWS Group’s operational KWS is the market leader for silage corn in Europe. business consisted of four Business Units, which were grouped in the three product segments Corn, Sugar The Sugarbeet Segment comprises sugarbeet beet and Cereals. The Business Units Sugarbeet and seed production and distribution, as well as the Cereals are identical to the segments of the same develop ment of diploid hybrid potatoes. Our high name. There are the Business Units Corn Europe/ quality sugarbeet varieties are consistently some Asia and the Business Unit Corn Americas in the of the highestyielding in the industry. That, and Corn Segment. The newly founded Vegetables Seg the topquality seed we deliver, makes us the clear ment has also been part of the Group’s operational leader in the sugarbeet seed market. Our main sales business since July 1, 2019. The annual market vol markets are the EU, Eastern Europe, North America ume for vegetable seed worldwide is put at around and Turkey, where our breeding work with locally €5 billion and growing. KWS’ strategic objective is to adapted, multipleresistant varieties allows us to establish a significant and lasting position in vegeta provide farmers with efficient solutions for growing ble seed. We intend to position ourselves in a market sugarbeet. With CONVISO® SMART, our innovative that is attractive and is in line with the trend toward a system for controlling weeds, we are the innovation 22 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2018/2019 | KWS Group Apart from delivering high-quality seed, a focus of KWS is on proximity to farmers and also offering extensive consulting on the ground and value-added services – whether in North and South America, Asia or Europe. leader in sugarbeet cultivation in many markets. More details on the net sales and income contributed Sugarbeet is sown in the spring, which means that by the segments, including our joint ventures, can be net sales in this segment are largely generated in the found in our segment reports starting on page 41. second half of our fiscal year (January to June). Main business processes The Cereals Segment includes production and KWS’ breeding processes are geared toward distribution of seed for rye, wheat, barley and rape exploiting plants’ potential as much as possible seed. Rye accounts for the largest share of revenue and leveraging it to tackle the major challenges of from cereals (around 39%), followed by rapeseed, modern sustainable agriculture. Whether it is plants wheat and barley (a combined total of around 55%). for producing food, fodder or energy, conventional, We generate the remainder from other crops such organic or genetically modified: We offer farmers the as sorghum, peas, catch crops (e. g. mustard), oats ideal variety for their purposes. It takes on average and triticales. In our core markets for cereals seed ten years to breed a new variety. Thanks to our large (Germany, Poland, the UK, France and Scandina network of breeding and trial stations in all the world’s via), farmers predominantly sow the crops in the fall. key markets, we can test the individual candidates Consequently, we generate most of our revenue in under a wide range of climatic and local conditions to this segment in the first half of our fiscal year (July to determine whether the varieties are suitable for culti December). vation. In most markets, variety development ends in an official approval process in which candidates have Apart from the operating segments, there is also to meet high quality standards, usually in threeyear Corporate, a segment which by and large does not field trials. Seed multiplication in our selected cultiva conduct any operational activities. Its relatively low tion regions also takes up to two years in a process net sales come from the revenue from our own farms that is sometimes begun alongside the approval pro in Germany. Since the KWS Group’s basic research cess. Only then can the varieties be marketed to our expenditure and costs for administrative functions customers via the various distri bution channels. are charged to the Corporate Segment, its income is usually negative. 2.1 Fundamentals of the KWS Group | Combined Management Report 23 KWS Group | Annual Report 2018/2019 Breeding and distribution activities of the KWS Group in over 70 countries Breeding stations Test locations for trial cultivation Products, markets and external factors Our breeding and seed multiplication activities are We offer our customers – farmers – a broad range of subject to weather influences that cannot always varieties of agricultural crops that have been adapted be quickly compensated for with countermeasures. by breeding to the conditions of their specific location. Economic policy decisions in the agricultural These crops include corn, sugarbeet, the cereals industry, which is strongly regulated worldwide, may rye, wheat and barley, oil plants such as sunflower, also impact our business. You can find more details soybeans and rapeseed, and catch crops. Spinach on these external factors in our opportunity and risk seed and other vegetable crops have also been part report on pages 74 to 79. of our portfolio since July 1, 2019. In addition to selling seed, our field staff is also on hand to offer farmers Changes to the composition and organization consulting on choosing and cultivating varieties. We of the KWS Group also offer consulting via our digital services as well as There were no significant changes in the KWS Group’s on our website. composition and organization in fiscal 2018/2019. You can find more information in the explanations on the companies consolidated in the KWS Group in the Notes to the consolidated financial statements starting on page 108. 24 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2018/2019 | KWS Group We are gradually gearing our global administrative and is home to a number of central functions. organization more strongly toward functional respon There are also currently 74 subsidiaries and sibility, as well as harmonizing and standardizing associated companies in 33 countries. You can processes, to underpin our profitable and sustainable find a detailed breakdown of net sales by region growth with efficient administration. The new model on page 38. An overview of our subsidiaries and will replace our previously regionbased organization. associated companies can be found in the Notes The core objective is to bundle administrative services on pages 110 to 112. and control business processes for 70 countries more efficiently. The project, which was launched in 2.1.3 Objectives and Strategy 2016, is going according to plan: Implementation was Our strategic planning is the foundation for the begun following successful creation of the concept KWS Group’s further development. It defines stra for a crossfunction target structure and conclusion tegic objectives, initiatives and core measures for of the negotiations on an accommodation of inter existing activities and for potential new fields of ests in Germany. We moved into our location for business. The planning is based on a longterm shared services in Berlin in the year under review. horizon (ten years) and includes an analysis and Around 200 people now work there. The goals include assessment of market trends, competitors and expanding the location in Berlin, establishing Expert the KWS Group’s position. Strategic planning is Hub structures throughout the Group and providing carried out regularly on a rolling basis. We believe a global business partner organization in the coming that strategic success factors are in particular our years. Our objective is not to make any job cuts as intensive research, breeding of new, highyielding part of the reorganization. 2.1.2 Branches varieties and continuous expansion of our global footprint so that we can further enhance our know how in regional markets with their special climatic KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) conditions. is the parent company of the KWS Group. Strategic management of all of KWS’ global activities is Corporate objectives of the KWS Group pooled under its roof. It is headquartered in Einbeck, Our corporate objectives are divided into the four Germany, and controls breeding of the KWS Group’s core topics of profitable growth, innovation, sustain range of varieties. It conducts basic research, pro ability and independence: duces and distributes sugarbeet and corn seed, The KWS Group’s medium- and long-term objectives Objectives Profitable growth Objective achieved? Explanation of the course of the year Increase in consolidated net sales by an average of No Page 37 at least 5% p. a. EBIT margin ≥10% Yes Expansion of the portfolio of varieties for new markets Yes A dividend payout ratio of 20% to 25% of the Yes KWS Group’s net income for the year Page 37 Page 32 Page 148 (Notes) Innovation 1% to 2% progress in yields p. a. for our customers Yes Pages 29 to 34 and development of tolerances and resistances R&D intensity of around 17% of consolidated net sales Independence Retention of a control structure shaped by the family owners Sustainability Integration of international subsidiaries in KWS’ sustainability reporting Yes Yes Yes Page 32 Page 70 Page 84 (NFD) 2.1 Fundamentals of the KWS Group | Combined Management Report 25 KWS Group | Annual Report 2018/2019 Profitable growth is vital for our future develop- Sustainability means long-term economic success ment. Long-term profit able growth ensures we can for us. When KWS’ founders established the com- retain our commercial independence. Key compo- pany in 1856, they created the basis for its sustain- nents are the good performance of our seed and a able develop ment that has now lasted more than relationship of trust with farmers. We aim to increase 160 years. Our success factors include principles of net sales, in particular in our growth regions, both business ethics, a compliance management system, in moderate and in tropical or subtropical climatic internal Rules, Guidelines & Procedures to ensure zones. operational excellence in our processes, extensive financial and non-financial risk management, respon- Innovation drives our business model. The need for sible supply chain management, open communication innovative technology in plant breeding continues with our stakeholders, and transparent sustainability to increase. Climate change, significant population reporting in accordance with the Global Reporting growth and changes in eating habits pose challenges Initiative (GRI) and other relevant standards. for us. We invested more than €200 million in Research & Development, and thus once again a significant share of our net sales, in the year under review. That is an investment in our future growth. Artificial intelligence in plant breeding: A robot collects data on the development of ears of wheat on a trial field in the U.S. state of Illinois and transfers it to self-learning software. The latter is continuously trained by breeders and helps them make decisions on selection. Independence has always been a key corporate sheet data, along with the financial budget. In prin- objective for KWS, but it is gaining greater strategic ciple, part of the planning documentation is also an relevance in view of the process of consolidation opportunity/risk assessment which every manager in our industry. It is part of the joint value system must conduct for his or her unit. with our customers, suppliers and employees. Our independence and long-term orientation enable us The planning is compared every quarter with the in particular to invest in research & breeding projects company’s actual business performance and the with an eye to the future. underlying general conditions. If necessary, we initiate suitable countermeasures and make adjust- Our business developed largely in line with our ments. We update the forecast for the current fiscal strategic objectives in the year under review. Only year at the end of every quarter. At the end of each our net sales failed to reach the envisaged growth fiscal year, all the units conduct a detailed variance target of at least 5%. We deal with that and other analysis of the planned and actual results. That details of achievement of our objectives in the serves to optimize our internal processes. respective sections, which are referred to in the table on the corporate objectives. 2.1.4 Control System Controlling is responsible for coordinating and documenting all planning processes and our current expectations. It reports on compliance Detailed annual and medium-term operational plans with adopted budgets and analyzes the efficiency are used to control the Group and our Business and cost-effectiveness of business processes Units. The medium-term plan covers the time frame and measures. Controlling also advises decision- of the annual plan and planning for the three sub- makers on economic optimization measures. In sequent fiscal years. It is derived from the strategic particular the heads of the product segments, the planning, which covers a timescale of ten years. regional directors and the heads of research & The targets set in the annual and medium-term responsible for the content of the planning and breeding activities and the central functions are planning are arrived at on the basis of the strategic current forecasts. planning, regional economic and legal situation, anticipated market trends and assessments of the The Executive Board uses various indicators for company’s position in the market and the potential planning, controlling and monitoring the business product performance. In a subsequent bottom-up performance of the KWS Group and its operating process, which also includes the development of units. The main indicators for the KWS Group are our joint ventures, we use these premises to define net sales, operating profitability (EBIT margin) and figures for sales volumes and net sales, breeding R&D intensity. KWS’ product segments, which activities, production capacities and quantities, the are divided into Business Units, are in turn geared allocation of resources (including capital spending toward the main indicators of net sales and EBIT and personnel), the level of material costs and margin. internal charge allocation and the resultant balance 2.1 Fundamentals of the KWS Group | Combined Management Report 27 KWS Group | Annual Report 2018/2019 Management and control 2.1.5 Responsible Business Activity Our company (formerly KWS SAAT SE) has been a Mission and principles partnership limited by shares (KGaA) since its change As a family business, we think across generations. in legal form became effective on July 2, 2019. The Apart from our corporate objectives, responsible personally liable partner is responsible for the business activity with regard to people and the tasks of running the business of a partnership environ ment (corporate social responsibility) is limited by shares. The company’s sole personally therefore a firmly entrenched principle of how we liable partner is KWS SE, whose Executive Board run our company. As a profitable, independent is therefore responsible for management of the family business, we have the necessary entrepre company’s business. neurial stability and freedom to operate largely independently of shortterm interests. The rights and obligations of the Supervisory Board at a partnership limited by shares are limited com Guidelines for the company’s day-to-day work pared to those at a stock corporation or European Our guiding principles define the framework for our Company (Societas Europaea or SE). In particular, everyday work, so that we are able to create sus the Supervisory Board at a partnership limited by tainable and profitable growth for our customers, shares does not have personnelrelated powers employees and investors. Our strategic decisions as regards management, i. e. does not have the and daytoday actions in operational business are authority to appoint personally liable partners and guided by the following company principles: define the contractual terms and conditions for them, enact bylaws for management, or define business Essence: transactions requiring its consent. Make yourself grow. The Annual Shareholders’ Meeting of a partnership Vision: limited by shares basically has the same rights as To be a trusted seed specialist – for generations of the Annual Shareholders’ Meeting of a stock corpo farmers ration or SE. It also adopts resolutions on whether to approve the company’s annual financial state Mission: ments and ratify the acts of the personally liable We increase genetic potential through outstanding partner. Certain resolutions adopted by the Annual research and topclass breeding programs. Shareholders’ Meeting of a partnership limited by We supply our farmers with seed of the very best shares also require the approval of the person quality. ally liable partner. The declaration on corporate We aim to be a strong partner who earns the trust governance in accordance with Section 289f of the of our customers. German Commercial Code (HGB) contains detailed We create entrepreneurial freedom and help information on the extensive and close cooperation people unfold their talents. between the Executive Board and the Supervisory Board and has been published at www.kws.com. 28 Combined Management Report | 2.1 Fundamentals of the KWS Group Annual Report 2018/2019 | KWS Group We also have a central policy framework (Group Plant breeding is a very researchintensive and Standards) with which we create a common under longterm business. The average time to develop standing of the freedoms and decisionmaking a new, highperformance variety for our inter processes within the KWS Group. The Group national markets is up to ten years. As part of that, Standards are continuously improved by means our varieties are adapted to the specific environ of constant monitoring and feedback. They com mental conditions of their target markets. Breeders plement our existing guiding principles, with the are assisted in that by a global network of various objective of preserving KWS’ unmistakable profile, breeding and trial stations. That means candidate also against the backdrop of the Group’s increasing varieties can be tested under the locationspecific internationalization. conditions of their target markets over several years. Stakeholder management By applying leadingedge breeding methods, which The key stakeholder groups include not only our are continually optimized by the use of molecular direct customers, i. e. farmers, our shareholders and biology, IT or technical approaches, we have created employees, but also other players along the food sustainable annual progress in yields of 1% to 2% value chain (sugar companies, food processors, for decades. We also create genetic diversity by new retailers and end consumers), as well as policy crossings, which is vital to improving crop varieties. makers, public authorities, nongovernmental That is why KWS has supported various gene banks organi zations, science, academia and the media. in different projects for years. By continuously We learn of our stakeholders’ requirements through make a contribution to resource conserving, sustain various channels – from daily business, in our work for able agriculture. Only by doing so can we tackle the associations or through dialogue with stake holders challenges of climate change and increased demand on specific subjects. All information and insights as a result of global population growth. improving yield and delivering new plant traits, we can from our dialogue with stakeholders are gathered and evaluated in a structured process. 2.1.6 Fundamentals of Research & Development The objective of our research and development work is to create highperformance varieties that meet various environmental and application requirements and deliver continuous value added to farmers. They include absolute yield, as well as issues such as yield stability, resistance to diseases, cultivation characteristics or constituent properties. We accordingly continue to invest in expanding our research & breeding capacities. 2.1 Fundamentals of the KWS Group | Combined Management Report 29 KWS Group | Annual Report 2018/2019 The only thing that should be hidden in your soil: potential As a family company, we’ve always stayed grounded. And that’s maybe why we have such a good understanding of how to keep soil healthy for coming generations: Backed by all our diversity and experience, we help farmers choose the ideal crop rotation. 2.2 Research & Development Report Key figures for Research & Development R&D employees1 Ratio of R&D employees R&D expenditure R&D intensity2 Marketing approvals for new varieties 1 Average number of employees 2 In % of net sales in % in € millions in % 2018/2019 2017/2018 2,053 37.0 205.6 18.5 464 1,920 37.3 197.7 18.5 402 +/– 6.9% – 4.0% – 15.4% In fiscal 2018/2019, our R&D expenditure totaled Successful launch of the first CONVISO® €205.6 (197.7) million. New KWS varieties were SMART sugarbeet awarded 464 (402) marketing approvals worldwide. The first KWS CONVISO® SMART sugarbeet have been awarded market approval or have been Progress in corn breeding submitted for approval in all countries where the We significantly increased the competitiveness of herbicide will be available. our corn seed in the year under review. For the first time, three dent x dent hybrids were among the ten CONVISO® SMART offers an efficient and sustain mostproduced KWS varieties. Whereas our pro able means of controlling weeds in sugarbeet culti fessional breeding expertise and significant market vation: conventionally bred sugarbeet varieties that share with dent x flint corn is longestablished, we are tolerant to a modern herbicide. The system has a had to build the competency for dent x dent hybrids broad spectrum of activity against weeds and helps first. We began establishing our own European dent slash the quantity of herbicides required compared x dent breeding program back in the mid1990s to current standards. and have succeeded in making it competitive in many years of intensive work. We achieved multiple The new generations of varieties combine all key major milestones in the year under review. First, we traits: In addition to CONVISO® SMART herbicide sharply increased the genetic diversity of our basic resistance, they also boast resistance to pests and material and so attained a level of diversity matching plant diseases, such as nematodes, Cercospora, that of the market leaders. Second, we now have rhizomania and Rhizoctonia. The performance of the nine successful breeding programs covering all the CONVISO® SMART varieties has also been boosted. maturity regions of relevance to us in Europe. Last, To enable that, we significantly sped up the breeding but not least, that success is reflected in excellent program by developing and using suitable molecular products: KWS has competitive varieties in this markers. This technology allows us to equip a large market for the first time, and the results of the new number of highperformance sugarbeet lines with the hybrids it has submitted for approval are highly CONVISO® SMART trait quickly thanks to marker promising. We aim to capture a significant market assisted backcrossing. As a result, we have built up a position in the dent x dent regions of Europe, the product pipeline that addresses the specific require Americas and China. ments of the various markets. 32 Combined Management Report | 2.2 Research & Development Report Annual Report 2018/2019 | KWS Group Innovations in breeding resistance in sugarbeet For Russia, we are devoting greater attention to the The ban on neonicotinoids in EU Member States topic of winter hardiness, coupled with frost tolerance imposed at the end of 2018 means that breeding and resistance to snow mold, as well as adaptation resistance to viruses is growing in importance. Viral to shorter summers and longer winters. We com diseases transmitted by insects cause significant menced initial activities to develop winterhardy rye losses of yield in various crops. Neonicotinoids have hybrids for Russia in 2013. We have since made large been used to date on sugarbeet in order to combat advances. We have successfully established a pro aphids, which transmit various yellowing viruses and gram that helps us develop varieties faster, meaning have helped curb the negative effect of these plant that initial competitive hybrids will be available in the diseases. We responded to the ban immediately by new fiscal year and that we can launch the exclusive developing virusresistant sugarbeet varieties. We variety KWS PROMMO for the country’s moderately have already been able to submit initial varieties for cold regions. We have the variety KWS AVIATOR in approval in Germany, the UK and a number of other our portfolio for regions where winter hardiness is countries. required. Both products exhibited very good yields in the assessments and also boast excellent winter Highly promising results in development of hardiness. We expect that our breeding program for winter-hardy rye hybrids developing winterhardy rye hybrids will likewise pro Rye is an exceptionally adaptable crop. That is why duce suitable varieties for regions in North America in rye hybrids tested in Germany and Poland have been the medium term. able to be marketed in various regions to date – from Spain to Sweden, from North America to Western Russia. Our strategy is to continue to tap our main markets – Germany, Poland and Denmark – as well as develop new regions with a large potential in terms of cultivation area, such as Russia and North America. These regions pose new requirements for us in our breeding work. Under the slogan #RYEVOLUTION, we are committed to cultivation of hybrid rye and are working intensively to develop new varieties. This crop is not only very adaptable and rugged, but also delivers valuable, long-lasting energy as a food. rows can be transferred to systems on the trac tors to enable their satellitecontrolled, automated guidance during sowing. The digital field plans also serve as the basis for automatic methods of trait identi fication, such as analysis of images captured by drones. KWS’ geodata management platform is con ceived as a growing system and is to be gradually expanded with additional applications. The long term goal is to fully link all relevant data with the trial fields and plots. Yield forecasts – predictive breeding at KWS Progress in the field of breeding methods has been sped up in the past years, in particular thanks to genomic analyses. Genomic data is now used by KWS to determine a plant’s potential for further breeding on the basis of statistical calculations. With the aid of genomic selection, the genomes of entire plant populations are analyzed with mole cular markers and, using specially developed com puter models, correlated with field data collected at the same time. That correlation ultimately enables predictions on the yield of possible progeny with out the need to assess them in the field. We will be able to increase the accuracy of these forecasts Sights firmly set on progress: More than one-third of our employees work in R&D and directly in developing new, high-performance varieties. Digitization of R&D work – rollout of KWS’ significantly in the future by integrating further geodata management platform data, such as on the plants’ metabolism or protein Digitization is penetrating the various breeding profile. processes at KWS and making development of new varieties easier and more efficient. In order Genomic selection is now an established method for to tap its diverse potentials, we work constantly just about all of KWS’ crops and is used success fully to digitize various research & breeding process for developing new varieties. The genetic makeup of es. Over the past years, for example, we have the breeding material and efficiency in breeding have developed and now successfully launched a been able to be improved significantly as a result. In crosscrop platform for geodata management. particular, the development of corn varieties that are Based on geoinformation and navigation satellite tolerant to drought stress has been complemented systems, it is the foundation for fully digitized field by the use of predictive breeding methods and has planning. The platform can be used to create and helped KWS produce tolerant hybrids under our label document field plans for commercial seed pro “ClimaControl³.” duction and planning of field trials with the aid of software we have developed inhouse. Moreover, details of the arrangement of the trial plots and 34 Combined Management Report | 2.2 Research & Development Report Annual Report 2018/2019 | KWS Group 2.3 Economic Report 2.3.1 Business Performance On June 19, 2019, KWS announced that it has signed a binding agreement to acquire Pop Vriend General developments and business Seeds, a company headquartered in Andijk in the performance of the KWS Group Netherlands, and aims to position itself long term KWS faced an economic environment similar to that in the growth market of vegetable seed. Pop Vriend of the previous year. The global economy grew only Seeds is the market leader for spinach seed and at a slow rate. Whereas the U.S. economy picked up has a highly promising portfolio of other vegetable steam, also thanks to fiscal stimuli, the pace of expan crops. The company, which was founded in 1956 sion in the eurozone, Japan and China declined. Parts and is showing strong growth, generated revenue of of South America and Turkey were in recession. There around €75 million and aboveaverage earnings in were again new barriers and sanctions in international fiscal 2017/2018. The acquisition will bolster KWS’ trade in the year under review, and they affected our future sales and earnings growth and help it achieve business in part. The weakness of a number of local its strategic corporate objectives. The transaction currencies in regions where KWS operates, such was completed on July 1, 2019. as South America and Turkey, also had a negative impact. Guidance versus actual business performance of the KWS Group The agricultural sector again had to contend with Despite the abovementioned industryspecific challenging general conditions. High inventories due and geopolitical challenges, the KWS Group was to good harvests in most cultivation regions, regula able to increase EBIT significantly and fulfill or tory intervention and increasing weather anomalies surpass its forecasts. are concerns for many farmers. The slight price increases in the year under review were not sufficient In the course of the year, there were hardly any to cause a turnaround in the conditions for growing changes to our assessment for the year as a agricultural crops – in some cases, arable farming whole. The only correction was in the 9M Quarterly remained a lossmaking business as a result of Report for 2018/2019, when we put a more precise relatively low prices for agricultural raw materials. figure on our earnings guidance by stating that we While there was a slight increase in global cultiva expected an EBIT margin at the upper end of the tion area for wheat, there was a slight decline in the forecast range of 10.0% to 12.0%. amount of soybean and corn sown, in particular due to extremely damp weather conditions in the U.S. While our sales and R&D intensity fully matched Sugarbeet cultivation area remained largely con our most recently published expectations, the stant as a whole, despite the continuing low level of EBIT margin was 13.5% and thus even above the sugar prices. However, there were sharp differences predicted range. Apart from our positive operating among the individual regions: While regulatory performance, earnings were also increased by changes relating to the use of insecticides meant €11 million as a result of a nonrecurring effect that cultivation conditions in the EU grew more from the sale of shares in KWS Potato B.V. difficult, more sugarbeet was grown in the U.S. in the fiscal year. 2.3 Economic Report | Combined Management Report 35 KWS Group | Annual Report 2018/2019 Summary of the segments’ course of business The segment’s net sales were better than expected and comparison with the guidance 1 and were slightly above the figure for the previous Most of the net sales in the Corn Segment is year. The EBIT margin in the Sugarbeet Segment generated in the second half of our fiscal year improved sharply year over year thanks to non ( January to June) during the spring sowing season in recurring income from sale of 50% of the shares in the northern hemisphere. A lesser share of revenue KWS Potato B.V. That was the main reason why we is earned in South America in the first two quarters. raised our guidance during the year. Our business performance in South America was very positive, while our business in the U.S. suffered Every year, the fall sowing season determines the significant declines due to weatherrelated factors. main business trends of the Cereals Segment. The In Europe and China, our business was stable as a key crop in that is hybrid rye, which accounts for whole in the year under review. a very significant share of the segment’s net sales Net sales and the EBIT margin in the Corn Segment in the year under review, mainly as a result of the were, as expected, up slightly over the previous year. strong growth in hybrid rye seed. The EBIT margin and earnings. As expected, net sales rose sharply was 13.5%, better than originally anticipated and The main sales season for the Sugarbeet above the figure for the previous year. Segment is in the second half of our fiscal year (January to June). The strong performance of our Net sales at the Corporate Segment were as sugarbeet varieties was again a mainstay in the expected. We lowered our EBIT guidance during segment’s success in the year under review. The seg the year due to extra expenditures as part of our ment also benefited in particular from the successful change in legal form, M&A activities, reorganization launch of our CONVISO® SMART portfolio of varieties. of administration (ONEGLOBE), and on information Cultivation area as a whole remained at the high level technology. The segment’s EBIT was €–97.1 million of the previous year. The measures to cut capaci and so in line with the guidance revised in the ties announced by the European sugar industry had course of the year. only little impact on the segment’s performance in the fiscal year. We posted an increase in net sales in particular in Eastern Europe and North America. Guidance versus actual business performance of the KWS Group Results 2017/2018 Guidance for 2018/2019 Adjustments to the guidance during the year Results 2018/2019 2017/2018 Annual Report Q1 Report Semiannual Report 9M Report Net sales R&D intensity €1,068 million Slight increase in net sales 18.5% Around 19.0% EBIT margin 12.4% 10.0 –12.0% – – – – – – – – At the upper end of the guidance €1,113 million; 4.2% 18.5% 13.5% 1 Including equityaccounted companies. Details on the segments’ business perfor mance and their economic environment can be found in the segment reports. 36 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group 2.3.2 Earnings, Financial Position and Assets Earnings Condensed 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 2018/2019 2017/2018 1,113.3 1,068.0 150.0 –5.5 144.5 40.4 104.0 132.6 5.4 138.0 38.3 99.7 +/– 4.2% 13.1% – 4.7% 5.5% 4.3% in € in % 3.15 3.02 4.3% 13.5 12.4 – Net sales increase despite strained EBIT improves again general conditions The KWS Group’s operating income (EBIT) Net sales in the year under review were again improved in fiscal 2018/2019 by 13.1% to impacted by significant exchange rate effects and a €150.0 (132.6) million, despite the challenges difficult market environment characterized by low described above. Apart from the growth in net sales, producer prices, regulatory intervention and extreme earnings were also increased by €11.0 million as weather events. Nevertheless, the KWS Group was a result of a non-recurring effect from the sale of able to grow its net sales slightly to €1,113.3 million shares in KWS Potato B.V. The EBIT margin was compared to €1,068.0 million in the previous fiscal 13.5% following 12.4% in the previous year. year, an increase of 4.2%. In the Corn Segment, expanding seed business in South America had a The KWS Group’s cost of sales rose in the year particularly positive impact on net sales. The Sugar- under review by 2.8% to €458.5 (446.1) million, giving beet Segment posted a slight increase in net sales; a cost of sales ratio of 41.2% (41.8%). The year-on- there were appreciable gains in Eastern Europe in year improvement in that ratio is partly attributable to particular. Net sales in the Cereals Segment rose lower royalty payments to third parties. In particular, sharply due to higher sales of rye and barley seed in the successful launch of new hybrid corn varieties in Europe. The Corn and Sugarbeet Segments each Brazil with KWS’ genetics had an impact here. accounted for a major share of total net sales, namely 42.9% and 41.4% respectively. The Cereals Segment As planned, we again increased our research & increased its share to 15.3% (previous year: 14.0%) on development expenditure, which we see as an in- the back of strong growth. The region where we vestment in the future, to €205.6 (197.7) million; as generated most of our business was Europe, which in the previous year, the R&D intensity was 18.5%. accounted for 66.6% of net sales (Germany: 21.2%), Administrative expenses increased to €115.4 (95.8) while net sales from North and South America con- million due to work as part of the reorganization pro- tributed 27.5% of the total. Revenues from our North ject ONEGLOBE, costs for the change in our legal American and Chinese equity- accounted companies form, and higher IT expenses. The balance of other are only included at the segment level (see our operating income and other operating expenses in- segment reporting starting on page 41). creased to €38.0 (5.6) million, among other things due 2.3 Economic Report | Combined Management Report 37 KWS Group | Annual Report 2018/2019 to the nonrecurring effect from the sale of shares in KWS Potato B.V. and income from reversal of allow ances on receivables. The related individual items are explained in detail in the Notes on pages 141 to 142. Net sales by region Total net sales €1,113.3 million1 Rest of world 5.9% North and South America 27.5% 21.2% Germany 45.4% Europe (excluding Germany) Net sales by segment Total net sales €1,113.3 million1 Corporate 0.4% Cereals 15.3% 42.9% Corn 41.4% Sugarbeet 1 Without net sales of our equity consolidated companies. Net financial income/expenses negative – in particular due to additional longterm borrowing in Net income improves South America. Net financial income/expenses was Our net financial income/expenses is made up of the thus €–5.5 (5.4) million. Earnings before taxes (EBT) net income from equity investments and the interest rose by 4.7% to €144.5 (138.0) million. Income taxes result. One component of income from equity invest consequently increased to €40.4 (38.3) million, giving ments is the income from equityaccounted financial a tax rate of 28.0% (27.8%). Overall, the KWS Group assets, which fell to €9.4 (13.4) million due to the drop generated net income of €104.0 (99.7) million in the in earnings (see page 42) from our joint ventures in year under review, an increase of 4.3%. Given that North America and was not able to be fully offset by the number of shares is now 33,000,000 (following the improvement in profitability at our Chinese joint the stock split at a ratio of 1:5 on March 22, 2019), venture. The interest result fell to €–15.0 (–8.0) million, earnings per share were €3.15 (3.02). Financial situation Selected key figures on the financial position in € millions Cash and cash equivalents Net cash from operating activities Net cash from investing activities Free cash flow 2018/2019 2017/2018 159.8 72.9 –95.2 –22.4 192.6 98.1 –68.1 30.0 Net cash from financing activities 404.5 –25.3 +/– –17.0% –25.7% 39.8% – – 38 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group Securing the KWS Group’s financial flexibility, Higher net income year on year, before allowing for enabling its profitable growth and preserving its noncash expenses and income, coupled with higher independence are the core tasks of our financial income taxes and an increase in trade receivables, management. Among other things, we ensure that by resulted in a decline in net cash from operating extensive liquidity planning, monitoring of cash flows, activities to €72.9 (98.1) million. and hedging the risk of interest rate changes and currency risks. The main financial instruments used The net cash from investing activities totaled by the Group in the fiscal year, apart from a syndi €–95.2 (–68.1) million in fiscal 2018/2019. Our capital cated credit line, were borrower’s notes and bilateral spending in the year under review was consistent with loan agreements (commercial papers) with different our longterm growth plans and focused on erecting loan periods and terms. The maturity profile of the and expanding production and research & develop Group’s borrowings has a broad spread, with a high ment capacities. Expansion of sugarbeet seed pro proportion of medium and longterm financing. duction in Einbeck was continued as planned. The project, which has a total investment volume of around As part of the acquisition of the vegetable seed pro €40 million, is expected to be completed by the end ducer Pop Vriend Seeds, KWS temporarily utilized of 2020. The focus of our capital spending in the Corn bridge funding from various banks in June 2019. It Segment was on expanding production and processing was already replaced at the end of August 2019 by plants in Brazil and Argentina, whereas in the Cereals the issue of medium and longterm borrower’s notes Segment it was mainly centered on expanding with a total volume of €400 million at very favorable and modernizing breeding stations and production conditions. In order to secure KWS’ growth, we also plants at Wohlde and in Eastern Europe. Total capital consider the option of a capital increase in exceptional spending in fiscal 2018/2019 was €96.6 (71.7) million. cases, for example to fund a further large acquisition. This rise was mainly attributable to the fact that some investments planned for the previous year were not carried out until the year under review. Depreciation and amortization remained virtually constant at €49.7 (50.1) million. Capital expenditure by segments Total capital expenditure €96.6 million1 Corporate 33.2% Cereals 7.3% 23.4% Corn 36.1% Sugarbeet Capital expenditure by region Total capital expenditure €96.6 million1 Rest of world 1.3% North and South America 23.4% 58.6% Germany 16.7% Europe (excluding Germany) 1 Without capital expenditures of our equity consolidated companies. 2.3 Economic Report | Combined Management Report 39 KWS Group | Annual Report 2018/2019 The net cash from financing activities was The KWS Group’s cash and cash equivalents at the €404.5 (–25.3) million, essentially due to the cap end of fiscal 2018/2019 fell to €159.8 (192.6) million. ital raised for the takeover of Pop Vriend Seeds. Assets Condensed balance sheet in € millions Assets Noncurrent assets Current assets Assets held for sale Equity and liabilities Equity Noncurrent liabilities Current liabilities Liabilities held for sale Total assets 06/30/2019 06/30/2018 +/– 760.5 1,346.8 7.6 963.5 364.4 785.3 1.8 691.3 826.4 0.0 881.8 334.3 301.6 0.0 10.0 % 63.0 % – 9.3 % 9.0 % 160.4 % – 2,115.0 1,517.7 39.4 % The KWS Group’s balance sheet is impacted by the The company’s capital stock increased from €19.8 mil seasonal nature of our business. In the course of the lion to €99.0 million by way of a capital increase from year, there are usually balance sheet items that differ company funds (stock split). Higher net income and the significantly from the corresponding figures at the allocation to the revenue reserves meant that equity balance sheet date, in particular in relation to working rose to €963.5 (881.8) million. As a result, noncurrent capital. assets were again fully covered by equity. Noncurrent liabilities rose to €364.4 (334.3) million, mainly due to Total assets at June 30, 2019, were the raising of multiyear loans in South America. On €2,115.0 (1,517.7) million. Noncurrent assets rose to the other hand, borrower’s note loans were repaid. €760.5 (691.3) million, mainly due to planned invest All in all, the equity ratio fell sharply to 45.5% (58.1%). ments in new production plants and the expansion of We aim to keep on our profitable growth trajectory research & development capacities. Trade receivables by entering vegetable seed business and with the rose sharply to €402.1 million from €310.1 million in acquisition of Pop Vriend Seeds. For that reason, we the previous year, in particular as a result of business are willing to accept a temporary decline in our equity expansion in South America and Eastern Europe. ratio. Nevertheless, we continue to operate on the back However, inventories fell slightly to €177.3 (181.0) mil of a solid balance sheet. lion. Current assets at the balance sheet date totaled €1,346.8 (826.4) million. The increase is mainly due to shorttime borrowings as part of bridge funding for the acquisition of the Dutch vegetable seed pro ducer Pop Vriend Seeds, which was completed on July 1, 2019. As a result, net debt rose sharply to €497.9 (37.4) million. 40 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group 2.3.3 Segment Reports Reconciliation with the KWS Group The KWS Group’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). The segments are presented in the Management Report in line with our internal corporate controlling structure in accordance with GAS 20. The main difference is that we do not carry the revenues and costs of our equity accounted companies in the statement of comprehensive income (in accordance with IFRS 11). The KWS Group’s net sales and EBIT are therefore lower than the total for the segments. The earnings contributed by the equityaccounted companies are instead included under net financial income/expenses. In addition, their assets are included separately in the KWS Group’s balance sheet. Our equity accounted companies are included proportionately in the segment reports in line with our internal corporate controlling structure. The difference from the KWS Group’s statement of comprehensive income is summarized for a number of key indicators in the reconciliation table: We boosted our competitiveness in the corn seed arena in the year under review by successfully establishing and expanding our breeding program. Reconciliation table in € millions Net sales EBIT Number of employees Capital expenditure Total assets avg. Segments Reconciliation KWS Group 1,375.0 –261.7 1,113.3 163.4 5,543 101.1 –13.4 –745 –4.5 150.0 4,798 96.6 2,276.3 –161.3 2,115.0 The reconciliation between the KWS Group’s EBIT were lower there in the year under review, which statement of comprehensive income and the reporting therefore had an impact on the reconciliation. The by segments in fiscal 2018/2019 is impacted by our Chinese company KENFENG – KWS SEEDS CO., LTD. equityaccounted companies in the North American increased its contribution to net sales and income in and Chinese corn markets. That applies to all key the year under review, although that still had a minor figures in the table above, with the main influences effect on the reconciliation. coming from North America. Net sales from corn and 2.3 Economic Report | Combined Management Report 41 KWS Group | Annual Report 2018/2019 Corn Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2018/2019 2017/2018 739.0 57.9 7.8 27.2 750.2 7.7 734.2 47.4 6.5 64.1 695.5 7.0 +/– 0.7% 22.2% – –57.6% 7.9% – in % in % Economic environment: Stable general our soybean seed sales. Volumes in Argentina conditions in Europe – declines due to weather increased in the high single-digit range. However, factors in North America the continued devaluation of the Argentinean peso The general economic conditions for corn varied had a negative impact. Argentina was classified as a greatly in the year under review: While there were hyperinflationary economy in the year under review. largely stable cultivation conditions and a slight We therefore applied IAS 29 “Financial Reporting in increase in cultivation area in the EU 28, an important Hyperinflationary Economies” to KWS Argentina S.A. region for KWS, our business in the U.S. suffered for the first time in order to compensate for the effects significant declines due to weather-related factors. of inflation. Long periods of rain during the sowing season, especially in the Midwest, the most important In North America – and in particular in the Midwest of corn-growing region in the United States, meant the U.S. – damp weather conditions during the sowing that corn cultivation area fell sharply. season meant that corn cultivation area fell sharply and so resulted in significant declines in net sales at In China, the outbreak of swine fever, the trade war our 50:50 joint venture AgReliant. On the other hand, with the U.S. and government subsidies for extended there were positive exchange rate effects from the crop rotation meant that soybean cultivation increased increase in the US dollar’s value against the euro. at the expense of corn. The business environment AgReliant completed the renewal of its brand strategy in South America was characterized by strong in the year under review and has now established competitive pressure and devaluation of currencies three national brands. This new strategy is the basis ( especially in Argentina). for our planned growth in the coming years. The segment’s performance: Increase in In Europe, our business was stable as a whole. Net net sales and earnings sales were very pleasing in Eastern and Southeastern The Corn Segment grew its net sales by 0.7% to Europe, whereas we suffered slight drops in net sales €739.0 (734.2) million in the year under review. That in Western and Northern Europe due to intensified increase is mainly attributable to positive business competition. We aim to keep on launching new hybrid performance in South America. We significantly varieties and so strengthen our market position in expanded our business volume and won market Europe. We see the greatest growth potential as being share in Brazil following successful launch of our in Eastern and Southeastern Europe. high- performance hybrid corn varieties. We also grew 42 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group Corn Our business in China was stable against the back- drop of a challenging environment. While net sales at our Chinese joint venture KENFENG rose, we posted a fall in revenue from licensing business. In addition, sorghum and catch crop seed business was transferred to the Cereals Segment. The segment’s income rose by 22% to €57.9 (47.4) million. That was aided in particular by the sharp improvement in operating business in South America. Moreover, application of IAS 29 for Argentina contrib- uted to the segment’s positive earnings performance. Our earnings in Europe were stable in the year under review, whereas falling sales volumes resulted in a decline in North America. The EBIT margin rose from 6.5% to 7.8%. Investments focus on South America The segment’s capital spending was €27.2 (64.1) mil- lion in the year under review. The focus was on expanding production and processing plants in Brazil and Argentina so as to establish sufficient capacities for the anticipated rise in demand for seed in these important markets. After the projects have been completed in the current fiscal year, we will have roughly doubled our processing capacities in the two countries. KWS Group | Annual Report 2018/2019 Sugarbeet Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2018/2019 2017/2018 461.2 179.6 38.9 34.9 300.0 59.9 455.1 160.5 35.3 16.8 282.0 56.9 +/– 1.3% 11.9% – 107.7% 6.4% – in % in % Economic environment: Tougher cultivation The segment’s performance: Slight increase conditions along with still low sugar prices in net sales, CONVISO® SMART very successful The Sugarbeet Segment faced a tougher market in Eastern Europe environ ment in the year under review. Two years We grew the Sugarbeet Segment’s operating busi- after the end of the Sugar Market Regime, European ness slightly in the year under review, mainly thanks farmers and sugar companies were impacted by to the successful launch of our SMART portfolio of the continuing low level of sugar prices. As a con- varieties and due to positive exchange rate effects. sequence, individual sugar companies announced Net sales were €461.2 million following €455.1 million that they would review the profitability of their the year before. While net sales in the EU declined production sites and remove capacities from the due to the difficult cultivation conditions, the fall in market. Restrictions on the use of insecticides also sugar prices and the removal of surplus capacities in made cultivation conditions in the EU more difficult. the sugar industry, net sales grew sharply in Eastern Sugarbeet cultivation area in this important region Europe (Ukraine, Belarus and Moldava) thanks to the for us dropped overall by around 5%, although it introduction of CONVISO® SMART. It has now been rose slightly in North America by about 1%. There launched in 17 countries and has generated net sales were further increases in cultivation area in China in the double-digit million range. In North America and Egypt. we benefited from a slight increase in cultivation area and a stronger US dollar. Net sales in Turkey and the Middle East were likewise up over the previous year, despite the fact that the Turkish lira fell in value year on year. 44 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group Sugarbeet The launch of the CONVISO® SMART system and related activities to establish it on the market contrib- uted to the increase in selling expenses in the year under review. We expanded our research & develop- ment activities in line with our planning. In view of the further restrictions on pesticides in the EU, we believe in particular that the development of natural resistances will grow in importance in the medium to long term. Administrative expenses were at the level of the previous year. The segment increased its EBIT overall to €179.6 (160.5) million, mainly due to busi- ness with CONVISO® SMART, a stronger US dollar and a non-recurring effect (€11.0 million) from the sale of shares in its potato business. Continued investment in seed production We continued our multi-year capital spending projects as planned in the year under review. The PIA ( Production Extension and Innovation Einbeck) project, with which we are expanding our seed pro- duction plant in Einbeck, is expected to be completed by the end of 2020. The first section of the new pro- duction plant (packaging/active substance application) came into operation recently. Further investments were made in expanding capacities in France and Italy, as well as in developing biologicals, useful micro- organisms that improve seed’s stress tolerance to pests and abiotic factors such as drought. KWS Group | Annual Report 2018/2019 Cereals Segment Key figures in € millions Net sales EBIT EBIT margin Capital expenditure Capital employed (avg.) ROCE (avg.) 2018/2019 2017/2018 170.8 23.0 13.5 7.0 133.0 17.3 151.1 18.4 12.2 7.0 127.8 14.4 +/– 13.0% 25.0% – 0.0% 4.1% – in % in % Economic environment: Cereal commodity contributed to growth in the year under review. prices remain stable at a low level Hybrid rye seed was still the main sales driver in the The economic situation for European cereal farmers Cereals Segment, contributing around 39%, followed remained strained in the year under review. Predom- by rapeseed, wheat and barley. inantly low cereal commodity prices and dry weather conditions in the sowing season posed big challenges Our domestic net sales rose sharply by 23% in for farmers in large parts of Europe. Increasing restric- the year under review. Germany therefore remains tions on the availability of seed treatment appli cations the most important single market for our Cereals in the EU and drought during the sowing season Segment – we generated around 31% of our net resulted in a sharp drop in rapeseed cultivation area. cereal sales there, mainly from rye, barley, wheat In contrast, there was a strong increase in the amount and rapeseed seed. The main driver here was rye of rye grown. The main reasons for that were better seed business. We were able to increase our market prices for rye than for wheat and rye’s acknow ledged share to approximately 68% and so consolidate our high yield stability in dry years. position as market leader in Germany thanks to the improved performance of our hybrid rye varieties. The segment’s performance: Increase in net sales and income We again turned in a positive business performance Net sales at the Cereals Segment rose by 13.0% to in our other key markets – the UK, France, Poland €170.8 (151.1) million. We increased our net sales and Scandinavia – where we generated almost 43% from rye seed by 24% thanks to the rise in cultiva- of the segment’s net sales. Net sales in our strategic tion area and higher market share. Revenue from growth markets (Russia, Ukraine, Belarus and North wheat seed and rapeseed remained stable in the America) rose by around 32%. We posted sharp year under review, while barley business increased growth in particular in future markets for rye cultiva- sharply. The organizational restructuring of busi- tion in North America. The strategic growth markets ness with seed for sorghum and catch crops (which contributed 7.2% (6.1%) to total net sales in the year was transferred from the Corn Segment) likewise under review. 46 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group Cereals The increase in net sales and an improved product mix resulted in a higher gross profit at the segment. Expenditure on distribution, Research & Develop- ment and administration was likewise higher due to expansion of our business activities. EBIT increased by 25% to €23.0 (18.4) million, giving an EBIT margin of 13.5% (12.2%). Forward-looking investment continued The segment’s capital spending in the year under review was €7.0 (7.0) million. The main focus was on expanding and modernizing breeding stations and production plants. Investments to renew and replace plant and equipment help ensure that we live up to our high-quality standards in our breeding and production processes. Another goal is to ensure we provide sufficient capacities so that we can achieve our strategic objectives. KWS Group | Annual Report 2018/2019 Corporate Corporate Segment Key figures in € millions Net sales EBIT Capital expenditure 2018/2019 2017/2018 3.9 –97.1 32.1 4.2 –77.3 29.8 +/– –7.1% 25.6% 7.7% Net sales in the Corporate Segment in the fiscal usually negative. The costs consolidated in this year just ended totaled €3.9 (4.2) million. They segment rose in the year under review, among are mainly generated from our farms. Since all other things due to the reorganization project cross-segment costs for the KWS Group’s central ONEGLOBE, costs for the change in legal form, functions and basic research expenditure are and higher IT expenditure. The segment’s income charged to the Corporate Segment, its income is was €–97.1 (–77.3) million. 48 Combined Management Report | 2.3 Economic Report Annual Report 2018/2019 | KWS Group 2.4 Environmental Report 2.4.1 Product Innovations by 1% to 2% per annum; however, as presented in KWS has developed new varieties for a wide range the chart below, our research & breeding activities of agricultural crops for more than 160 years. Thanks also aim to improve usability, resource efficiency, and to our portfolio of sugarbeet, corn, various cereals, resistance to various diseases and extreme environ- sorghum, rapeseed, peas and catch crops, we can mental influences. These crop-specific development offer farmers a broad range of high-performance objectives are agreed annually between Research, varieties, both conventional and organic. the respective breeding departments, Production and Sales and submitted for the Executive Board and We continuously work to further develop our varieties Supervisory Board to decide on. The progress made and thus enable greater yield with the same or fewer over the past years is also examined and reported on resources. Our strategic focus is to increase yield regularly as part of that. Focus of research apart from increasing yield Improve usability Biotic resilience Resource efficiency Abiotic resilience Higher sugar content (sugarbeet) Improved biogas production Improved digestibility Higher carbon dioxide fixation Improved resistance and tolerance Crop rotation Increased biodiversity Less pesticide usage Less fertilizer usage Less water usage Enhanced resistance to extreme environmental conditions Increased resource efficiency One indicator of progress in breeding is marketing fungus. We have also achieved further progress in approvals for new varieties. For example, only vari- the fields of biologicals and organic seed. An alterna- eties that have what is termed a “value for cultivation tive or complement to chemical means of seed treat- and use” can be marketed in the EU. They must ment, biologicals comprise microorganisms such therefore differ significantly from already approved as fungi and bacteria, but also various substances varieties and offer a clear improvement in cultivation that can be obtained from plants or microorganisms. or further processing. We obtained 464 marketing They have already been successfully incorporated in approvals in the year under review. coatings for sugarbeet and rapeseed seed. We are One specific example is the approval of two KWS also continuously works to further develop its high-yielding winter rapeseed varieties in France. organic seed, focusing on protecting the environ- They are equipped with completely new resistance ment and on the advantages of catch crops as part to infection caused by Phoma and offer effective of its activities in this segment. planning to use them for corn and rye next season. protection against new strains of this pathogenic 2.4 Environmental Report | Combined Management Report 49 KWS Group | Annual Report 2018/2019 2.4.2 Use of Genetic Resources 2.4.3 Plant and Process Safety KWS runs a broad network of stations and trial fields Running our locations and our operational processes for seed breeding worldwide. We test our own or have an impact on the environment. To minimize externally procured genetic material for the respec- that impact at all locations, we are committed tive application areas there. to using innovative processes and eco-friendly Where external genetic material is used, the rights technologies. of the indigenous peoples from whose regions the Core objectives of our global EHS (environment, material originates must be respected. KWS is aware health and safety) management activities are to of its obligations in this regard and supports the avoid negative environmental influences and ensure various international frameworks. Of prime mention resource-conserving operation of our locations, in this regard is the international Convention on Bio- health and occupational safety, and protection of logical Diversity and the "International Treaty on business assets. Plant Genetic Resources for Food and Agriculture". The latter is particularly relevant to regulating transfer In general, a location at the individual KWS compa- of genetic resources. nies is run in compliance with the applicable local statutory requirements. We defined fundamental We have implemented a due diligence process requirements relating to the three pillars of environ- to ensure compliance with these regulations. All mental protection, work safety, and emergency pre- employees who work with genetic material are paredness and risk prevention by introducing new required to digitally register all materials used, group-wide EHS guidelines in July 2019. whereupon our Intellectual Property department instigates an examination of where the genetic Prime examples in relation to the subject area material has come from. Colleagues from our Legal of environmental protection are stipulations on department also provide assistance in more complex resource-conserving operation of our locations, cases. If an examination should find that the origin of the handling of environmentally harmful chemicals the genetic material or the process by which it was and waste, and the use of exhaust air filters. obtained is unclear, we refrain from using it. There was also such an instance in the year under use of rainwater for sanitary facilities at selected review. A routine examination of registered materials German locations and optimization of the central uncovered that the origins of one set of organisms cooling plant at our location in Einbeck in the year The measures already implemented include the were not clear and that the necessary documentation under review. was incomplete. Further investigations revealed that the costs of subsequently revising and updating We also defined a new global EHS organizational the documentation were greater than the potential structure for the KWS Group in the period under benefits of the organisms and so we decided to stop review. To enable that, unit managers named con- using them in our research. With the exception of this tact persons at management level to act as multi- examination, which led to the genetic material being pliers at their units, support local introduction and rejected, there were otherwise no further anomalies achievement of the EHS requirements, and establish in the due diligence processes. and maintain appropriate EHS structures in all areas of the company. 50 Combined Management Report | 2.4 Environmental Report Annual Report 2018/2019 | KWS Group Greenhouses and climatic chambers not only need heat, but cold too. The recently completed new central cooling plant in Einbeck ensures that energy is produced more efficiently and distributed better across the campus. In the future, all relevant locations in the KWS Group Further key aspects in plant and process safety are are to undergo regular auditing so that the EHS the responsible use of modern breeding methods manage ment system and its stipulations can be and the safe use of genetically modified organisms continuously developed and improved. in the production process. To document the fact that we use genetically modified organisms responsibly Alongside the global EHS management system, throughout the lifecycle of our products, our entire we are also focusing on the issue of environmental group is still certified in accordance with the industry protection in relation to certification of treatment standard “Excellence Through Stewardship” (ETS). All facilities in accordance with SeedGuard. Internal the audits held, records and measures are adminis- audits to review compliance with processes were tered in a central database. The results are reported successfully held at several certified locations in the to the Executive Board as and when required. year under review. 2.4 Environmental Report | Combined Management Report 51 KWS Group | Annual Report 2018/2019 Watching what you eat is a good thing. And that also goes for our animals. All’s peaceful and quiet. Our hybrid rye varieties guarantee better satiation, which ensures animals feel calmer and also have a balanced diet. 2.5 Employee and Social Report Over six generations, our employees have made 2.5.1 Employment Trends KWS what it is today: an innovative, world-leading We employed an average of 5,543 (5,147) people world- plant breeding company. That is due in great mea- wide in the year under review, an increase of 7.7%. sure to their skills, mindsets, ideas and their satis- 2,141 (1,952), or around 39% (38%) of the workforce, faction. As a company with a tradition of family were employed in Germany. While the headcount ownership, we attach importance to a work culture in Europe (excluding Germany) remained virtually of respect, a high degree of personal initiative, and unchanged, it rose noticeably in the North and personal and professional development. Open- South America regions and in the rest of the world. ness, trust and team spirit define our culture. Once again, the area that accounted for the most employees was research and development: The number of employees here increased and made up 37.0% of the total workforce. KWS’ working environment is diverse. Our employees work in greenhouses, labs, in the field or in the office – in more than 70 countries around the world. 2.5.2 Recruitment & Qualification growth and our work to enhance our quality are Employer branding: Projecting our employee geared to the KWS Group’s strategic objectives. brand outside the company The status of recruiting measures and filling of new As an international company that continues to posts is reviewed regularly in consultation with the grow, the KWS Group endeavors to win and keep Executive Board and the first management level. the employees best suited to it. Our quantitative 54 Combined Management Report | 2.5 Employee and Social Report Annual Report 2018/2019 | KWS Group Employees by region1 Number of employees 5,543 Rest of world 4.3% North and South America 31.2% 38.6% Germany 25.9% Europe (excluding Germany) Employees by function Number of employees 5,543 Administration 14.6% Distribution 21.4% 37.0% Research & Development 27.0% Production 1 Average number of employees. We continue to use digital and traditional channels All the measures presented by way of example to reach out to potential applicants. That enables ultimately help KWS enhance its attractiveness as us to address each target group specifically, for an employer. In the annual independent rankings example on social networks such as LinkedIn and by the consulting firm Universum, KWS now comes Facebook. in 47th in the area of sciences in the list of the 100 most popular employers in Germany among To strengthen our position in science, we have students. created the post of Global Lead of Scientific Affairs at the Research & Development department so as Qualification, further training and development to enable direct dialogue with universities, students KWS’ continuing commercial success is founded not and graduates as peers. only on its employees’ commitment, entrepreneurial freedom and satisfaction, but also on their personal We continue to award scholarships at universities skills and professional qualifications. We support our and offer talents without a university degree induction employees with tailored education and further training programs. As a result, we at the KWS Group again measures to help them build on their expertise and accompanied many young people success fully on their abilities. path to gaining vocational qualifications in the past fiscal year. Our 92 trainees in Germany were employed In regular development meetings, which are part of in vocational training at KWS or enrolled in dual the annual performance and career development courses of study. In recog nition of our commitment reviews, our employees formulate perspectives for in this area, we were presented with the “2019 Lower their further development together with their managers. Saxony Award for Particularly Reliable Training” in the They jointly define concrete continuing education year under review. and development measures aimed at enhancing their personal skills and professional competence. 2.5 Employee and Social Report | Combined Management Report 55 KWS Group | Annual Report 2018/2019 Our range of education and development offerings 2.5.3 Good Working Conditions* is diverse and supports various learning objectives. As an international, innovation-oriented company, we Language courses and intercultural training, as well need qualified employees. Good working conditions as knowledge transfer in various subject areas and are a key foundation so that we continue to be seen international development of (junior) executive staff, as an attractive employer in the battle for the best are gaining in importance. employees. We regularly hold “Orientation Centers” with partici- Contracts and compensation pants from various countries in the KWS Group. Skills Every employee of the KWS Group has a written and development options are identified and a personal contract of employment that complies with labor and development plan is created as part of such an analysis social insurance legislation. The overall compensa- for high potentials. In the International Development tion package for KWS employees takes into account Program, we offer talents from all departments the their individual expertise and local market circum- chance, among other things, to gain experience in an stances. It consists of a basic salary, social benefits, international team in project work and to develop their performance-related payments (if applicable) and, management and leadership skills. Each participant is locally, Employee Stock Purchase Plans where staff supported by an experienced internal mentor as part can buy shares in the company. Equal pay for the of that. same activities is a principle of our compensation Since we are particularly committed to having all employees receive qualified leadership and support Work-life balance policy. from their supervisors, we developed a competence The lives our employees lead differ greatly and are model defining the core competencies of managers highly individual – and so they also have different at KWS a number of years ago. In the second half needs as regards work and the workplace. Our of 2018, we also introduced “Leading Individuals,” different working time models enable employees to the first module of our newly designed manage- strike a good life-work balance. Employees can also ment development program, in which more than work from home, if that can be reconciled with their 100 executives have taken part so far. activity. We also offer part-time models. Employees We intend to continue focusing on qualifying and or reduce their working hours, with an adjustment developing our employees and managers in the future to their salary, if they would like to look after depen- and will expand our training portfolio nationally and dents who need caring for. in Germany also have the opportunity to take leave internationally. Key figures for employees (in Germany) Number of employees1 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 * Not an audited part of the Combined Management Report 56 Combined Management Report | 2.5 Employee and Social Report in % in % in % 2018/2019 2017/2018 2,141 1,952 440 53.3 46.7 92 4.3 41.0 12.9 443 52.7 47.3 93 4.8 39.1 13.8 +/– 9.7% –0.7% – – –1.1% – 4.9% –6.5% Annual Report 2018/2019 | KWS Group Equal opportunity and diversity KWS is committed to equal opportunities and rights for its employees, regardless of gender, religion or belief, ethnic origin, age, handicap, skin color, language or sexual orientation. We have enshrined that in our Code of Business Ethics, which is binding on all employees. We believe that diversity of our employees, as displayed in their individual attitudes, knowledge, skills and ideas, is a key value and a competitive advantage. It encourages creativity and innovativeness and strengthens our understanding of markets and different cultures by fostering inter- cultural skills. We aim to further increase the ratio of women in the top two management levels at KWS. The targets for that can be found in our declaration on corporate governance, which is published on our website at www.kws.com. People who contribute their skills and knowledge, develop ideas and pursue them passionately are what make KWS successful. KWS’ international support includes our capacity develop ment programs in Peru and Ethiopia. A sustain- Employee representative bodies able harvest in both countries depends in particular on Employees’ interests are represented collectively robust plant varieties that offer high resistance, as well toward management by the elected Works Councils as the know-how required to cultivate them efficiently. and the persons entrusted with representing young Many farmers there cannot afford fertilizer, pesti- people and trainees. We also have a European cides and the machinery they need. Despite intensive Employees’ Committee (EEC), a body that research, there are still not sufficient varieties adapted represents the interests of European employees to the demanding cultivation conditions there. and is respon sible for cross-border matters within the EU. The working relationship between the The projects specifically aim to conserve domestic employee representative bodies and management plant genetic resources and breed high-performance is close and based on trust. In regions where there crop varieties that are adapted to local conditions so as is no collective employee representative body, we to give farmers there access to quality seed. The focus attach importance to mutual respect and dialogue is on corn and quinoa in Peru and on barley and wheat between regional management and employees. in Ethiopia. Our projects aim to help the local popu- lation to help themselves. In cooperation with other 2.5.4 Social Commitment* partners, KWS is training young scientists and plant As an international, strongly innovation-driven com- breeders in Peru and Ethiopia. The aim is for farmers pany, the issues of education and science are partic- there to be able to work efficiently and independently ularly dear to our heart. Our focus in the area of social using varieties adapted to local requirements. commitment is therefore to promote young scientific and artistic talents, school and university projects, and In fiscal 2018/2019, we spent around €1.0 (1.1) million – educational institutions. We also support social and or approximately 0.7% of our operating income (EBIT) – cultural initiatives at the regional level. on social projects worldwide. * Not an audited part of the Combined Management Report 2.5 Employee and Social Report | Combined Management Report 57 KWS Group | Annual Report 2018/2019 The best way to keep an overview: a drone Going beyond the field boundaries – with our digital analysis tools for Precision Farming: A drone and an app enable the system to pinpoint where crops are ready to be harvested. After all, ideal visibility means an ideal yield. 2.6 Corporate Governance 2.6.1 Corporate Governance Report and 2.6.3 Business Ethics and Compliance Declaration on Corporate Governance* The basis of our compliance concept is the Responsible corporate governance has always been implementation of our corporate culture: KWS’ of great importance at KWS SAAT SE & Co. KGaA. values are practiced when the compliance rules are Since it was founded more than 160 years ago, our applied. Compliance with basic principles of busi- company’s successful development has been based ness ethics is vital to our license to operate. Accord- on thinking in the long term and acting in terms of ingly, the compliance rules apply to all employees in sustainability. The Executive Board (or, since the the KWS Group. company’s change in legal form after the end of the year under review, the personally liable partner That is the foundation for KWS’ compliance KWS SE, whose Executive Board is since responsible objectives, namely to gain and retain customers’ for management of the company’s business) and the trust through ethical conduct and to protect the Supervisory Board run and accompany KWS with the company’s employees, reputation and assets. goal of ensuring it creates sustainable value added. They once again examined in the year under review Information, training and continuous intensive con- whether the company complies with the stipulations sulting help integrate compliance in business pro- of the German Corporate Governance Code and issue cesses and enable management to make business the following declaration of compliance to the effect decisions rooted in our corporate culture. that the company complies almost fully with the code’s recommendations. Our Code of Business Ethics gives our employees crucial guidance in their day-to-day work and con- You can find detailed information on corporate tains stipulations on compliance with the law, fair governance, also with the contents in accordance with competition, prevention of corruption, safety at work, Clause 3.10 of the German Corporate Governance protection of the environment, and the need to treat Code, in our Corporate Governance Report (which each other, customers, business partners, other is also the declaration on corporate gover nance in third parties and public authorities with respect. All accordance with Section 289f of the German Com- employees must undertake to comply with the code. mercial Code (HGB)), which is available in full on our website at www.kws.com. You can find the Com- Our Code of Business Ethics also covers the issue pensation Report starting on page 62 of this Annual of international anti-corruption management as Report. an integral part of our compliance management work. On the basis of the regulations in the code, 2.6.2 Compliance Declaration in there is a policy of zero tolerance toward any form Accordance with Section 161 AktG of corruption at the KWS Group and that principle (German Stock Corporation Act)* is stipulated as a group-wide standard in the Anti- The compliance declaration in accordance with Corruption Policy. This standard applies regardless section 161 AktG (German Stock Corporation Act) of whether bribery is prohibited by law, tolerated or in its recent version can be found under permitted in the country in question. The group-wide www.kws.com/corp/en/company/investor-relations/ Anti- Corruption Policy defines the responsibilities, declaration-of-compliance/. processes and regulations in relation to preventing corruption and bribery at the KWS Group. * Not an audited part of the Combined Management Report 60 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group Clear structures create room for success: High standards of corporate governance, compliance and business ethics are firmly entrenched in KWS’ corporate culture. The Compliance department is the central point of Implementation of individual compliance aspects is contact for questions on our Code of Business Ethics reviewed as part of audits. The Compliance depart- and other related issues. It advises all divisions of the ment also conducts regular compliance risk analyses KWS Group in complying with laws, regulations and for all units and regions and derives measures internal rules of conduct and controlling their obser- for improve ment from the results. No incidents of vance. The focus is on the subjects of antitrust law, corruption were reported to head quarters in fiscal anti-corruption, data protection and capital market law. 2018/2019. No violations of anti trust and data protec- tion legislation and thus no related fines were reported The Chief Compliance Officer regularly provides to headquarters, either. information about the compliance system and its principles, as well as about the latest issues and If an examination or report reveals indications of develop ments, in training courses, information events suspected violations, the investigation is conducted and workshops. Apart from this information, a broad in accordance with KWS’ regulations “Procedures range of aids is also available to our employees. of Internal Compliance Notification.” Our employees Checklists, instructional leaflets and other guides are obligated to report suspected violations; the open provide practical tips on observing compliance rules door principle applies to that. Employees can supply in everyday work. All information and rules of conduct information on them to their supervisor, to the Chief can be accessed by employees worldwide in the Compliance Officer or to the external compliance hot- Compliance Portal on KWS’ intranet. In addition, all line. The hotline can be contacted, including by e-mail, supervisors are obliged to inform their employees free of charge around the clock and in the language about compliance issues. of the country in question. Reports of suspected violations are treated anonymously if requested. The reported cases are investigated by KWS. Whistle- blowers do not suffer any disadvantages, unless they 2.6 Corporate Governance | Combined Management Report 61 KWS Group | Annual Report 2018/2019 have obviously abused their right to report violations. 2.6.4 Compensation Report After the investigation has been completed, the The compensation report contains explanations whistle blowers are informed of the results, as long regarding the salient features, structure and as there are no legal reasons or legitimate interests level of the compensation paid to members of against doing so or other disadvantages are to be the Executive Board and the Supervisory Board feared. of the former KWS SAAT SE. It is based on the relevant statutory provisions and oriented toward If suspected cases prove to be violations, the system of the pertinent recommen dations of the German sanctions is applied. In general, it can be applied to all Corporate Governance Code. types of compliance violations and is also accessible to employees. The system of sanctions defines various Compensation for members of the criteria governing the measures to be taken, such as Executive Board the gravity of the violations, the degree of the person’s The compensation system for the Executive Board breach of duty, the functional level, behavior after the was set by the Supervisory Board in 2010 and violation – help in investigating it or attempts to cover approved by the Annual Shareholders’ Meeting. it up – as well as consequences of the violation, such The Executive Board’s compensation is based on as the threat of damage or actually incurred damage, the size and activity of the company, its economic among other things. The sanctions consequently range and financial situation and the level and structure from cautions, warnings and reductions in bonuses to of compensation for managing board members at immediate dismissal and filing of charges. comparable companies. The Executive Board and the Supervisory Board’s The total compensation of the Executive Board Audit Committee are informed once a year about comprises the following components: the current status and latest developments of the Compliance Management System. A basic fixed annual salary (if applicable with a CEO bonus) In addition to our internal compliance regulations, Fringe benefits we also want to involve our suppliers in ensuring A variable payment in the form of a they adopt and practice our business ethics. KWS performance-related bonus also expects its suppliers, service providers, their A variable payment in the form of a long-term employees and subcontractors (jointly termed incentive (LTI) based on the KWS stock price “ suppliers”) to act ethically, responsibility and in a Any special payments and spirit of sustainability. The conduct expected of our Pension arrangements suppliers is specified in our Code of Business Ethics for Suppliers; one particularly important criterion The performance-related bonus (including fringe is that they respect human rights as fundamental benefits), the LTI payment and the total compensation and universal. The code specifies, for example, that of every member of the Executive Board is limited our suppliers must not permit forced labor or child individually to a maximum amount. labor and must comply with the regulations on the minimum age for admission to employment defined The basic annual salary in the year under review for in the latest version of ILO Convention No. 138. The the Executive Board members Dr. Hagen Duenbostel, code contains provisions on safety at work, product Dr. Léon Broers, Dr. Peter Hofmann, and Eva Kienle safety, protection of the environment and avoidance was €300 thousand. Dr. Felix Büchting (since of corruption, as well as on the requirement to ensure January 1, 2019) received a partial basic salary of fair competition and protection of personal data and €125 thousand in the year under review. The Chief third-party know-how. 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. 62 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group Apart from these fixed salaries, there is also performance-related bonus payment in shares non-monetary compensation in the form of fringe of KWS SAAT SE & Co. KGaA. In addition to the benefits (such as a company car and a mobile shares that are no longer locked in, the Executive phone), contributions to health and nursing care Board receives the long-term incentive (LTI) in the insurance, and accident insurance in favor of form of cash compensation after a holding period of members of the Executive Board. five years. This payment is calculated on the basis of the share’s performance over the holding period The variable payment for Executive Board mem- and on the average return on sales (ROS, based bers (performance-related bonus) is calculated on on segment reporting), measured as the ratio of the basis of a fixed percentage and depends on the operating income to net sales. average net income of the KWS Group for the past three years (“sustained net income”). The object of The LTI payment is limited to a maximum that is for the compensation to reflect the company’s of one-and-a-half times (two times for performance, positive or negative. Additional pay- Dr. Hagen Duenbostel) of the capital used to ments for any duties performed in subsidiaries acquire the shares. and associated companies are offset against the variable payment (performance-related bonus). Additional special payments were not granted to the This – including the fringe benefits – is limited to an members of the Executive Board in the fiscal year. amount of €500 thousand for each Executive Board member per fiscal year. If sustainable consolidated Pension obligations are granted in the form of a net incomes of more than €100 million in each direct obligation to provide benefits, with the annual year are generated in two successive years, the anticipated pensions ranging between €13 thousand upper limit for the bonus is increased to €600 thou- and €130 thousand, and a defined contribution sand for each Executive Board member as of the plan. In fiscal 2018/2019, €342 (306) thousand was following fiscal year. paid to a provident fund backed by a guarantee for pension commitments to members of the Executive Since fiscal year 2010/2011, there has also been Board. A further €275 (111) thousand was allocated a stock-based bonus system (the first reference to the pension provisions in accordance with IAS 19 point for which was in January 2012). It is intended (of which €21 thousand was interest expenses and to act as a long-term incentive and thus support €254 thousand from revaluation effects due to adjusted the company’s sustainable development. Every Heubeck mortality tables). There were thus pension member of the Executive Board is obligated to provisions totaling €1,566 (1,291) thousand for the invest a freely selectable amount ranging between members of the Executive Board of KWS SAAT SE (in at least 20% and at most 50% of the gross future: of KWS SAAT SE & Co. KGaA). Pension commitments in € Dr. Hagen Duenbostel Dr. Peter Hofmann Total 06/30/2019 06/30/2018 Interest expenses Revaluation effects 1,157,263.00 938,928.00 15,492.00 202,843.00 408,776.00 352,134.00 5,810.00 50,832.00 1,566,039.00 1,291,062.00 21,302.00 253,675.00 2.6 Corporate Governance | Combined Management Report 63 KWS Group | Annual Report 2018/2019 The total compensation to be reported for the the basic annual salary, including fringe benefits, Executive Board in accordance with Section 314 (1) 47.1% (47.3%) by annual variable components and No. 6a of the German Commercial Code (HGB) in 15.7% (18.5%) by multi-year variable components. conjunction with German Accounting Standard The tables below provide an overview of the to- No. 17 (DRS 17) was €4,316 (4,016) thousand in fis- tal compensation granted in the fiscal year on an cal 2018/2019. 35.2% (34.3%) was accounted for by individualized basis (excluding pension costs): Total compensation for the Executive Board 2018/2019 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 375,000.00 23,303.72 476,696.28 875,000.00 226,736.74 1,101,736.74 250,522.81 Dr. Léon Broers 300,000.00 25,719.43 474,280.57 800,000.00 225,966.40 1,025,966.40 244,459.95 Dr. Felix Büchting (since 01/01/2019) 125,000.04 12,113.77 137,886.23 275,000.04 0.00 275,000.04 0.00 Dr. Peter Hofmann 300,000.00 25,804.65 474,195.35 800,000.00 158,176.48 958,176.48 82,668.83 Eva Kienle Total 300,000.00 31,234.81 468,765.19 800,000.00 155,608.68 955,608.68 100,860.20 1,400,000.04 118,176.38 2,031,823.62 3,550,000.04 766,488.30 4,316,488.34 678,511.79 Total compensation for the Executive Board 2017/2018 in € Cash compensation LTI FV 1 Total LTI Basic compensation Fringe benefits Performance- related bonus Total Grant Cost Dr. Hagen Duenbostel 375,000.00 21,686.48 478,313.52 875,000.00 214,116.10 1,089,116.10 231,635.44 Dr. Léon Broers 300,000.00 23,724.44 476,275.56 800,000.00 214,116.10 1,014,116.10 217,245.89 Dr. Peter Hofmann 300,000.00 23,792.93 476,207.07 800,000.00 162,741.00 962,741.00 44,122.41 Eva Kienle Total 1 Long-Term-Incentive Fair Value. 300,000.00 31,282.37 468,717.63 800,000.00 149,977.00 949,977.00 60,986.87 1,275,000.00 100,486.22 1,899,513.78 3,275,000.00 740,950.20 4,015,950.20 553,990.61 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 €1,479 (1,575) thousand. Pension commitments in LTI grants are assessed at the present value at the accordance with IAS 19 (2011) recognized for this time of acquisition of the last tranche of shares. The group of persons amounted to €6,674 (7,315) thou- details on the receipts show the same figures as sand as of June 30, 2019. The pension commit- under “Grant” for the fixed compensation and fringe ments for three former members of the Executive benefits. The receipt for fiscal years 2018/2019 and Board are backed by a guarantee. No loans were 2017/2018 (amounts paid) is stated for the one-year granted to members of the Executive Board and the variable payment (performance-related bonus), as Supervisory Board in the year under review. is the amount for the multi-year variable payments In the following tables, we present the individual review. In turn, the benefit expense is presented in grants and receipts separately for each member of accordance with IAS 19 and does not constitute a the Executive Board, as incurred in the year under receipt in the narrower sense, but serves to illus- review and in the previous year in accordance with trate the overall compensation. (LTI), whose planned term ends in the year under the recommendations in Clause 4.2.5 (3) of the German Corporate Governance Code (DCGK) in the version dated February 7, 2017. 64 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group Executive Board compensation in keeping with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Grant Receipt 2018/2019 2017/2018 2018/2019 2017/2018 Min. Max. Dr. Hagen Duenbostel (Chief Executive Officer) Fixed payment Fringe benefits Subtotal 375,000.00 375,000.00 375,000.00 375,000.00 375,000.00 375,000.00 23,303.72 23,303.72 23,303.72 21,686.48 23,303.72 21,686.48 398,303.72 398,303.72 398,303.72 396,686.48 398,303.72 396,686.48 Performance-related bonus 476,696.28 0.00 476,696.28 470,827.23 476,696.28 478,313.52 Total cash compensation 875,000.00 398,303.72 875,000.00 867,513.71 875,000.00 875,000.00 Multiyear variable payment LTI 2011/2012 LTI 2012/2013 LTI 2016/2017 LTI 2017/2018 Subtotal Pension costs1 297,479.52 240,018.58 214,116.10 226,736.74 0.00 477,806.31 1,101,736.74 398,303.72 1,352,806.31 1,081,629.81 1,115,018.58 1,172,479.52 105,492.00 105,492.00 105,492.00 106,190.00 105,492.00 106,190.00 Total compensation 1,207,228.74 503,795.72 1,458,298.31 1,187,819.81 1,220,510.58 1,278,669.52 Maximum compensation2 1,765,000.00 Executive Board compensation in keeping with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Dr. Léon Broers Fixed payment Fringe benefits Subtotal Grant Receipt 2018/2019 2017/2018 2018/2019 2017/2018 Min. Max. 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 25,719.43 25,719.43 25,719.43 23,724.44 25,719.43 23,724.44 325,719.43 325,719.43 325,719.43 323,724.44 325,719.43 323,724.44 Performance-related bonus 474,280.57 0.00 474,280.57 470,827.83 474,280.57 476,275.56 Total cash compensation 800,000.00 325,719.43 800,000.00 794,552.27 800,000.00 800,000.00 Multiyear variable payment LTI 2011/2012 LTI 2012/2013 LTI 2016/2017 LTI 2017/2018 Subtotal Pension costs1 229,805.09 238,837.67 214,116.10 225,966.40 0.00 357,137.22 1,025,966.40 325,719.43 1,157,137.22 1,008,668.37 1,038,837.67 1,029,805.09 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,097,966.40 397,719.43 1,229,137.22 1,080,668.37 1,110,837.67 1,101,805.09 Maximum compensation2 1,547,000.00 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. 2.6 Corporate Governance | Combined Management Report 65 KWS Group | Annual Report 2018/2019 Executive Board compensation in keeping with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Grant Receipt 2018/2019 2017/2018 2018/2019 2017/2018 Min. Max. Dr. Felix Büchting (since 01/01/2019) Fixed payment Fringe benefits Subtotal 125,000.04 125,000.04 125,000.04 12,113.77 12,113.77 12,113.77 137,113.81 137,113.81 137,113.81 Performance-related bonus 137,886.23 0.00 137,886.23 Total cash compensation 275,000.04 137,113.81 275,000.04 Multiyear variable payment LTI 2011/2012 LTI 2012/2013 LTI 2016/2017 LTI 2017/2018 Subtotal Pension costs1 0.00 0.00 0.00 275,000.04 137,113.81 275,000.04 36,000.00 36,000.00 36,000.00 Total compensation 311,000.04 173,113.81 311,000.04 Maximum compensation2 423,500.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 125,000.04 12,113.77 137,113.81 137,886.23 275,000.04 0.00 275,000.04 36,000.00 311,000.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Executive Board compensation in keeping with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Dr. Peter Hofmann Fixed payment Fringe benefits Subtotal Grant Receipt 2018/2019 2017/2018 2018/2019 2017/2018 Min. Max. 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 25,804.65 25,804.65 25,804.65 23,792.93 25,804.65 23,792.93 325,804.65 325,804.65 325,804.65 323,792.93 325,804.65 323,792.93 Performance-related bonus 474,195.35 0.00 474,195.35 470,827.83 474,195.35 476,207.07 Total cash compensation 800,000.00 325,804.65 800,000.00 794,620.76 800,000.00 800,000.00 Multiyear variable payment LTI 2011/2012 LTI 2012/2013 LTI 2016/2017 LTI 2017/2018 Subtotal Pension costs1 0.00 0.00 158,176.48 0.00 249,996.05 162,741.00 958,176.48 325,804.65 1,049,996.05 957,361.76 800,000.00 800,000.00 77,810.00 77,810.00 77,810.00 78,224.00 77,810.00 78,224.00 Total compensation 1,035,986.48 403,614.65 1,127,806.05 1,035,585.76 877,810.00 878,224.00 Maximum compensation2 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. 66 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group Executive Board compensation in keeping with Clause 4.2.5 of the German Corporate Governance Code (DCGK) in € Eva Kienle Fixed payment Fringe benefits Subtotal Grant Receipt 2018/2019 2017/2018 2018/2019 2017/2018 Min. Max. 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00 31,234.81 31,234.81 31,234.81 31,282.37 31,234.81 31,282.37 331,234.81 331,234.81 331,234.81 331,282.37 331,234.81 331,282.37 Performance-related bonus 468,765.19 0.00 468,765.19 468,717.63 468,765.19 468,717.63 Total cash compensation 800,000.00 331,234.81 800,000.00 800,000.00 800,000.00 800,000.00 Multiyear variable payment LTI 2011/2012 LTI 2012/2013 LTI 2016/2017 LTI 2017/2018 Subtotal Pension costs1 0.00 0.00 155,608.68 0.00 245,937.68 149,977.00 955,608.68 331,234.81 1,045,937.68 949,977.00 800,000.00 800,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00 Total compensation 1,027,608.68 403,234.81 1,117,937.68 1,021,977.00 872,000.00 872,000.00 Maximum compensation2 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. Total compensation for the Supervisory Board in € Dr. Andreas J. Büchting1 Dr. Marie Theres Schnell2 Hubertus von Baumbach3 Victor W. Balli4 Jürgen Bolduan Cathrina Claas-Mühlhäuser Christine Coenen5 Dr. Berthold Niehoff6 Fixed 180,000.00 90,000.00 0.00 60,000.00 60,000.00 60,000.00 60,000.00 0.00 Work on committees 0.00 20,000.00 0.00 60,000.00 20,000.00 10,000.00 0.00 0.00 Total 2018/2019 180,000.00 110,000.00 0.00 120,000.00 80,000.00 70,000.00 60,000.00 0.00 Total 2017/2018 180,000.00 85,000.00 75,000.00 60,000.00 80,000.00 70,000.00 30,000.00 30,000.00 510,000.00 110,000.00 620,000.00 610,000.00 1 Chairman. 2 Deputy Chairwoman since 12/14/2017. 3 Deputy Chairman and Chairman of the Audit Committee until 12/14/2017. 4 Chairman of the Audit Committee since 12/14/2017. 5 Since 12/14/2017. 6 Until 12/14/2017. 2.6 Corporate Governance | Combined Management Report 67 KWS Group | Annual Report 2018/2019 Compensation for members of the 2.6.5 Explanatory Report of the Personally Liable Supervisory Board Partner (KWS SE) of KWS SAAT SE & Co. KGaA in The compensation is based on the size of the Accordance with Section 176 (1) Sentence 1 AktG company and the duties and responsibilities of the (German Stock Corporation Act) on the Disclo- members of the Supervisory Board. The company sures in Accordance with Section 289a (1) and believes that the fixed compensation structure, Section 315a (1) HGB (German Commercial Code) which is therefore no longer linked to the company’s business performance, means that the Supervisory The change in KWS SAAT SE’s legal form to that of Board can better exercise its control function. The a partnership limited by shares (KWS SAAT SE & compensation system for the Supervisory Board Co. KGaA) took effect upon its entry in the commer- complies with the recommendations of the German cial register on July 2, 2019. The company therefore Corporate Governance Code. still had the legal form of a European Company The members of the Supervisory Board receive a in fiscal 2018/2019. The personally liable partner of fixed annual payment of €60,000 for their work. The KWS SAAT SE & Co. KGaA provides the following Chairperson receives three times and the Deputy explanation on the disclosures in accordance with Chairperson one-and-a-half times said amount. Section 289a (1) and Section 315a (1) HGB (German (SE) and operated under the name KWS SAAT SE Members of the Supervisory Board receive separate Commercial Code): payment for their work on committees; the Chair- person of the Supervisory Board does not receive Composition of the subscribed capital additional compensation for his or her work on com- At the end of the fiscal year on June 30, 2019, the mittees. Members of the Supervisory Board who subscribed capital of KWS SAAT SE (as the com- are members of a committee receive an additional pany was then named) was €99,000,000.00 and payment of €10,000 therefor. The Chairperson of was divided into 33,000,000 bearer shares. The change a committee receives two times said amount. The in the company’s legal form to that of a partner- additional compensation for members of the Audit ship limited by shares (KWS SAAT SE & Co. KGaA) Committee is € 20,000. The Chairperson of the Audit took effect upon its entry in the commercial Committee receives three times said amount. Addi- register on July 2, 2019. Pursuant to the resolution tional compensation is owed only for participation adopted by the Annual Shareholders’ Meeting of in one committee, namely at the amount that is the KWS SAAT SE, the shareholders received one highest to which the member in question is entitled share in KWS SAAT SE & Co. KGaA for each for his or her work on a committee. If a person is a share they held in KWS SAAT SE. The company’s member of the Supervisory Board or a committee capital stock remained unchanged, so the sub- or holds the office of Chairperson or Deputy Chair- scribed capital of KWS SAAT SE & Co. KGaA is still person of the Supervisory Board or Chairperson of a €99,000,000.00. It is divided into 33,000,000 bearer committee for only part of the fiscal year or if a fiscal shares. Each share grants the holder the right to year is shorter than the calendar year, the payment is cast one vote at the Annual Shareholders’ Meeting. granted only on a pro rata temporis basis. Members The rights of share holders are governed by the of the Supervisory Board also receive reimbursement German Stock Corporation Act (AktG) and the of their expenses incurred in connection with exer- Articles of Association. cise of their office and the value-added tax due on their payment and on their expenses. Total compensation was €620 (610) thousand exclu- sive of value-added tax. 68 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group Restrictions relating to voting rights or the of shares. If there are no restrictions to voting rights, transfer of shares all shareholders who register for the Annual Share- There may be restrictions relating to voting rights or holders’ Meeting in time and have submitted proof of the transfer of shares as a result of statutory or con- their authorization to participate in the Annual Share- tractual provisions. For example, shareholders are holders’ Meeting and exercise their voting rights are barred from voting under certain conditions pursuant authorized to exercise the voting rights conferred by to Section 136 of the German Stock Corporation Act all the shares they hold and have registered. If mem- (AktG) or Section 44 of the German Securities Trading bers of the Executive Board of the personally liable Act (WpHG); the bars on voting pursuant to Section 285 partner or executive employees of the company have of the German Stock Corporation Act (AktG) must acquired shares as part of the long-term incentive also be observed for personally liable partners at a programs, these shares are subject to a lock-up period partnership limited by shares (KGaA). In addition, no until the end of the fifth year after the end of the quarter voting rights accrue to the company on the basis of in which they were acquired. The lock-up period for the shares it holds (Section 71b AktG). shares that employees have acquired as part of the The personally liable partner is not aware of any con- of the fourth year as of when they are posted to the tractual restrictions relating to voting rights or transfer employee’s securities account. Employee Stock Purchase Plans runs until the end Thinking long term bears fruit: Our stable ownership structure gives us the freedom to act largely independently of short-term interests. 2.6 Corporate Governance | Combined Management Report 69 KWS Group | Annual Report 2018/2019 Direct and indirect participating interests in The voting shares, including mutual allocations, of excess of 10% of the voting rights the members, companies and foundations of the The company has been informed by shareholders of families Büchting and Arend Oetker listed above the following direct or indirect participating interests exceed 10% and total 55.3% for: in the capital of KWS SAAT SE & Co. KGaA in excess of 10% of the voting rights in accordance Dr. Arend Oetker, Germany with Section 33 and Section 34 of the German Securities Trading Act (WpHG) or elsewhere. The voting shares, including mutual allocations, of the shareholders stated below each exceed 10% and total The voting shares, including mutual allocations, 15.4%. of the members and companies of the families Büchting and Arend Oetker listed below each Hans-Joachim Tessner, Germany exceed 10% and total 54.4%: Tessner Beteiligungs GmbH, Goslar Tessner Holding KG, Goslar Dr. Drs. h. c. Andreas J. Büchting, Germany Christiane Stratmann, Germany Dorothea Schuppert, Germany Shares with special rights and voting control Shares with special rights that grant powers of control Michael C.-E. Büchting, Germany have not been issued by the company. There is no Annette Büchting, Germany Stephan O. Büchting, Germany Christa Nagel, Germany special type of voting control for the participating interests of employees. Employees who have an interest in the company’s capital exercise their control Matthias Sohnemann, Germany rights in the same way as other shareholders. Malte Sohnemann, Germany Arne Sohnemann, Germany AKB Stiftung, Hanover Appointment and removal of management The personally liable partner, KWS SE, is responsible Büchting Beteiligungsgesellschaft mbH, Hanover for managing the business of KWS SAAT SE & Zukunftsstiftung Jugend, Umwelt und Kultur, Co. KGaA under Section 7.2 of the Articles of Einbeck Association of KWS SAAT SE & Co. KGaA. In RETOKE Holding Vermögensverwaltungs- accordance with Section 6 (3) of the Articles of gesellschaft mbH & Co. KG, Bad Schwartau Association of KWS SAAT SE & Co. KGaA, the Dr. Marie Th. Schnell, Germany Johanna Sophie Oetker, Germany personally liable partner shall leave the Company Leopold Heinrich Oetker, Germany if the majority of shares in the personally liable Clara Christina Oetker, Germany Ludwig August Oetker, Germany partner can no longer be held directly and/or indirectly for a time longer than 30 calendar days by persons who hold a combined total of more than 15% of the Company’s capital stock directly or indirectly through a company that is dependent in accordance with Section 17 (1) of the German Stock Corporation Act (AktG) or is controlled in accordance with Section 290 (2) of the German Commercial Code (HGB). This shall not apply if all shares in the personally liable partner are held by the Company; or 70 Combined Management Report | 2.6 Corporate Governance Annual Report 2018/2019 | KWS Group if a person who is not a family shareholder Section 18 of the Articles of Association of ( acquiring party) obtains control over the personally KWS SAAT SE & Co. KGaA stipulates that, unless liable partner directly or indirectly (acquisition of obligatory statutory regulations or the Articles of control) and does not submit to the Company’s Association otherwise compel, resolutions by the limited partners a takeover or mandatory offer in Annual Shareholders’ Meeting must be adopted by accordance with this provision and otherwise in a simple majority of the votes cast and, if the law accordance with the provisions in the German also stipulates a majority of the capital in addition to Securities Acquisition and Takeover Act (WpÜG) the majority of votes (as in the case of amendment within three months of acquisition of control. of the Articles of Association in accordance with Section 179 (2) of the German Stock Corporation Act Under Section 6.5 of the Articles of Association of (AktG)), with the simple majority of the capital stock KWS SAAT SE & Co. KGaA, the personally liable represented in adoption of the resolution. The power partner shall also leave the Company by means of to make amendments to the Articles of Association termination. Notice of termination shall be given to that only affect the wording (Section 179 (1) all the limited partners at the Annual Shareholders’ Sentence 2 AktG) has been conferred on the Super- Meeting. Outside of the Annual Shareholders’ visory Board in accordance with Section 22 of the Meeting, notice of termination shall be given to the Articles of Association of KWS SAAT SE & Co. KGaA. Chairperson of the Supervisory Board or his or her deputy. The notice of termination shall be at least Powers of the Executive Board, in particular six months before the end of and effective the end of in relation to issuing or buying back shares a fiscal year. The Executive Board of the personally liable partner is not currently authorized to issue or buy back The other statutory grounds for the personally liable shares. partner leaving the Company shall remain unaffected. Significant agreements in the event of a change The members of the Executive Board of the personally of control, compensation agreements liable partner, which is responsible for managing the Significant agreements subject to the condition of company’s business, are appointed and removed by a change in control pursuant to a takeover bid have the Supervisory Board of the personally liable partner, not been concluded. The compensation agreements KWS SE. Pursuant to Section 6 of the Articles of between the company and members of the Executive Association of KWS SE, members of the Executive Board of the personally liable partner and governing Board are appointed for a maximum period of the case of a change in control stipulate that any six years. Members may be reappointed. such compensation will be limited to the applicable maximum amounts specified by the German Corpo- Amendments to the Articles of Association rate Governance Code. Amendments to the company’s Articles of Association are made in accordance with Section 278 (3) and Section 179 in conjunction with Section 133 of the German Stock Corporation Act (AktG) and in accordance with Section 18 of the Articles of Association of KWS SAAT SE & Co. KGaA. Section 285 (2) Sentence 1 of the German Stock Corporation Act (AktG) stipulates that amendments to the Articles of Association require the approval of the personally liable partner. 2.6 Corporate Governance | Combined Management Report 71 KWS Group | Annual Report 2018/2019 We can’t make the world bigger. But we can increase yields. Humankind is growing – and so is our creativity: KWS develops varieties that deliver the best-possible yield and meet the challenge of growing demand for food despite the limited amount of arable land. 2.7 Opportunity and Risk Report As an international plant breeding company, the We see diverse opportunities for the KWS Group to KWS Group operates in a dynamically changing develop the company further in line with our strategy. environment. That results in risks as well as oppor- To succeed in achieving sustainable, profitable growth tunities, which we have to weigh as the foundation in the future as well, our prime goal must be to retain for our entrepreneurial decisions. and increase our innovativeness. The plants’ yield 2.7.1 Opportunities potential can be increased, resource efficiency can be enhanced or their resistance to detrimental influences, We understand an opportunity as a development that of whatever type, can be improved. might have a positive impact on our earnings, financial position and assets. At the KWS Group, opportunity There are also market opportunities as a result of management is an integral component of the estab- our activities in tropical regions. Our corn activities lished controlling system between the subsidiaries/ in Brazil and China will enable us to tap additional associated companies and company management. sales potential for the KWS Group in the medium Strategic opportunities of major importance, such as to long term, including in other tropical markets, joint ventures and acquisitions, are jointly discussed by developing varieties tailored to their climatic by the KWS Group’s Executive Board. Even though conditions. the strategic orientation is mainly based on organic growth, selective acquisitions may also round out Investing in expansion of our production capacities KWS’ portfolio. and modernization of our seed processing offers opportunities in existing and adjacent markets. Operational opportunities are identified and exploited Further development of our variety portfolio and in the Business Units of the segments, since they have expansion of capacities are accompanied by the most extensive knowledge of their markets and expansion of our international distribution structures products. Targeted measures are formulated together to enable tailored information and advice for our with the Executive Board so that strengths can be customers on the possible uses of our seed and leveraged and strategic growth potentials tapped. so allow us to leverage further sales potential. In Extensive strategic planning covering a ten-year time addition, continuous optimization of processes frame is the basis for opportunity management. In offers the KWS Group the opportunity to increase keeping with our earnings-oriented growth strategy, productivity and improve cost structures. we exploit the industry-specific and strategic oppor- tunities that arise by means of pinpointed investments in production capacities, research & development activities, and expansion of distribution. 74 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2018/2019 | KWS Group 2.7.2 Risks begun developing new risk management standards We define a risk as a potential future event with a for the KWS Group. They will be applied for the first negative impact on our earnings, financial position time at the start of the new fiscal year 2019/2020. and assets. Our definition of risks also includes potential negative impacts of our business activities, Organizational structure of the risk products and supply chain on the environment and management system society so that they can be addressed adequately The KWS Group’s Executive Board is responsible for in our management processes. group-wide risk management. The functions Group Governance, Group Compliance, Global Finance & Adjustments to the risk management system Procurement and Global Controlling each assume As part of the reorganization project ONEGLOBE, specific operational tasks (see the table). The Global we made organizational adjustments in risk manage- Leadership Team (GLT), consisting of the Executive ment in the year under review. The new distribution Board and the first management tier below it, formed of tasks is listed in the table below. We have also the Risk Committee of KWS in the year under review. Main players and bodies in risk management within the KWS Group Global Finance & Procurement Tasks Interest and currency management Insurance Loan management Risk prevention Internal auditing Global Controlling Planning/budget Group Governance & Risk Management Central risk management with regular Current expectations (early detection of risks) Group Compliance risk assessments Early detection of risks Risk reporting Integrated Management System (including Group standards) Excellence Through Stewardship Sustainability management and Non-Financial Declaration Compliance Management System Compliance Risk Assessment Compliance training Ad-hoc examinations Global Leadership Team Risk Committee 2.7 Opportunity and Risk Report | Combined Management Report 75 KWS Group | Annual Report 2018/2019 KWS’ risk management system is based on the inter- The persons responsible for the Group companies nationally recognized COSO II model ( Committee and specific functions within the Group are integrated of Sponsoring Organizations of the Treadway Com- in KWS’ risk management system. Risk Management mission). The principles of risk management are coordinates the process and supports the depart- enshrined in our Group-wide “Rules, Guidelines & ments. Risks are assessed by Risk Management and Procedures.” Core contents of it define the scope the Risk Committee. of application, responsibilities and reporting lines. Opportunity management is currently not part of the Risk management process risk management system. The risk management process at KWS consists of the phases of identification, assessment, control and As part of its audit of the annual financial statements monitoring of risks and risk reporting. As part of risk for fiscal year 2018/2019, Ernst & Young GmbH identification, the persons responsible for the Group Wirtschaftsprüfungsgesellschaft confirmed the companies and specific functions record individual working order of our system for early detection of risks in their sphere of responsibility on an electronic risks in accordance with Section 91 (2) of the German platform of the Integrated Management System Stock Corporation Act (AktG). (IMS). In doing so, they quantify the likelihood of Brief description of the risk management system measured by its gross effect on EBIT. The objective of the risk management system is to record and assess all the main risks and counter them The individual risks are classified as below as part of with suitable measures. With proactive measures, we assessment: the risk occurring and its potential financial impact reduce or avoid negative impacts on our corporate objectives so that we can survive and thrive on the world market. Scheme for assessing individual risks Likelihood of occurrence Low < 20% Moderate 20% – 60% High ≥ 60% Moderate Moderate Moderate Moderate Moderate Substantial Substantial Substantial Critical Critical Critical Critical Very low < €3 million 1 k s i r T B E I Low €3 million–€7 million Moderate €7 million–€13 million High ≥ €13 million 1 Before measures. Appropriate countermeasures are formulated and and initiated. The individual risks are analyzed in analyzed for all recorded risks where possible. They aggregated form using the risk categories presented may be measures to reduce risks, constant monitoring in the following and assessed, taking the initiated of them or taking out insurance. The measures measures into account. are weighed on the basis of economic aspects 76 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2018/2019 | KWS Group Aggregated risk categories Risk category Extent of damage Ten- dency Likeli- hood of occur- rence Market risks High High The functions Global Finance & Procurement and Global Controlling are responsible for consolidated accounting and corporate planning at KWS. A consistent system tool that is subject to the Group’s regulations on accounting makes it easier to ensure that the consoli- dated financial statements comply with the rules. Production risks Procurement risks Product risks Environmental and social risks Liquidity risks High Moderate Low Low Low Low Low High High Low Legal risks Moderate High Personnel risks High Moderate IT risks Low Moderate In addition, the following deals with the risk categories that we see as having a greater influence on our future business performance. Market risks KWS faces political risks in many countries in the strongly regulated international agricultural industry. There are growing restrictions on established operating resources and increasing regulation of important research technologies in the EU. Geopolitical insecu- rities in the Middle East and the still strained situation in Eastern Europe may also have a negative impact on Risks are controlled systematically by regular checks our business activities. Important growth countries for which review whether they are still applicable and KWS, such as China, also face trade disputes or eco- whether the measures and control activities are nomic and political difficulties. As regards the United effective. In addition, experienced independent Kingdom’s decision to leave the EU, we expect at auditors examine compliance with the measures present that a hard Brexit would affect KWS’ business, and controls using a risk-based approach. A report but only to an insignificant extent. on the status and the process is given to the Audit Committee of the Supervisory Board every year. Our business success depends, among other things, on the type of market access, our own variety performance Group Governance and Risk Management reports and the competitive environment. However, the global regularly to the Risk Committee on the current risk economy has an indirect influence on our net sales and situation at the KWS Group. On that basis, the Risk income. We address these challenges with systematic Committee discusses how to deal with the risks and analyses of the market and the competition and by provides stimuli on how to control them. developing high-yielding varieties optimized for different Risk management and the internal control system climatic zones. in the accounting process Currency risks arise in particular from receivables and The risk management and internal control system liabilities denominated in foreign currency. There are comprises structures and processes designed to interest rate risks as a result of potential changes to make sure that business transactions are included market interest rates. The interest payable on financial in accounting consistently, promptly and correctly. obligations with a variable rate of interest may increase. The following are examined regularly: the complete- We address currency risks and the risk of interest rate ness of financial reporting, the Group’s uniform changes to a reasonable extent through the usual accounting, measurement and account allocation hedging instruments, to reduce the influence on the stipulations, and the authorization and access regu- KWS Group’s earnings and assets situation. In fiscal lations for IT systems used in accounting. Intra- 2018/2019, we hedged our research & development Group transactions are consolidated appropriately expenditure and intra-group loans almost completely in and in full. order to avoid exchange rate risks. 2.7 Opportunity and Risk Report | Combined Management Report 77 KWS Group | Annual Report 2018/2019 Production risks The acquisition or licensing of technologies is cus- Seed production is dependent on the weather. We tomary and necessary in the industry. We reduce the reduce the risk of crop failures by multiplying seed – related risks by developing our own innovations, which depending on the crop – in separate locations may also be attractive to competitors. and regions in Europe, North and South America and Asia. We can carry out contra- seasonal Legal risks multipli cation in the winter half-year in the southern KWS faces risks from official proceedings and legal hemisphere if there are bottlenecks in the volume of disputes. Legal disputes are possible with suppliers, seed produced. licensors, customers, employees, lenders and inves- tors and may result in payments or other obligations. We counter the outage of seed processing plants by There were no significant legal proceedings in fiscal means of preventive maintenance, risk inspections 2018/2019. and organizational and technical damage prevention programs. To cover economic loss, we have Group- Under our compliance policy and the Code of Busi- wide property and business interruption insurance. ness Ethics, we obligate our employees to undertake to act in accordance with laws, contracts, internal We have established detailed checks and tests guidelines and our corporate values and raise their to determine the performance and quality of our awareness in this regard. In addition, we regularly hold seed. Quality controls, such as germination and international compliance training courses. sprouting strength tests, are conducted at all stages of production. The high quality of our seed should Personnel risks also reduce claims for damages under product Our HR strategy aims to recruit and keep qualified liability law. We also have product liability insurance employees at KWS. KWS also faces the challenging to defend against unjustified claims and to settle task of competing for staff with companies from justified claims. Product risks outside the industry as well. That may result in the risk of not being able to fill vacancies promptly or of losing employees. We counter this risk by contin- Our quality controls of conventional seed include an uously further developing our HR strategy. Among examination to determine that it is free of GMOs. Very other things, we are committed to growing our strict requirements must be met regarding manage- brand as an attractive employer, fostering talents, ment of genetically modified products, in particular, and expanding the KWS Group to new locations to prevent GMOs becoming mixed with conventional near to where appropriate resources are available seed. In the absence of a standardized legal thresh- (science clusters such as St. Louis and urban cen- old value, a number of European countries practice ters like Berlin). However, short-term compensatory a policy of zero tolerance. KWS is a member of the measures may be applied to counter personnel “Excellence Through Stewardship” (ETS) initiative, risks. KWS’ still high personnel requirements due an internationally standardized quality management to its growth resulted in a slight increase in per- program. It defines how genetically modified plant sonnel risks in the year under review due to delays material is used throughout the product lifecycle. By in recruitment processes. We also countered that being a member, we signal our clear commitment to risk by using interim personnel and external service the responsible use of transgenic plant material. providers. 78 Combined Management Report | 2.7 Opportunity and Risk Report Annual Report 2018/2019 | KWS Group IT risks The KWS Group’s business and production pro- cesses, as well as its internal and external commu- nications, are run on globally networked IT systems. Any outages or attacks can sometimes result in significant interruptions to business operations. In addition, theft of sensitive data can entail a loss of reputation for us. On the basis of our IT security policies, our IT secu- rity organization monitors access to company data. Firewall, antivirus and other programs are kept up to date to avoid losses and damage as a result of hacking and malware. There is also an extensive authorization concept. IT service providers con- stantly examine our IT security and system autho- rizations so that we can obtain recommendations for optimization measures through an external risk assessment. Overall statement on the risk situation by the Executive Board Personnel risks increased slightly in fiscal 2018/2019. KWS’ planned growth meant it had high Complete tracking of seed – from production to shipment – is our quality pledge and part of our risk management system. personnel requirements in the year under review. We feel sure that, thanks to our global footprint, Since the situation on the labor market remained innovative strength and the quality of our products, difficult, the result was delays in recruitment pro- we can seize opportunities and successfully counter cesses, although they were largely compensated risks as they arise. However, we cannot rule out for in the course of the year. On balance, there were the possibility that other factors that are currently no significant changes in the other risk categories. unknown or which are not assessed as significant may jeopardize the continued existence of the KWS Our business in emerging countries and in foreign Group in the future. currency continues to grow and harbors additional, yet calculable currency and political risks. The iden- tified risks do not jeopardize the existence of the KWS Group, neither individually nor in their entirety. 2.7 Opportunity and Risk Report | Combined Management Report 79 KWS Group | Annual Report 2018/2019 2.8 Forecast Report The expectations of management outlined here are 2.8.2 Forecast for the KWS Group’s Statement based on our corporate planning and the information of Comprehensive Income it takes into account, including market expecta- Our forecast does not assume any fundamental tions, strategic decisions, regulatory measures or changes to the economic environment and agri- exchange rate trends. They are subject to the same cultural policy. We anticipate a slight reduction in premises as the consolidated financial statements sugarbeet cultivation area in the EU again and in and forecast our business performance up to the Eastern Europe. We expect largely stable cultivation end of fiscal 2019/2020 on June 30, 2020. In our area for our corn and cereals seed business. Due to forecast for the KWS Group’s statement of compre- the continued high level of supply for cereals, corn hensive income in accordance with IFRS, we deal and sugar, there will also probably be fierce compe- with the KWS Group’s anticipated net sales, EBIT tition and heavy pressure on prices for seed in most and R&D intensity. Our forecast for the segments markets. In view of the current geopolitical situation, contains comments on our net sales and EBIT we expect the strongest exchange rate effects to expectations, including the contributions made by come from the regions North and South America, our equity- accounted companies, which are included Eastern Europe and Turkey. proportionately in the segment reports in line with our internal corporate controlling structure. We expect the KWS Group to grow its net sales sharply by 8% to 12%. Acquisition of the vegetable 2.8.1 Changes in the KWS Group’s Composition seed business of Pop Vriend Seeds and our corn that are significant for the Forecast seed business should make major contributions to There have been changes in the KWS Group’s com- that. As far as can be seen at present, the EBIT margin position that are of significance for the forecast for will be between 11% and 13%, while the R&D ratio its business performance in fiscal 2019/2020 insofar is expected to be in the range of 17% to 19%. Our as a new segment has to be included as a result of capital spending in fiscal 2019/2020 will again focus on establishment of our vegetable seed business. Our expanding our processing, production and research forecast likewise contains comments on our related capacities and is budgeted to be around €100 million. net sales and EBIT expectations. Due to the strongly seasonal nature of our business as a result of the great importance of the spring sowing season and external factors that are difficult to anticipate, such as the weather and fluctuations in cultivation area, more detailed statements on our net sales and earnings performance cannot yet be made with sufficient reliability. 80 Combined Management Report | 2.8 Forecast Report Annual Report 2018/2019 | KWS Group 2.8.3 Forecast for the Segments each year. We currently anticipate a slight increase We anticipate that net sales in the Corn Segment in net sales in the Cereals Segment as a result of will increase slightly in fiscal 2019/2020. In most growth in rye sales. We expect that net sales for regions – in particular in South America but also in rapeseed will remain stable or rise slightly and that Europe – we will likely post higher sales volumes net sales for wheat and barley seed will remain for seed. In North America, we expect an environ- stable or fall slightly. The segment’s earnings will ment where competition remains fierce, but also benefit from an increase in sales of rye seed; at anticipate that net sales will rise slightly. As far as the same time, however, we are planning to ex- can be seen at present, the EBIT margin will be pand our research & development and distribution slightly above the previous year’s figure (7.8%), activities. The segment’s EBIT margin will there- even though there will be a planned increase in fore probably be at the level of the previous year our research and development and distribution (13.5%). expenditures. The new Vegetables Segment comprises the net In the Sugarbeet Segment, our high-yielding port- sales and earnings contributed by the vegetable folio of varieties will probably mean another success- seed business acquired from Pop Vriend Seeds, ful year for us. As far as can be seen at present, we as well as costs for establishing the Business Unit anticipate a slight decline in global cultivation area Vegetables. They mainly include administrative for sugarbeet and expect the segment will post net and research and development expenditures. We sales at the level of the previous year (€461.2 million). expect & segment to generate net sales of about As far as can be seen at present, the EBIT margin €80 million and an EBIT margin of around 25%. will be tangibly lower than in the year under review (38.9%), mainly because there will not be the posi- Revenue from our farms in Germany is grouped in the tive non-recurring effect from the sale of shares in Corporate Segment. It should be around €4 million KWS Potato B.V. as there was in the year under review and thus at the level of the previous year. Since all and because research and development and distribu- cross-segment costs for the KWS Group’s central tion expenditures are budgeted to be higher. functions and basic research expenditure are charged The success of our cereals seed business depends ative. In our corporate planning for fiscal 2019/2020, very greatly on the fall sowing season in the northern we anticipate an EBIT on a par with the previous year hemisphere, which commences in September of (€–97.1 million). to the Corporate Segment, its income is usually neg- Forecast for the 2019/2020 fiscal year Statement of comprehensive income of the KWS Group Net sales growth EBIT margin R&D intensity 8–12% 11–13% 17–19% 2.8 Forecast Report | Combined Management Report 81 KWS Group | Annual Report 2018/2019 2.9 Report on KWS SAAT SE & Co. KGaA and Non-Financial Declaration (Declaration based on the German Commercial Code (HGB)) 2.9.1 KWS SAAT SE & Co. KGaA with Section 289f of the German Commercial Code (HGB), which also contains the compliance References to KWS SAAT SE & Co. KGaA in the declaration in accordance with Section 161 AktG KWS Group’s Annual Report ( German Stock Corporation Act), has been published The Management Reports of KWS SAAT SE & in the Internet at www.kws.com/ir. The following Co. KGaA and the KWS Group are combined. The disclosures are identical to those of the KWS Group declaration on corporate governance in accordance and are printed in this Annual Report: References to KWS SAAT SE & Co. KGaA in the KWS Group’s Annual Report Disclosures On the Compensation Report, in accordance with Section 289 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 On the Supplementary Report Page(s) 62 to 71 22 to 48 148 (Notes) 29 to 34 149 (Notes) KWS SAAT SE was the parent company of the KWS incurred at KWS SAAT SE & Co. KGaA – general and Group in the year under review. It was responsible administrative expenses in the year under review for strategic management and, among other things, totaled €91.3 (69.6) million. One reason for the multiplied and distributed sugarbeet and corn seed. increase is higher consulting and personnel costs It financed basic research and breeding of the main for M&A activities and as part of the process of range of varieties at the KWS Group and provided optimizing the organizational structure. The balance its subsidiaries with new varieties every year for of other operating income and other operating the purpose of multiplication and distribution. expenses was €13.2 (–2.3) million. Overall, KWS SAAT SE & Co. KGaA has been the parent KWS SAAT SE & Co. KGaA’s operating income was company of the KWS Group since July 2, 2019. thus €–33.1 (–12.1) million. Net financial income/ Earnings expenses is made up of the net income from equity investments and the interest result. Net income Net sales at KWS SAAT SE & Co. KGaA in from equity investments rose by €26.4 million fiscal 2018/2019 remained virtually constant to €65.6 (39.2) million. The interest result was at €529.2 (532.0) million. Research and €–6.1 (–4.2) million, slightly up over the previous develop ment expenditure, which is pooled at year. Taking into account tax expenditures, net KWS SAAT SE & Co. KGaA, was increased income for the year was €21.9 (22.1) million. as planned to €180.9 (173.8) million. Selling expenses rose to €72.9 (65.0) million. Most of the administrative expenses at the KWS Group are 82 Combined Management Report | 2.9 Report on KWS SAAT SE & Co. KGaA and NFD Annual Report 2018/2019 | KWS Group 2.9 Report on KWS SAAT SE & Co. KGaA and Non-Financial Declaration (Declaration based on the German Commercial Code (HGB)) The parent company KWS SAAT SE & Co. KGaA funds the key basic research and breeding work and provides the subsidiaries with new varieties. 2.9 Report on KWS SAAT SE & Co. KGaA and NFD | Combined Management Report 83 KWS Group | Annual Report 2018/2019 Financial position and assets Forecast Report KWS SAAT SE & Co. KGaA’s total assets KWS SAAT SE & Co. KGaA generates the main increased in fiscal 2018/2019 by €514.5 million to part of its net sales from sugarbeet and corn seed €1,450.4 (935.9) million. Fixed assets at the balance business and royalties from basic corn seed. The sheet date were €557.9 (525.8) million or 38.5% of further development of sugarbeet seed business total assets. The increase in fixed assets is mainly depends, among other things, on the performance due to new buildings, additions of new agricultural of our varieties, cultivation areas in our key markets machinery, and procurement of laboratory equipment. and developments in our growth markets in Eastern Current assets increased by €479.9 million. Inven- Europe. We currently expect net sales at the level of tories fell to €59.3 (68.5) million. Receivables and other the previous year here. KWS SAAT SE & Co. KGaA’s assets were €752.9 (213.4) million. The sharp increase net sales from corn in Europe are likewise expected in other assets is due to deposit in a trust account of to be at the level of the previous year due to the still the purchase price for the acquisition of all the shares challenging market environment. All in all, we therefore in Pop Vriend Seeds. Liabilities at the balance sheet expect KWS SAAT SE & Co. KGaA to post constant date rose sharply to €1,011.9 (508.6) million as a result net sales. KWS SAAT SE & Co. KGaA’s operating of the need to raise bridge funding for the acquisition. income is mainly impacted by the costs of central KWS SAAT SE & Co. KGaA’s equity increased by functions of the KWS Group and cross-segment €0.8 million to €283.1 (282.3) million, giving an equity research and development activities. The planned ratio of 19.5% (30.1%). Employees increase in spending on research and development and on distribution activities and a decline in income from sugarbeet will probably reduce KWS SAAT SE & An average of 1,586 (1,484) people were employed Co. KGaA’s EBIT slightly. at KWS SAAT SE & Co. KGaA in the year under review, of whom 98 (109) were trainees and interns. 2.9.2 Combined Non-Financial Declaration for the KWS Group Risks and opportunities In accordance with Sections 289b et seq. and The opportunities and risks at KWS SAAT SE & Sections 315b et seq. of the German Commer- Co. KGaA are essentially the same as at the cial Code (HGB), KWS is obliged to prepare a KWS Group. It shares the risks of its subsidiaries Non-Financial Declaration for the parent company and associated companies in accordance with its KWS SAAT SE & Co. KGaA and the Group disclosing respective stake in them. You can find a detailed details of the business model and related material description of the opportunities and risks and corporate social responsibility (CSR) aspects (envi- an explanation of the internal control and risk ronmental issues, social issues, employee issues, management system on pages 74 to 79. human rights, and prevention of corruption and 84 Combined Management Report | 2.9 Report on KWS SAAT SE & Co. KGaA and NFD Annual Report 2018/2019 | KWS Group bribery), where these are necessary for an under- product innovations, plant and process safety, standing of the course of business, business results, recruitment and qualification, and business ethics the situation of KWS SAAT SE & Co. KGaA and the and compliance. KWS Group, and the effects on said aspects. The disclosures in the Combined Non-Financial Decla- The table below gives an overview of the CSR ration relate to both KWS SAAT SE & Co. KGaA and report aspects stipulated by law in accordance the KWS Group, unless otherwise specified. with Section 289c of the German Commercial Code (HGB) and other associated issues that require In order to identify issues that need to be reported reporting, as well as references to the sections in in the Non-Financial Declaration, the relevant which the required disclosures on concepts, results, issues based on a GRI materiality analysis in the risks and key performance indicators are made. We past fiscal year were systematically reassessed did not identify any issue that required reporting for to determine their impact on the environment and the aspect of social issues. We also did not identify society and on the position of the KWS Group. On any risks that exceeded the statutory materiality the basis of this analysis, various individual issues threshold defined in Section 289c (3) of the German were identified as material within the meaning of Commercial Code (HGB). In addition, the KWS Group the statutory regulations. Although the individual has not defined any non-financial performance indi- issues have changed from the previous year as cators relating to controlling at present. a result of the current analysis, they can still be grouped into the four issues used last year: We were guided by the GRI standards in preparing the Non-Financial Declaration. Index for the Non-Financial Declaration Required HGB disclosures Material issues for KWS Reference to sections Business model – Environmental issues Product innovations 2.1 Fundamentals of the KWS Group 2.4.1 Product Innovations 2.4.2 Use of genetic resources Plant and process safety 2.4.3 Plant and Process Safety Employee issues Recruitment and qualification 2.5.2 Recruitment and Qualification Corruption and bribery Business ethics and compliance 2.6.3 Business Ethics and Compliance Human rights Social issues Business ethics and compliance 2.6.3 Business Ethics and Compliance After an internal analysis for fiscal 2018/2019, this issue was regarded as not being material, so no disclosures have to be made on it. 2.9 Report on KWS SAAT SE & Co. KGaA and NFD | Combined Management Report 85 KWS Group | Annual Report 2018/2019 We grow by tackling the challenges of climate change. Just like our seed. We counter climate change with a change of attitude. And conduct intensive research on innovative varieties that equip farmers to deal with all eventualities and extremes. 3. Annual Financial Statements for the KWS Group 2018/2019 90 Statement of Comprehensive Income 91 Balance Sheet 92 Statement of Changes in Equity 94 Cash Flow Statement 95 Notes for the KWS Group 2018/2019 100 108 113 118 141 147 148 1. General Disclosures 2. Disclosures on the Annual Financial Report 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 152 Independent Auditor’s Report 157 Independent Auditor’s Limited Assurance Report 159 Declaration by Legal Representatives 160 Additional Information 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 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 Net gain/(loss) on equity instruments designated at fair value through other comprehensive income Remeasurement gain/(loss) in 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 €)1 1 Earnings per share of previous periods adjusted after share split. 90 Annual Financial Statements | Statement of Comprehensive Income Note no. 2018/2019 2017/2018 5.1 1,113,339 1,068,012 5.2 5.3 5.4 5.5 5.8 4.11 5.8 458,534 654,805 221,915 205,557 115,379 96,260 58,221 149,993 4,074 19,055 9,447 –5,534 144,459 40,439 104,020 446,063 621,949 201,537 197,696 95,793 65,668 60,035 132,556 4,046 12,026 13,414 5,434 137,990 38,333 99,657 0 261 1,592 2,753 4,345 632 –7,948 –7,316 –2,971 101,049 104,134 –114 104,020 101,160 –111 101,049 –28,913 –2,650 –31,302 0 –2,442 –2,442 –33,744 65,913 99,521 136 99,657 65,776 137 65,913 3.15 3.02 Annual Report 2018/2019 | 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 Contract assets IFRS 15 Other current assets Current assets Assets held for sale 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 Contract liabilities IFRS 15 Other current liabilities Current liabilities Liabilities held for sale Liabilities Total equity and liabilities Note no. 06/30/2019 06/30/2018 4.2 4.3 4.4 4.6 5.5 4.7 4.7 4.8 4.9 4.10 4.8 4.8 4.8 4.8 2.1 92,075 444,514 154,027 5,146 1,357 0 63,408 760,527 177,316 16,087 402,129 19,944 139,813 81,010 487,121 2,733 20,671 1,346,824 7,602 85,465 401,687 150,424 3,605 822 1 49,247 691,251 180,980 14,339 310,141 18,282 174,300 56,772 52,922 0 18,694 826,430 0 2,114,953 1,517,681 Note no. 06/30/2019 06/30/2018 4.12 4.11 5.5 4.13 4.14 2.1 99,000 5,530 856,315 2,702 963,547 145,446 182,270 782 16,416 258 19,206 364,378 50,192 475,425 88,495 48,927 17,392 18,804 86,035 785,270 1,758 1,151,406 2,114,953 19,800 5,530 853,640 2,813 881,783 127,833 168,698 968 19,342 288 17,194 334,323 42,311 61,287 75,721 39,171 11,288 0 71,797 301,575 0 635,898 1,517,681 Balance Sheet | Annual Financial Statements 91 KWS Group | Annual Report 2018/2019 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 Net gain/ (loss) on equity instru ments designated at fair value through other com- prehensive income Revalua- tion of defined benefit plans Other trans- actions 19,800 5,530 871,749 – 21,120 99,521 – 27,356 5,644 – 20 0 – 42,341 1,456 834,462 3,485 – 94 07/01/2017 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests Other changes 06/30/2018 Adjustment due to introduction of IFRS 9 (after tax) Adjustment due to IAS 29 (hyperinflation) 0 0 0 0 – 28,914 – 2,650 99,521 – 28,914 – 2,650 0 – 148 0 0 0 2,994 19,800 5,530 950,002 – 56,270 – 4,755 6,590 07/01/2018 adjusted 19,800 5,530 951,837 – 56,270 2,994 – 21,120 104,134 1,589 2,753 104,134 1,589 2,753 0 0 0 0 – 79,200 0 0 0 5,530 955,651 – 54,681 0 5,747 Dividends paid Net income for the year Other comprehensive income after tax Total consolidated gains (losses) Change in shares of minority interests Capital increase from company funds Other changes 06/30/2019 0 79,200 0 99,000 92 Annual Financial Statements | Statement of Changes in Equity 261 261 0 241 – 241 0 0 0 0 0 Adjust- ments Revaluation from of defined currency translation benefit plans Other trans- actions – 857 – 44,783 1,456 878,970 3,763 – 93 – 857 2,813 881,783 – 2,442 – 2,442 0 0 0 0 0 241 0 136 136 142 0 – 21,120 99,521 – 33,745 65,776 0 – 148 – 4,755 6,590 – 21,120 104,134 0 – 114 632 – 7,948 – 2,974 632 – 7,948 101,160 – 114 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 3 3 0 0 0 0 0 0 0 0 0 2,534 836,996 0 – 21,120 136 99,657 1 – 33,744 137 65,913 142 0 142 – 148 – 4,755 6,590 0 – 21,120 – 114 104,020 3 – 2,971 – 111 101,049 0 0 0 0 0 0 0 0 0 0 0 0 0 0 873 0 – 52,731 1,456 960,845 3,649 – 90 – 857 2,702 963,547 241 – 44,783 1,456 880,805 3,763 – 93 0 – 857 2,813 883,618 Annual Report 2018/2019 | KWS Group Parent company Parent company Minority interest Group equity Comprehensive other Group income Comprehensive other Group income Minority interest Total Comprehensive other Group income Total Net gain/ (loss) on equity instru ments designated at fair value through other com- prehensive income Revalua- tion of defined benefit plans Other trans- actions Adjust- ments from currency translation Revaluation of defined benefit plans 19,800 5,530 0 – 42,341 1,456 834,462 3,485 – 94 – 21,120 99,521 – 33,745 65,776 0 – 148 0 0 0 0 136 136 142 0 – 2,442 – 2,442 0 1 1 0 0 – 44,783 1,456 878,970 3,763 – 93 – 4,755 6,590 0 0 0 0 241 0 0 0 0 Other trans- actions – 857 0 0 0 2,534 836,996 0 – 21,120 136 99,657 1 – 33,744 137 65,913 142 0 142 – 148 – 857 2,813 881,783 0 0 – 4,755 6,590 07/01/2018 adjusted 19,800 5,530 951,837 – 56,270 2,994 241 – 44,783 1,456 880,805 3,763 – 93 0 – 857 2,813 883,618 Statement of Changes in Equity July 1 to June 30 in € thousand Subscribed capital Capital reserve Accumulated Group equity from earnings Adjustments from currency translation of equity- accounted financial assets 5,644 Reserve for available- for-sale financial assets – 20 Adjustments from currency translation – 27,356 07/01/2017 Dividends paid Net income for the year Other comprehensive income after tax (losses) Total consolidated gains Change in shares of minority interests Other changes 06/30/2018 Adjustment due to introduction of IFRS 9 (after tax) Adjustment due to IAS 29 (hyperinflation) Dividends paid Net income for the year Other comprehensive income after tax (losses) Total consolidated gains Change in shares of minority interests Capital increase from company funds Other changes 06/30/2019 – 28,914 – 2,650 99,521 – 28,914 – 2,650 19,800 5,530 950,002 – 56,270 0 2,994 871,749 – 21,120 99,521 0 – 148 – 4,755 6,590 – 21,120 104,134 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 261 261 0 241 – 241 0 0 0 0 0 0 – 21,120 – 114 104,020 3 – 2,971 – 111 101,049 0 0 0 0 0 0 0 0 – 857 2,702 963,547 0 0 0 0 – 114 – 21,120 104,134 – 2,974 101,160 – 114 0 0 0 0 0 0 0 0 3 3 0 0 79,200 – 79,200 99,000 5,530 955,651 – 54,681 0 5,747 0 873 1,589 2,753 104,134 1,589 2,753 632 – 7,948 632 – 7,948 – 52,731 1,456 960,845 3,649 – 90 0 Statement of Changes in Equity | Annual Financial Statements 93 KWS Group | Annual Report 2018/2019 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 (–) 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 Proceeds from long-term borrowings Repayment of long-term borrowings Changes from proceeds (+)/repayments (–) of short-term borrowings Net cash from financing activities Net cash changes in cash and cash eqivalents and restricted cash Changes in cash and cash equivalents and restricted cash due to exchange rate, consolidated group and measurement changes Cash and cash equivalents, including restricted cash, at beginning of year Cash and cash equivalents, including restricted cash, at end of year Reclassification of cash and cash equivalents due to IFRS 5 Less cash deposited in a trust account for the acquisition of Pop Vriend Seeds Group Cash and cash equivalents at end of year Thereof restricted cash and cash equivalents at end of year Note no. 2018/2019 2017/2018 104,020 99,657 48,723 17,480 – 43,232 21,253 200 54,127 – 63,074 49,864 2,421 – 4,740 – 44,290 34 34,250 – 16,451 – 145,506 – 55,500 70,293 8,566 72,850 2,733 – 86,728 166 – 9,735 168 – 711 – 1,128 – 95,235 – 21,120 405,763 – 27,000 46,859 404,502 382,117 20,708 12,110 98,062 1,592 – 55,133 1 – 12,535 227 – 744 – 1,479 – 68,071 – 21,120 4,431 – 30,816 22,221 – 25,284 4,707 109 – 3,494 192,582 574,808 – 379 – 414,672 159,757 125 191,369 192,582 0 0 192,582 65 6.1 6.2 6.3 6.4 94 Annual Financial Statements | Cash Flow Statement Annual Report 2018/2019 | KWS Group Notes for the KWS Group 2018/2019 The consolidated financial statements of KWS SAAT SE & Where appropriate, this report always refers to the company Co. KGaA (until July 2, 2019: KWS SAAT SE) and its sub- using the new name that has been in effect since the change in sidiaries were prepared on a going concern basis applying legal form on July 2, 2019, namely KWS SAAT SE & Co. KGaA. Section 315e of the German Commercial Code (HGB). They comply with the International Financial Reporting Standards Standards and interpretations applied for the first time (IFRS) as applicable in the European Union (EU). The following standards and interpretations had to be KWS SAAT SE & Co. KGaA, the ultimate parent company of the KWS Group, is an international company based Standards and interpretations applied for the first time applied for the first time in fiscal year 2018/2019. in Germany, has its headquarters at Grimsehlstraße 31, 37574 Einbeck, Germany, and is registered at Göttingen Local Court under the number HRB 205722. Since it was founded in 1856, KWS has specialized in developing, producing and distributing high-quality seed for agriculture. KWS covers the complete value chain of a modern seed producer – from breeding of new varieties, multiplication and processing, to marketing of the seed and consulting for farmers. KWS’ core competence is in breeding new, high-performance varieties that are adapted to regional needs, such as climatic and soil conditions. Change in KWS SAAT SE’s legal form to that of a Financial reporting standards and interpretations 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 partnership limited by shares The nature and effects of first-time application of the The Annual Shareholders’ Meeting of KWS SAAT SE new standards IFRS 15 “Revenue from Contracts with on December 14, 2018, adopted a resolution to convert Customers” and IFRS 9 “Financial Instruments” are KWS SAAT SE into a partnership limited by shares (KGaA) of presented in the following. The other standards and inter- the firm KWS SAAT SE & Co. KGaA. The change in legal form pretations to be applied for the first time did not result in any became effective on July 2, 2019, when it was registered in significant impact on the consolidated financial statements. the commercial register of Göttingen Local Court. This did not result in liquidation of the company or formation of a new IFRS 15: Revenue from Contracts with Customers legal entity. The company’s legal and economic identity was IFRS 15 supersedes IAS 11 “Construction Contracts,” retained. IAS 18 “Revenue” and all related interpretations. The new standard provides a five-step model for recognizing The change in legal form enables the KWS Group to safe- revenues from contracts with customers. The standard guard its independence and keep control of the company in requires that revenues are recognized at the amount of the hands of the family owners. As part of the change in legal expected consideration from the customer for the assumed form, the newly founded KWS SE, a European Company performance obligation (delivery of goods or provision of (Societas Europaea), joined the company as the general services) as soon as the company has transferred control partner. 80% of it is owned by associated companies of the over goods or services to a customer either over time or shareholder families C.-E. Büchting and Arend Oetker. The at a point in time. IFRS 15 also deals with the recognition shareholders received one share in KWS SAAT SE & Co. KGaA of costs to obtain or fulfill a contract and expands the for each share they held in KWS SAAT SE. As a result, the disclosure requirements in the Notes. stake of 55.3% held by the shareholder families C.-E. Büchting and Arend Oetker is preserved. There were no changes to the composition of the Executive Board of KWS SE and Super- visory Board of KWS SAAT SE& Co. KGaA. Notes for the KWS Group 2018/2019 | Annual Financial Statements 95 KWS Group | Annual Report 2018/2019 The KWS Group has adopted IFRS 15 using the modified Obligations from loyalty programs retrospective method. Adoption of IFRS 15 merely resulted The KWS Group offers various loyalty programs its in changes in presentation within the current assets and customers can participate in. They can exchange the current liabilities. In accordance with the modified retro- points they collect for various incentives (goods). Under spective method, the comparative information has not IFRS 15, such a loyalty program represents an option been adjusted and is still presented on the basis of the which is granted to customers to acquire additional goods accounting regulations that applied in the previous year. and services and which must in general be measured as a separate performance obligation at a stand-alone selling The KWS Group has applied IFRS 15 to all contracts that price. The pro-rata transaction price must be separated had not been fulfilled at July 1, 2018. from revenue and recognized if the points are redeemed The new balance sheet items “Contract assets” and “ Contract selling price will be recognized as a contract liability. liabilities” have been introduced to reflect the changes in There was solely a reclassification within the current presentation as a result of the adoption of IFRS 15. liabilities as part of first-time application of IFRS 15. by customers or forfeited. This allocated stand-alone The changes resulting from first-time application of IFRS 15 Obligations from granting of rebates relate to the following: The KWS Group grants rebates (early order discount, volume discount, pickup discount, etc.) to its customers Claims and obligations from expected returns of as part of various campaigns. They constitute a variable products consideration under IFRS 15. Variable rebates are In accordance with IFRS 15, a right of return to which estimated at their probable level. The obligations from customers are entitled represents a separate perfor- rebates are recognized as contract liabilities. First-time mance obligation under the sales contract and has to application of IFRS 15 resulted in a change in presentation be assessed separately. In addition, the new standard of the obligations as contract liabilities. requires presentation on a gross basis of the claims and obligations from rights of return to which customers are The impact of first-time application of IFRS 15 on the entitled. It results into a presentation of a contract asset individual balance sheet items is presented below. from the legal claim to receipt of the returned goods and a contract liability from the obligation to take back the goods supplied to the customer. Due to the existing right of the customer to return goods, revenue is reduced, and the corresponding performance obligation is recog- nized as a contract liability. The expected returns mean that KWS has a claim to receipt of the goods, which is recognized as a contract asset at the production costs. The rights of return were previously accounted for on a net basis through recognition of a provision. There is thus a reclassification within the current liabilities and a balance sheet extension due to first-time recognition of the contract assets. Adjustments to the balance sheet values from adoption of IFRS 15 in € thousand Carrying amount at 06/30/2019 Adjust- ment due to IFRS 15 Contract assets1 2,733 2,733 Contract liabilities 18,804 18,804 Carrying amount without applica- tion of IFRS 15 0 0 Short-term provisions Other current liabilities 0 0 –15,125 15,125 –946 946 1 The carrying amount for the contract assets results from the obligations from rights of return carried previously in the short-term provisions on a gross basis. 96 Annual Financial Statements | Notes for the KWS Group 2018/2019 Annual Report 2018/2019 | KWS Group IFRS 9: Financial Instruments Classification and measurement IFRS 9 “Financial Instruments” supersedes IAS 39 Financial assets are classified in accordance with IFRS 9 on “ Financial Instruments: Recognition and Measurement.” the basis of the Group’s business model for their managing The standard includes new regulations on classifying and and the characteristics of the related contractual cash measuring financial assets and their impairment losses, flows from the financial assets. Under KWS’ business and financial liabilities. The standard also amends the model, financial assets are generally held to maturity. Since regulations on hedge accounting. the cash flows received usually constitute interest and repayment of the receivable, the assets are still measured at The KWS Group has introduced the standard on the basis amortized cost in the vast majority of cases, especially for of the modified retrospective method, meaning any effects trade receivables and other financial assets. from the change have been recognized cumulatively through adjustment of the retained earnings at July 1, 2018. The The effects of the change in requirements for classifying comparative amounts of the prior period were not adjusted. financial assets at July 1, 2018, are presented below: Reclassifications as a result of adoption of IFRS 9 at July 1, 2018 in € thousand Measurement category in accordance with IFRS 9 at 07/01/2018 Carrying amounts at 06/30/2018 Amortized cost Fair value through other comprehen- sive income Fair value through profit or loss Measurement categories in accordance with IAS 39 Loans and receivables Trade receivables1 Cash and cash equivalents1 Other financial assets Financial assets held for trading 310,141 174,300 47,618 304,150 174,115 47,618 Derivatives with a positive market value 5,304 Available-for-sale financial assets Financial assets Securities Financial liabilities measured at amortized cost Financial liabilities Trade payables 3,605 18,282 239,164 76,689 Financial liabilities held for trading Derivatives with a negative market value 2,397 1 The change in the carrying amount is due to the inclusion of additional impairment losses in accordance with IFRS 9. The classification and measurement of financial liabilities in the consolidated financial statements of KWS SAAT SE & Co. KGaA remain unchanged. 3,605 18,282 239,164 76,689 5,304 2,397 Notes for the KWS Group 2018/2019 | Annual Financial Statements 97 KWS Group | Annual Report 2018/2019 Impairment losses The adjustment for expected credit risks from trade receiv- The new regulations in IFRS 9 on recognizing of allowance ables at the transition date amounted to €5,991 thousand. After for credit losses relating to financial assets, including trade recognition of deferred tax assets totaling €1,237 thousand, receivables, are based on expected losses (expected loss the net effect amounted to €4,754 thousand. The latter figure model). Impairments were previously recognized only if includes a small effect from measurement of other financial losses had already been incurred (incurred loss model). assets, mainly cash and cash equivalents at banks. That is At July 1, 2018 the credit default rates amounting from payable on demand) and the good ratings of investment grade due to the short times in which they are due (usually balances 0.55% to 4.11% for not overdue trade receivables and banks. amounting from 2.18% to 11.39% for trade receivables overdue up to 180 days were applied. The following table presents a reconciliation of the closing balance of the allowance for credit losses at June 30, 2018, to the opening balance at July 1, 2018. Reconciliation of the final balance for impairment losses in accordance with IAS 39 to the opening balance of the impairment losses in accordance with IFRS 9 in € thousand Loans and receivables in accordance with IAS 39/ financial assets measured at amortized cost in accordance with IFRS 9 Cumulative impairment losses at 06/30/2018 (IAS 39) Remeasurement (IFRS 9 impairment model) Cumulative impairment losses at 07/01/2018 (IFRS 9) 31,996 5,991 37,987 Hedge accounting Standards and interpretations to be applied in future The modified regulations on hedge accounting are more The following standards and interpretations, or revisions strongly geared toward the Group’s risk management of standards or interpretations, were not applied in the strategy. The new regulations do not have any impact, since reporting year, since their application for the fiscal year the KWS Group does not currently report any transactions 2018/2019 was not yet mandatory or they have not yet been that qualify for hedge accounting. adopted by the EU: Standards and Interpretations to be applied in future Financial reporting standards and interpretations Mandatory first-time application IFRS 16 – “Leases” IFRIC 23 – “Uncertainty over Income Tax Treatments” Amendments to IFRS 9 – “Prepayment Features with Negative Compensation” Amendments to IAS 19 – “Plan Amendment, Curtailment or Settlement” Fiscal year 2019/20 Fiscal year 2019/20 Fiscal year 2019/20 Fiscal year 2019/20 Amendments to IAS 28 – “Long-term Interests in Associates and Joint Ventures” Fiscal year 2019/20 Annual Improvements to the International Financial Reporting Standards (2015–2017 cycle) Amendments to IFRS 3 – “Business Combinations” Amendments to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” Conceptual Framework for Financial Reporting and Amendments to References to the Conceptual Framework in IFRS Standards IFRS 17 – “Insurance Contracts” Fiscal year 2019/20 Fiscal year 2020/21 Fiscal year 2020/21 Fiscal year 2020/21 Fiscal year 2021/22 98 Annual Financial Statements | Notes for the KWS Group 2018/2019 Annual Report 2018/2019 | KWS Group In January 2016, the IASB published the standard IFRS 16 As part of first-time application of IFRS 16, KWS “Leases”, which will replace the current standard IAS 17 anticipates that recognition of the rights of use will result “Leases” and the related interpretations. It was adopted in an increase in fixed assets along with a corresponding into European law in October 2017. increase in financial liabilities due to the fact that lease liabilities probably totaling around €40 million will be IFRS 16 introduces a single lease accounting model, carried. That will result in a rise in net financial debt and a requiring lessees to recognize assets and liabilities for decline in the equity ratio by one percentage point. all leases. The previously required distinction between finance and operating leases no longer applies to the The operating lease expenses, which have been carried lessee. In the future, all rights and obligations from leases under operating result up to now, will be carried in the are to be recognized as right-of-use assets (right-of-use future as depreciation of the rights of use and interest approach) and lease liabilities in the balance sheet. The only expenses from unwinding of discount from the lease exceptions are for short-term leases of one year or less and liabilities. This shift within the statement of comprehensive for “small ticket leases.” KWS will exercise these exemptions income means there will be an anticipated improvement permitted under IFRS 16. The approach to lessor accounting in operating income of €5 million in total over the adopted in IFRS 16 is substantially unchanged from that in remaining term of the lease obligations to be recognized IAS 17, meaning the lessor still has to distinguish between at July 1, 2019. In the cash flow statement, adoption of finance and operating leases. Companies in the KWS Group IFRS 16 will decrease operating cash outflows, as a result mainly act as lessees. of which the net cash from operating activities will improve. At the same time, payments of principal and interest will be KWS will apply IFRS 16 for the first time at July 1, 2019, included in the net cash flows from financing activities and using the modified retrospective method. Accordingly, the so will reduce it. comparative amounts are not adjusted and the cumulative effects from the change are recognized directly in equity In addition, IFRS 16 entails new obligations to disclose through adjustment of retained earnings. qualitative and quantitative information. All contracts that have been classified as an operating As far as can be ascertained at present, the other changes lease to date and are not covered by the exemptions to the financial reporting standards and interpretations will permitted by IFRS 16, will be carried in the balance sheet not have a significant impact on the consolidated financial by recognition of a right of use and a lease liability. The statements of the KWS Group. level of the lease obligation is ascertained using the present value of lease payments that have not yet been made. The relevant incremental borrowing rate is applied in discounting. The amount for the right of use will comprise in general the value of the corresponding lease liability after adjustment for the lease payments up to the time of adoption. Notes for the KWS Group 2018/2019 | Annual Financial Statements 99 KWS Group | Annual Report 2018/2019 1. General Disclosures Joint ventures are accounted for using the equity method in application of IFRS 11 and IAS 28. The basis for a joint venture 1.1 Companies consolidated in the KWS Group is a contractual agreement with a third party to manage a joint The consolidated financial statements of the KWS Group venture together. In the case of joint ventures, the parties who include the single-entity financial statements of exercise joint management have rights to the net assets of the KWS SAAT SE & Co. KGaA and its subsidiaries in agreement. Germany and other countries, as well as joint ventures and associated companies, which are carried using the equity In the case of joint ventures carried in accordance with the method, and joint operations. A company is a subsidiary, equity method, the carrying amount is increased or reduced if KWS SAAT SE & Co. KGaA has existing rights that annually by the equity capital changes corresponding to give it the current ability to control its relevant activities. the KWS Group’s share. In the case of first-time recognition Relevant activities are the activities that significantly affect of equity investments using the equity method, differences the company’s returns. Control therefore only exists if from first-time consolidation are treated in accordance KWS SAAT SE & Co. KGaA has the ability to use its power with the principles of full consolidation. The changes in the to affect the amount of the variable returns. Control can proportionate equity that are recognized in profit or loss are usually be derived from holding a majority of the voting included, along with impairment of goodwill, under the item rights directly or indirectly. Details on the changes in the “Income from equity-accounted financial assets” in the net consolidated group are provided in the section Disclosures financial income/expenses. Associated companies in which on the Consolidated Financial Statements – Consolidated a stake between 20% and 50% is held are likewise measured group and changes in the consolidated group. using the equity method. 1.2 Consolidation methods As part of the elimination of intra-Group balances, borrowings, The single-entity financial statements of the individual sub- receivables, liabilities, and provisions are netted between the sidiaries included in the consolidated financial statements consolidated companies. Intercompany profits not realized and the single-entity financial statements of the joint ventures at Group level are eliminated from intra-Group transactions. and associated companies included using the equity method Sales, income, and expenses are netted between and of the proportionately consolidated joint operations consolidated companies, and intra-Group distributions of were uniformly prepared on the basis of the accounting and profit are eliminated. measurement policies applied at KWS SAAT SE & Co. KGaA; they were audited by independent auditors. For company Deferred taxes on consolidation transactions recognized acquisitions, capital consolidation follows the purchase in income are calculated at the tax rate applicable to the method by allocating the cost of acquisition to the Group’s company concerned. These deferred taxes are aggregated interest in the subsidiary’s remeasured equity at the time with the deferred taxes recognized in the separate financial of acquisition. Any excess of interest in equity over cost is statements. recognized as an asset, up to the amount by which fair value exceeds the carrying amount. Any goodwill remaining after Minority interests are recognized in the amount of the imputed first-time consolidation is recognized under intangible assets. percentage of equity in the consolidated companies. 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 subsidiaries are carried at cost. 100 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 1. General Disclosures Annual Report 2018/2019 | KWS Group 1.3 Currency translation Under IAS 21, the financial statements of the consolidated foreign group companies that conduct their business as financially, economically, and organizationally indepen- dent entities are translated into euros using the functional currency method and rounded in accordance with standard commercial practice as follows: Income statement items at the average exchange rate for the year; Balance sheet items at the exchange rate on the balance sheet date. The following exchange rates were applied in the consoli- dated financial statements for the main foreign currencies relative to the euro: Exchange rates for main currencies 1 EUR/ ARS¹ BRL GBP RUB UAH USD Argentina Brazil UK Russia Ukraine USA Rate on balance sheet date Average rate 06/30/2019 06/30/2018 2018/2019 2017/2018 48.60240 32.66250 48.60240 23.91751 4.34750 0.89720 71.81790 29.73024 1.13830 4.49640 0.88590 72.99210 30.56800 1.16410 4.41256 0.88235 74.91476 31.27778 1.14186 3.98728 0.88563 70.25821 31.85345 1.19399 1 The average rate corresponds to the rate at balance sheet date due to application of IAS 29 for KWS ARGENTINA S.A. The difference resulting from the application of annual The IPC was 144.81 points at July 1, 2018 and rose average rates to the net profit for the period in the income by 55.7% in the current fiscal year to 225.54 points at statement is taken directly to equity. According to IAS 21, June 30, 2019. exchange differences resulting from loans to foreign subsidiaries are reported in the Other comprehensive 1.4 Classification of the statement of income and are not recognized in profit or loss. comprehensive income Argentina was classified as a hyperinflationary economy the cost-of-sales method. The costs for the functions for the first time this fiscal year, as a result of which IAS 29 include all directly attributable costs, including other taxes. “Financial Reporting in Hyperinflationary Economies” was Research & development expenses are reported separately applied to KWS ARGENTINA S.A. First-time application for reasons of transparency. The KWS Group has prepared the income statement using of the standard resulted in an adjustment to the carrying amounts for non-monetary assets and liabilities using the general consumer price index IPC (Índice de precios al consumidor). The effects from the first-time application of IAS 29 are recognized in equity. Gains and losses from current inflation of non-monetary assets and liabilities and of equity are recognized in the income statement. 1. General Disclosures | Notes for the KWS Group 2018/2019 | Annual Financial Statements 101 KWS Group | Annual Report 2018/2019 1.5 Accounting policies The level of the promised consideration is not adjusted by the effects of a financing component because the period for 1.5.1 Consistency of accounting policies payment is usually less than 12 months. Consistent accounting policies are used in the annual financial statements of the companies included in the con- The incremental costs of obtaining a contract are recognized solidated financial statements. They remained the same as as a current expense in the period. in the previous year, with the exception of the IFRS 9 and IFRS 15 standards, which had to be adopted, and first-time Income from service transactions is recognized over the application of IAS 29 for KWS ARGENTINA S.A. period of time in which the service is provided and so carried on an output-oriented basis using the percentage of All estimates and assessments as part of accounting and completion method. Other income, such as interest, royalties measurement are continually reviewed; they are based and dividends, is recognized in the period in which it accrues on historical patterns and expectations about the future as soon as there is a contractual or legal entitlement to it. regarded as reasonable in the particular circumstances. Performance-based public grants are recognized as part of 1.5.2 Recognition of income and expenses other operating income. Revenue from contracts with customers is mainly generated from the sale of seed. It is recognized when KWS transfers Operating expenses are recognized in the income statement control over products to the customer. That is usually the time upon the service being used or as of the date on which they when risk passes to the customer. The income is recognized are being incurred. at the amount of the consideration promised in the contract. 1.5.3 Intangible assets The KWS Group’s contracts with customers do not usually Purchased intangible assets are carried at cost less have any significant separable performance obligations straight-line amortization and impairment losses. It is apart from the delivery of seed. Consequently, splitting of the necessary to examine whether the useful life of intangible transaction price is not required for most of the KWS Group’s assets is finite or indefinite. Goodwill has an indefinite contracts with customers. Accordingly, the total purchase useful life. Goodwill and intangible assets with an price must be recognized at a point in time. indefinite useful life are not amortized, but tested for impairment at least once a year. If the contracts specify further performance obligations, such as granting of rebates, rights of return and bonus points, in Intangible assets acquired as part of business combi- addition to seed delivery, they must be measured separately. nations are carried separately from goodwill if they are The KWS Group uses empirical country-specific and separable according to the definition in IAS 38 or result seasonal rates and information on already announced returns from a contractual or legal right. to estimate the anticipated returns. 102 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 1. General Disclosures Annual Report 2018/2019 | KWS Group The service life of intangible assets is as follows: Low-value assets are fully expensed in the year of purchase; 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 they are reported as additions and disposals in the year of purchase in the statement of changes in fixed assets. Impairment losses on property, plant, and equipment are recognized according to IAS 36 whenever the recoverable amount of the asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell or the value in use. If the reason for an earlier impairment loss on property, plant, and equipment no longer applies, its value is increased to up to the amount that would have resulted if the impairment loss had not occurred, taking 1.5.4 Property, plant, and equipment depreciation into account. In accordance with IAS 20, Property, plant, and equipment is measured at cost less government grants for assets are deducted from the costs straight-line depreciation and impairment losses. Depreciation of the asset. Any deferred income is not recognized. of an asset commences when the asset is at its location and is in the condition necessary for it to be capable of operating in The residual values, useful economic lives and methods the manner intended by management. Depreciation of an asset of depreciation for property, plant, and equipment are ends when the asset has been fully expensed or is classified reviewed at the end of each fiscal year and adjusted as held for sale in accordance with IFRS 5 or at the latest when prospectively if necessary. it is derecognized. 1.5.5 Leases If property, plant, and equipment is sold or scrapped, the profit A lease is an agreement whereby the lessor conveys the or loss from the difference between the proceeds and residual right to use an asset for an agreed period of time to the carrying amount is recognized under the other operating lessee in exchange for a payment or a series of payments. income or other operating expenses. A distinction is made between finance leases and operating In addition to directly attributable costs, the cost of self- which all the risks and rewards incidental to ownership of produced plant or equipment also includes a proportion of the an asset are transferred to the lessee. Otherwise a lease overheads and depreciation/amortization. is classified as an operating lease. An assessment as to leases. A finance lease relates to leasing transactions in Useful life of property, plant and equipment lease is made when the contract is concluded. whether the agreement is a lease or an agreement involves a Buildings Operating equipment and other facilities Technical equipment and machinery Laboratory and research facilities Other equipment, operating and office equipment Useful life 10 – 50 years 5 – 25 years 5 –15 years 5 –13 years 3 –15 years 1. General Disclosures | Notes for the KWS Group 2018/2019 | Annual Financial Statements 103 KWS Group | Annual Report 2018/2019 If the KWS Group is the lessee in a finance lease, the lower value through other comprehensive income. All the other of the asset’s fair value and the present value of the minimum financial instruments are classified in the category “at fair lease payments at the start of the lease is capitalized in value through profit or loss.” There is also the option of the balance sheet and simultaneously recognized under designating the debt instrument at the initial recognition as the financial liabilities. The minimum lease payments are being measured at fair value through other comprehensive divided into a repayment component of the residual debt income under certain conditions. and financing costs, which are determined in accordance with the effective interest method. The leased asset is written The financial assets consist of bank balances and cash down using the straight-line method of depreciation over its on hand, trade receivables, loans, fund shares, securities, estimated useful life or the term of the contract, whichever is derivatives and other financial assets. Regular-way shorter. An operating lease is a lease that does not involve a purchases and sales of financial assets are recognized finance lease. Lease payments under an operating lease are or derecognized in general using the settlement date recognized as operating expense in the income statement on accounting. Fund shares and securities are measured a straight-line basis over the lease’s term. at fair value through other comprehensive income. The 1.5.6 Financial instruments recognized as unrealized gains and losses directly in other changes to fair value in subsequent measurement are Classification and measurement Apart from equity instruments, financial instruments are The other financial assets are measured at amortized financial assets and financial liabilities. cost. The carrying amount of receivables, fixed-income securities and cash is assumed as the fair value due to When financial assets are recognized for the first time, their short term and the fixed-interest structure of the comprehensive income. they are assigned to one of the following three categories investments. for the purpose of subsequent measurement: at amortized cost, at fair value through other comprehensive income, or Impairment losses at fair value through profit or loss. The credit risk is the risk that a contractual partner does not fulfill its payment obligations as part of a financial Equity instruments are generally measured at fair value instrument. The credit risks are monitored and controlled through profit or loss, unless an option to irrevocably constantly and reflected by means of impairment losses. classify them at the initial recognition as being measured The KWS Group ascertains the need to recognize an at fair value through other comprehensive income is impairment loss for all financial assets not classified in exercised. Such option is available if the equity instrument the category “at fair value through profit or loss.” That is neither held for trading nor contingent consider- is calculated on the basis of the expected losses. The ation recognized in a business combination. The debt expected losses are in general the present value resulting instruments are classified taking into account KWS’ busi- from the difference between the cash flows defined in the ness model for managing these financial assets and contract and the cash flows KWS expects to receive. their contractual cash flow characteristics. A financial asset is measured at amortized cost if it is held with the objective of collecting contractual cash flows and the latter comprise solely payments of interest and principal. If the financial assets are held as part of the business model to collect contractual cash flows and sell the financial instruments, these are classified as being measured at fair 104 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 1. General Disclosures Annual Report 2018/2019 | KWS Group In general, a two-stage model must be applied in calcu- Changes to the level of the risk provision must be carried in lating the expected losses. If the credit risk on financial the income statement as a reversal of an impairment loss instruments has not increased significantly, the allowance or as an impairment loss. is recognized only on the basis of losses resulting from default events within the next 12 months. In the case of The financial liabilities mainly comprise trade payables, financial instruments whose credit risk has increased loans from banks, derivatives and other financial liabilities. significantly since initial recognition, the entire remaining At the initial recognition financial liabilities are classified lifetime is used to calculate the expected losses. as being measured at fair value through profit or loss KWS uses a simplified approach under IFRS 9 to determine value. The fair value of financial liabilities with a long-term the expected losses because the financial assets mainly fixed interest rate is determined as present values of the consist of short-term trade receivables. For initial and payments related to the liabilities, using a yield curve subsequent measurement of receivables, entire lifetime applicable on the balance sheet date. expected credit losses therefore, are taken into account. or at amortized cost. They are measured initially at fair All financial liabilities at the KWS Group, with the exception The KWS Group determines the expected counterparty of derivative financial instruments, are measured at default on the basis of the probability of default and the amortized cost using the effective interest method. The loss rate in the event of default. liabilities are derecognized at the time they are settled, cancelled or expired. The probability of default is in general determined on the basis of customer-specific ratings. The probability of Financial instruments in level 1 are measured using quoted default relates to a year, which is usually the maximum prices in active markets for identical assets or liabilities. In lifetime of receivables at the KWS Group. Since specific level 2, they are measured by directly observable market ratings are not available for all customers, an average inputs or derived indirectly on the basis of prices for similar rating based on all rated customers is calculated for each instruments. Finally, input factors not based on observable country, regardless of the receivable balance per customer. market data are used to calculate the value of level 3 This rating is then applied accordingly to the total amount financial instruments. of receivables in the country. If that information is not available for a country, the average rating of a country with a comparable risk is applied. The loss rate is the percentage loss in the event of default and corresponds to the amount of the unpaid receivables less an expected recovery rate. KWS applies a uniform recovery rate determined regardless of customer group, due date and country over a long period of time and over a broad total number of company insolvencies. 1. General Disclosures | Notes for the KWS Group 2018/2019 | Annual Financial Statements 105 KWS Group | Annual Report 2018/2019 1.5.7 Derivatives same tax creditor and have the same due date. Deferred The KWS Group has not designated any existing derivatives tax assets are recognized if it can be assumed that they as a hedging instrument. will be used in the future. Deferred tax liabilities must be set up for all taxable temporary differences. All deferred Derivative instruments are measured at fair value; they taxes must be assessed individually at each balance sheet can be assets or liabilities. Common derivative financial date. Under IAS 12, deferred taxes are calculated on the instruments are essentially used to hedge interest rate basis of the applicable local income tax anticipated at the and foreign currency risks. The fair value of the derivative time of reversal. No discounting is carried out. financial instruments is measured on the basis of the market information available on the balance sheet date and using 1.5.10 Provisions for income taxes recognized mathematical models, such as present value The provisions for income taxes comprise obligations from or Black-Scholes, to calculate option values, taking their current income taxes. They are measured on the basis of a volatility, remaining maturity and capital market interest best-possible assessment of the future amount to be paid. rates into account. The instruments must also be classified Deferred taxes are carried in a separate balance sheet in a level of the fair value hierarchy. item. The changes in their market value are recognized in the 1.5.11 Provisions for pensions and other employee income statement. Derivatives are derecognized on their day benefits of settlement. The provisions for pensions and other employee benefits are calculated using actuarial principles in accordance 1.5.8 Inventories and biological assets with the projected unit credit method. Actuarial gains Inventories are measured at the lower of cost or net realiz- and losses must be recognized directly in equity in Other able value less an allowance for obsolescent or slow-moving comprehensive income. The service costs, including the items. In addition to directly attributable costs, the cost of past service costs, are recognized in operating income sales also includes indirect labor and materials including in accordance with the employees’ assignment to the depreciation under IAS 2. Under IAS 41, biological assets functions. If there are planned assets, they are netted off are measured at fair value less the estimated costs to sell. against the associated obligations. Immature biological assets are carried as inventories as of the time they are harvested. The measurement procedure used is The provisions for semi-retirement include obligations from based on standard industry value tables. concluded semi-retirement agreements. Payment arrears 1.5.9 Deferred taxes and top-up amounts for semi-retirement pay and for the contributions to the statutory pension insurance program Deferred taxes are calculated in accordance with IAS 12. are recognized in measuring them. Deferred taxes are calculated on differences between the carrying amounts of assets and liabilities in the consoli- 1.5.12 Other provisions dated balance sheet and their tax base, and on carried Provisions are set up if current obligations have accrued from forward tax losses. Deferred tax assets are netted off past events and it is likely that they will be utilized. In addition, against deferred tax liabilities, provided they relate to the it must be possible to estimate the amount of the anticipated obligation reliably. 106 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 1. General Disclosures Annual Report 2018/2019 | KWS Group Provisions are measured at their expected amount or most 1.5.15 Discretionary decisions and estimates likely amount, depending on whether they comprise a large The measurement approaches and amounts to be carried in number of items or constitute a single obligation. Provisions these IFRS financial statements are partly based on estimates are reviewed regularly and adjusted to reflect new findings and specifically defined specifications. This relates in or changes in circumstances. If it is no longer likely that a particular to the following discretionary decisions: provision will be utilized or the conditions for why it was set up no longer apply, expense-related provisions are reversed Determination of the useful life of the depreciable asset against the original expense item and revenue- related Definition of measurement assumptions and future provisions are reversed against revenue. If the reversal results in connection with impairment tests, above all for amount is material and so the effect not related to the capitalized goodwill period must be classified as material, the reversal is Assessment whether write-down of inventories is required carried as income from the reversal of provisions under Definition of the parameters required for measuring other operating income not related to the period. pension provisions Long-term provisions are discounted taking into account ment of derivatives future cost increases and using a market interest rate that Determination whether tax losses carried forward can be adequately reflects the risk, insofar as the interest effect is used Selection of parameters for the model-based measure- material. 1.5.13 Contingent liabilities Determination of the fair value of intangible assets, tangible assets and liabilities acquired as part of a busi- ness combination and determination of the service lives of The contingent liabilities result from debt obligations where the purchased intangible assets and tangible assets outflow of the resource is not probable, or the level of the Measurement of other provisions obligation cannot be estimated with sufficient reliability Calculation of the expected returns from customers at the or from obligations for loan amounts drawn down by third balance sheet date parties as of the balance sheet date. 1.5.14 Borrowing costs from the assumptions. In accordance with IAS 23, borrowing costs are capitalized if they can be classified as qualifying assets. The Executive Board of KWS Group prepared the consolidated Despite careful estimates, the actual development may deviate financial statements on September 24, 2019, and released them for distribution to the Supervisory Board. The Super visory Board has the task of examining the consolidated financial statements and declaring whether it approves them. 1. General Disclosures | Notes for the KWS Group 2018/2019 | Annual Financial Statements 107 KWS Group | Annual Report 2018/2019 2. Disclosures on the Annual Financial Statements Number of companies including KWS SAAT SE & Co. KGaA Germany Abroad Total Germany Abroad Total 06/30/2019 06/30/2018 Fully consolidated Equity method Joint operation Total 14 0 0 14 50 3 8 61 64 3 8 75 14 0 0 14 48 3 6 57 62 3 6 71 2.1 Consolidated group and changes in the in the consolidated financial statements, to J.R. Simplot consolidated group Company, U.S. The KWS Group has since held a 50% stake The merger of KWS SERVICES WEST S.L.U., Barcelona, in the newly founded company Aardevo B.V., which consti- Spain, with the transferee KWS SAAT SE & Co. KGaA tutes a joint arrangement with J.R. Simplot Company and took effect when KWS SAAT SE changed its legal form to was included in the KWS Group’s consolidated financial KWS SAAT SE & Co. KGaA and that change was registered statements as a joint operation effective February 1, 2019. in the commercial register. The related resolution was Consequently, the previously fully consolidated subsidiary adopted by the Shareholders’ Meeting of KWS SERVICES KWS Potato B.V. was deconsolidated and the new joint WEST S.L.U. on January 25, 2019. Thereafter, the require- operation Aardevo B.V. was consolidated proportionately. The ments for a merger in accordance with the merger certificate two shareholders have since conducted research & develop- dated March 14, 2019 were fulfilled. Accordingly, the merger ment activities under joint management with the aim of was carried out retroactively effective July 1, 2018. creating extremely high-performing potato varieties by means of hybrid breeding. The development costs are born equally KWS INTERNATIONAL HOLDING B.V., Emmeloord, the by the partners. Nether lands, was established in August 2018. The sub- sidiary was fully consolidated in the consolidated financial Intangible assets with a fair value of €5,932 thousand at the statements. time of acquisition were identified as part of purchase price allocation. Allowing for deferred tax liabilities (€1,216 thou- O.O.O. KWS KUBAN, Krasnodar, Russia, and sand) and other assets (€13 thousand), net assets totaled O.O.O. KWS SEED PLANT, Lipetsk, Russia, were estab- €4,729 thousand. The transferred consideration from the lished in September 2018. The two subsidiaries were fully KWS Group’s perspective is the fair value of the stake it consolidated in the consolidated financial statements. surrendered in the joint arrangement (€5,284 thousand). That resulted in goodwill totaling €555 thousand, which relates to At January 31, 2019, the KWS Group sold 50% of its shares the additional economic benefit as a result of joint research & in KWS POTATO B.V. (in future AARDEVO B.V.), Nagele, development. Netherlands, which had previously been fully consolidated 108 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 2. Disclosures on the Annual Financial Statements Annual Report 2018/2019 | KWS Group AARDEVO NORTH AMERICA LLC, Boise, U.S., was The table below presents the main groups of assets and established as a wholly-owned subsidiary of Aardevo B.V. in liabilities: February 2019. The company is included as a joint operation in the KWS Group’s consolidated financial statements proportionately at 50%. Assets and liabilities classified as held for sale in € thousand 06/30/2019 06/30/2018 KWS VEGETABLES B.V., Heythuysen, the Netherlands, was established in May 2019 and included as a fully consolidated subsidiary. Disposal group In mid-January 2019, the KWS Group decided to sell its 51% stake in RAZES HYBRIDES S.A.R.L., Alzonne, France. The sale to the second shareholder Agricole Arterris SCA was Intangible assets and property, plant, and equipment Inventories and trade receivables Cash and cash equivalents Current tax assets and other assets Assets held for sale Long-term provisions and non- current financial liabilities completed on July 3, 2019, i.e. after the balance sheet date. Deferred tax liabilities All the assets of RAZES HYBRIDES S.A.R.L. were classified Short-term provisions and current financial liabilities as held for sale. They were still measured at their carrying Trade payables amount, since it is lower than the fair value of the equity Other current liabilities 6,496 6,692 176 379 551 7,602 263 175 244 740 336 175 848 587 8,302 291 271 287 941 395 share. The fair value was determined on the basis of the sales price less costs to sell. Liabilities classified as held for sale 1,758 2,185 The accumulated loss recognized directly in the other comprehensive income at June 30, 2019, was €38 thousand. 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2018/2019 | Annual Financial Statements 109 KWS Group | Annual Report 2018/2019 List of shareholdings in accordance with Section 313 (2) HGB (German Commercial Code) Fiscal year 2018/2019 Name and Company’s registered office Currency Interest held Total in % Footnote 1 1 1 1 1 1 1 1 Fully consolidated subsidiaries (direct) Germany KWS LOCHOW GMBH, Bergen KWS INTERSAAT GMBH, Einbeck AGROMAIS GMBH, Everswinkel KWS KLOSTERGUT WIEBRECHTSHAUSEN GMBH, Northeim-Wiebrechtshausen KWS LANDWIRTSCHAFT GMBH, Einbeck RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH, Einbeck KWS SAATFINANZ GMBH, Einbeck DELITZSCH Pflanzenzucht GmbH, Einbeck EURO-HYBRID GMBH, Einbeck KWS SERVICES DEUTSCHLAND GMBH, Einbeck BETASEED DEUTSCHLAND GMBH, Frankfurt KANT-HARTWIG & VOGEL GMBH, Einbeck KWS BERLIN GMBH, Berlin Foreign KWS SRBIJA D.O.O., New Belgrade/Serbia KWS CHILE LTDA., Rancagua/Chile KWS MAGYARORSZÁG KFT., Gyo˝ r/Hungary KWS FRANCE S.A.R.L., Roye/France KWS SEMENA S.R.O., Bratislava/Slovakia KWS SUISSE SA, Basel/Switzerland KWS ITALIA S.P.A., Forlì/Italy KWS POLSKA SP.Z O.O., Poznan´ /Poland KWS OSIVA SRO, Velké Mezirici/Czech Republic KWS SJEME D.O.O., Pozega/Croatia KWS BULGARIA E.O.O.D., Sofia/Bulgaria KWS BENELUX B.V., Amsterdam/Netherlands KWS ARGENTINA S.A., Balcarce/Argentina KWS AUSTRIA SAAT GMBH, Vienna/Austria KWS MAIS FRANCE S.A.R.L., Champol/France KWS SERVICES EAST GMBH, Vienna/Austria KWS R&D INVEST B.V., Emmeloord/Netherlands € € € € € € € € € € € € € RSD CLP HUF € € CHF € PLN CZK HRK BGN € ARS € € € € 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 110 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 2. Disclosures on the Annual Financial Statements Annual Report 2018/2019 | KWS Group Fiscal year 2018/2019 Name and Company’s registered office Currency Interest held Total in % Footnote Fully consolidated subsidiaries (indirect) Foreign BETASEED INC., Bloomington/U.S. BETASEED FRANCE S.A.R.L., Bethune/France GLH SEEDS Inc., Bloomington/U.S. KWS CEREALS USA LLC., Champagne/U.S. KWS UK LTD., Thriplow/UK KWS PERU S.A.C., Lima/Peru KWS SEMINTE S.R.L., Bukarest/Romania KWS SCANDINAVIA A/S, Guldborgsund/Denmark O.O.O. KWS RUS, Lipezk/Russia O.O.O. KWS R&D RUS, Lipezk/Russia KWS SEMILLAS IBÉRICA S.L., Zaratán/Spain KWS SEEDS INC., Bloomington/U.S. KWS TÜRK TARIM TICARET A.S., Eskisehir/Turkey KWS UKRAINE T.O.W., Kiew/Ukraine KWS LOCHOW POLSKA SP.Z O.O., Kondratowice/Poland RAZES HYBRIDES S.A.R.L., Alzonne/France KWS GATEWAY RESEARCH CENTER LLC., St. Louis/U.S. KWS AGRICULTURE SCIENCE AND TECHNOLOGY RESEARCH AND DEVELOPMENT (Anhui) Co. Ltd., Hefei/China KWS International Holding B.V., Emmeloord/Netherlands KWS Vegetables B.V., Heythuysen/Netherlands KLEIN WANZLEBENER SAATZUCHT MAROC S.A.R.L.A.U. Casablanca/Morocco RIBER KWS SEMENTES LTDA., Curitiba/Brazil KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA., São Paulo/Brazil KWS SERVICES NORTH AMERICA LLC., Bloomington/U.S. KWS PODILLYA T.O.W., Kiew/Ukraine BEIJING KWS AGRICULTURE TECHNOLOGY CO., LTD., Beijing/China KWS MOMONT RECHERCHE S.A.R.L., Mons-en-Pévèle/France KWS MOMONT S.A.S., Mons-en-Pévèle/France KWS SEEDS THAILAND CO., Ltd., Chiang Mai/Thailand KWS PARAGUAY S.R.L., Asunción/Paraguay IMPETUS AGRICULTURE INC., Lewes/U.S. O.O.O. KWS Kuban, Krasnodar/Russia O.O.O. KWS Seed Plant, Lipetsk/Russla USD € USD USD GBP PEN RON DKK RUB RUB € USD TRY UAH PLN € USD CNY € € MAD BRL BRL USD UAH CNY € € THB PYG USD RUB RUB 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 70.00 100.00 100.00 6 7 6 6 8 9 3 10 11 12 10 4 4 11 8 5 6 13 10 14 15 16 17 6 18 13 19 8 13 20 21 12 12 2. Disclosures on the Annual Financial Statements | Notes for the KWS Group 2018/2019 | Annual Financial Statements 111 KWS Group | Annual Report 2018/2019 Fiscal year 2018/2019 Name and Company’s registered office Currency Interest held Total in % Footnote 50.00 50.00 49.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 100.00 50.00 22 23 24 2 2 Equity-accounted joint ventures AGRELIANT GENETICS INC., Chatham/Canada AGRELIANT GENETICS LLC., Westfield/U.S. Equity-accounted associated companies KENFENG - KWS SEEDS CO., LTD., Beijing/China Joint operations (proportionately consolidated) GENECTIVE S.A., Chappes/France GENECTIVE CANADA INC., Montreal/Canada GENECTIVE TAIWAN LTD., Taipeh City/Taiwan GENECTIVE USA Corp., Weldon/U.S. GENECTIVE Japan K.K., Chiba/Japan GENECTIVE KOREA, Sangdaewon-dong/Korea Aardevo B.V., Nagele/Netherlands Aardevo North America LLC, Boise/U.S. Unconsolidated subsidiaries KWS R&D PRIVATE LIMITED, Hyderabad/India VAN RIJN BALCAN S.R.L., Vulcan/Romania CAD USD CNY € CAD TWD USD JPY KRW USD USD INR RON 1 Profit and loss transfer agreement. 2 In Liquidation 3 Subsidiary of KWS SAAT and KWS SAATFINANZ GMBH 4 Subsidiary of KWS SAAT and KWS INTERSAAT GMBH 5 Subsidiary of KWS FRANCE S.A.R.L. 6 Subsidiary of KWS SEEDS INC. 7 Subsidiary of BETASEED GMBH 8 Subsidiary of KWS LOCHOW GMBH 9 Subsidiary of KWS CHILE LTDA. and KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. 10 Subsidiary of KWS INTERSAAT GMBH 11 Subsidiary of EURO-HYBRID GMBH and KWS SAATFINANZ GMBH 12 Subsidiary of O.O.O. KWS RUS 13 Subsidiary of EURO-HYBRID GMBH 14 Subsidiary of KWS International Holding B.V. 15 Subsidiary of KWS Benelux B.V. 16 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and KWS INTERSAAT GMBH 17 Subsidiary of KWS INTERSAAT GMBH and KWS SAATFINANZ GMBH 18 Subsidiary of KWS UKRAINE T.O.V. 19 Subsidiary of KWS MOMONT S.A.S. 20 Subsidiary of KWS SERVICOS E PARTICIPACOES SOUTH AMERICA LTDA. and RIBER-KWS SEMENTES LTDA. 21 Subsidiary of KWS R&D Invest B.V. 22 Investee of GLH SEEDS INC. 23 Investee of RAGIS RAGIS KARTOFFELZUCHT- UND HANDELSGESELLSCHAFT MBH 24 Subsidiary of Aardevo B.V. 25 Subsidiary of KWS FRANCE S.A.R.L. 112 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 2. Disclosures on the Annual Financial Statements Annual Report 2018/2019 | KWS Group 3. Segment Reporting for the KWS Group In accordance with its internal reporting and controlling The Executive Board as the main decision-making body system, the KWS Group is primarily organized according to is responsible for allocating resources and assessing the following business segments: the earnings strength of the business segments. The Corn Sugarbeet Cereals Corporate segments and regions are defined in compliance with the internal controlling and reporting systems (management approach). The accounting policies used to determine the information for the segments are basically the same as those used for the KWS Group. The only exception relates to consolidation of the equity-accounted joint Considered a core competency for the KWS Group’s ventures that are assigned to the Corn Segment, namely entire product range, plant breeding, including the related AGRELIANT GENETICS LLC., AGRELIANT GENETICS INC. biotechnology research, is essentially concentrated and KENFENG – KWS SEEDS CO., LTD. In accordance at the parent company KWS SAAT SE & Co. KGaA in with internal controlling practices, they are included pro- Einbeck. The breeding material, including the relevant portionately as part of segment reporting. information and expertise about how to use it, is owned by KWS SAAT SE & Co. KGaA with respect to sugarbeet The segment net sales, segment income, depreciation and corn and by KWS LOCHOW GMBH with respect to and amortization, other noncash items, operating assets, cereals. Product-related R&D costs are carried directly operating liabilities and capital expenditure on noncurrent in the product segments Corn, Sugarbeet and Cereals. assets by segment have been determined in accordance Centrally controlled corporate functions are grouped in with the internal operational controlling structure, with the Corporate Segment. The distribution and production the joint ventures and associated company consolidated of oil and field seed are reported in the Cereals and proportionately (management approach). In order to permit Corn Segments, in keeping with the legal entities currently better comparability, they have been reconciled with the involved. 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 figures in the IFRS consolidated financial statements. Segment sales Internal sales External sales 2018/2019 2017/2018 2018/2019 2017/2018 2018/2019 2017/2018 739,031 461,257 734,204 455,444 170,990 151,410 5 26 197 26 351 300 739,026 461,231 734,178 455,094 170,794 151,109 17,474 16,672 13,580 12,456 3,893 4,216 1,388,752 1,357,730 13,808 13,133 1,374,944 1,344,597 –261,605 –276,585 1,113,339 1,068,012 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2018/2019 | Annual Financial Statements 113 KWS Group | Annual Report 2018/2019 Segment sales contain both net sales from third parties (external sales) and net sales between the segments (inter- segment sales). The prices for intersegment sales are determined on an arm’s-length basis. Uniform royalty rates per segment for breeding genetics are used as the basis. Technology revenues from genetically modified properties (“tech fees”) are paid as a per-unit royalty on the basis of the number of units sold, due to their growing competitive importance. 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 2018/2019 2017/2018 2018/2019 2017/2018 2018/2019 2017/2018 57,916 179,599 22,988 –97,110 47,374 160,473 18,395 –77,277 28,703 12,762 9,200 11,868 29,239 12,480 8,855 11,629 –670 –18,260 287 –8,250 –10,936 –21,072 4,639 1,058 163,393 148,965 62,533 62,203 –26,893 –26,311 –13,400 –16,409 330,088 –12,062 21,578 19,339 149,993 132,556 392,621 50,141 –5,315 –6,972 –5,534 5,434 144,459 137,990 0 0 0 0 0 0 0 0 The income statements of the consolidated companies Items that are not directly attributable are allocated to are assigned to the segments by means of profit center the segments on the basis of an appropriate formula. allocation. Operating income, an important internal Depreciation and amortization charges allocated to parameter and an indicator of the earnings strength in the the segments relate exclusively to intangible assets and KWS Group, is used as the segment result. The operating property, plant, and equipment. income of each segment is reported as the segment result. The segment results are presented on a consolidated basis and include all directly attributable income and expenses. 114 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 3. Segment Reporting for the KWS Group Annual Report 2018/2019 | KWS Group The other noncash items recognized in the income statement relate to noncash changes in the allowances on inventories and receivables, and in provisions. Operating assets and operating liabilities per segment in € thousand Corn Sugarbeet Cereals Corporate Segments acc. to management approach Elimination of equity-accounted financial assets Segments acc. to consolidated financial statements Others Operating assets Operating liabilities 06/30/2019 06/30/2018 06/30/2019 06/30/2018 122,249 137,572 800,334 335,630 122,159 152,029 729,126 277,936 120,731 114,705 1,410,152 1,242,498 –278,034 –251,774 1,132,118 982,835 990,724 526,957 67,459 30,260 106,540 326,508 –49,210 277,298 874,108 32,549 28,383 96,428 294,932 –49,808 245,124 390,774 635,898 KWS Group acc. to consolidated financial statements 2,114,953 1,517,681 1,151,406 The operating assets of the segments are composed of intangible assets, property, plant, and equipment, inven- tories, biological assets and trade receivables that can be charged directly to the segments or indirectly allocated to them by means of an appropriate formula. The operating liabilities attributable to the segments include the borrowings reported on the balance sheet, less provisions for taxes and the portion of other liabilities that cannot be charged directly to the segments or indirectly allocated to them by means of an appropriate formula. 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2018/2019 | Annual Financial Statements 115 KWS Group | Annual Report 2018/2019 Capital expenditure on assets fell to €101,123 thousand ( previous year: €117,696 thousand). Capital expenditure in the Corn Segment (€27,151 thousand; previous year: €64,147 thousand) relates mainly to drying and production capacities in South America. The Sugarbeet Segment’s capital expenditure totaled €34,874 thousand following €16,741 thousand in the previous year and relates mainly to continued expansion of sugarbeet seed production in Einbeck. In addition, expansion of our laboratory capacities was also launched there. 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 Disclosures by region The disclosures on the regional composition of net sales, capital expenditure and operating assets have been made in accordance with the accounting policies to be applied to the consolidated financial statements of the KWS Group and thus without proportionate consolidation of the equity-accounted financial investments. The external net sales by sales region are broken down on the basis of the country where the customer is based. No individual customer accounted for more than 10% of total net sales in the current and the previous fiscal years. 2018/2019 2017/2018 27,151 34,874 7,037 32,061 101,123 –4,552 96,571 64,147 16,741 7,027 29,781 117,696 –45,994 71,702 116 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 3. Segment Reporting for the KWS Group Annual Report 2018/2019 | 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 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 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 2018/2019 2017/2018 236,226 505,867 235,303 504,985 (100,982) (117,592) 305,749 (97,989) 269,553 (82,168) (167,547) (155,357) 65,497 58,171 1,113,339 1,068,012 2018/2019 2017/2018 56,609 16,146 (5,058) 22,581 (8,678) (8,712) 1,235 96,571 39,478 18,026 (5,297) 13,269 (1,187) (5,528) 929 71,702 2018/2019 2017/2018 267,309 169,579 (55,706) 252,477 (36,312) 235,994 166,600 (66,430) 230,125 (28,602) (192,042) (185,842) 6,397 695,762 8,460 641,179 3. Segment Reporting for the KWS Group | Notes for the KWS Group 2018/2019 | Annual Financial Statements 117 KWS Group | Annual Report 2018/2019 4. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand First-time adjustment for inflation (IAS 29) at 07/01/2018 Currency translation Adjustment for inflation (IAS 29) Change in consolidated companies Additions assets Disposals assets Transfers Additions of equity- accounted Disposals of equity- accounted Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets in € thousand Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets 07/01/2018 123,885 25,115 149,000 320,754 251,271 111,217 36,581 0 0 0 4,075 1,470 779 115 719,823 6,439 158,817 4,220 0 0 1,031,860 6,439 First-time adjustment for inflation (IAS 29) at 07/01/2018 0 0 0 698 796 448 0 07/01/2018 63,535 0 63,535 96,170 152,810 69,156 0 318,136 1,942 8,393 615 0 0 390,679 1,942 608 520 1,128 –275 –487 132 –13 –643 2,752 94 3,331 0 0 0 824 510 692 601 2,627 0 0 5,932 555 6,487 0 0 0 0 0 0 0 9,368 0 9,368 13,933 10,296 13,192 49,073 86,494 0 709 2,627 6,487 96,571 9,417 11,975 8,566 –19,882 1,116,310 Currency translation Adjustment for inflation (IAS 29) Change in consolidated companies1 Planned additions Adjustment not affecting profit and Value impair- ment loss Disposals Transfers Reclassifi ca- tion in hold for sale (IFRS 5) 534 0 534 49 –102 148 0 95 0 6 635 0 0 0 220 281 160 0 661 0 0 661 0 0 0 0 0 0 0 0 0 0 0 9,720 0 9,720 9,768 18,030 11,359 0 39,157 0 32 48,909 Gross book values Reclassifi ca- tion in hold for sale (IFRS 5) 06/30/2019 –94 0 –94 139,200 26,190 165,390 12,348 –7,659 343,058 5,814 –11,836 253,941 4,594 –22,822 –174 –118 124,332 62,318 –66 –19,787 783,649 0 –1 162,420 4,851 Amortization/depreciation Net book values 06/30/2019 06/30/2019 06/30/2018 –74 0 –74 73,315 0 73,315 65,885 26,190 92,075 60,350 25,115 85,465 –11 –3,848 102,746 240,312 224,584 –9,325 160,950 92,991 98,461 –137 75,439 48,893 62,318 42,061 36,581 0 –13,310 339,135 444,514 401,687 8,393 –295 154,027 150,424 5,146 3,605 –13,384 420,548 695,762 641,181 0 0 0 9,417 8,566 0 0 0 0 0 0 0 0 0 0 0 0 45 635 77 0 757 0 0 757 566 0 566 942 3,097 6,100 1,099 11,238 0 171 0 0 0 0 0 0 0 0 0 938 938 0 0 0 0 0 0 0 0 0 400 0 400 345 2,171 5,788 0 8,304 0 10 8,714 67 0 67 0 0 1 0 0 0 0 1 0 0 1 –4 16 118 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group 4. Notes to the Balance Sheet Statement of changes in fixed assets in € thousand equipment and machinery 251,271 Patents, industrial property rights and Intangible assets software Goodwill Land and buildings Technical Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets in € thousand Patents, industrial property rights and Intangible assets software Goodwill Land and buildings Technical Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets 07/01/2018 123,885 25,115 149,000 320,754 111,217 36,581 158,817 4,220 4,075 1,470 779 115 0 0 0 0 0 0 0 0 698 796 448 0 0 0 719,823 6,439 First-time adjustment for inflation (IAS 29) at 07/01/2018 07/01/2018 63,535 0 63,535 96,170 69,156 0 8,393 615 318,136 1,942 390,679 1,942 equipment and machinery 152,810 608 520 1,128 –275 –487 132 –13 –643 2,752 94 3,331 534 0 534 49 –102 148 0 95 0 6 635 0 0 0 824 510 692 601 2,627 0 0 0 0 0 220 281 160 0 661 0 0 661 5,932 555 6,487 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9,368 0 9,368 13,933 10,296 13,192 49,073 86,494 0 709 9,720 0 9,720 9,768 18,030 11,359 0 39,157 0 32 48,909 1,031,860 6,439 2,627 6,487 96,571 First-time adjustment for inflation (IAS 29) at 07/01/2018 Adjustment Change in Currency for inflation consolidated translation (IAS 29) companies Additions Additions of equity- accounted assets Disposals of equity- accounted assets Reclassifi ca- tion in hold for sale (IFRS 5) Transfers Disposals Gross book values 0 0 0 0 0 0 0 0 9,417 0 9,417 566 0 566 942 3,097 6,100 1,099 11,238 0 171 11,975 0 0 0 0 0 0 0 0 8,566 0 8,566 06/30/2019 67 0 67 –94 0 –94 139,200 26,190 165,390 12,348 –7,659 343,058 5,814 –11,836 253,941 4,594 –22,822 –174 –118 124,332 62,318 –66 –19,787 783,649 0 0 1 0 –1 162,420 4,851 –19,882 1,116,310 Adjustment Change in Currency for inflation consolidated translation (IAS 29) companies1 Planned additions Value impair- ment Adjustment not affecting profit and loss Disposals Transfers Reclassifi ca- tion in hold for sale (IFRS 5) Amortization/depreciation Net book values 0 0 0 45 635 77 0 757 0 0 757 0 0 0 0 0 0 0 0 0 938 938 400 0 400 345 2,171 5,788 0 8,304 0 10 8,714 06/30/2019 06/30/2019 06/30/2018 0 0 0 –74 0 –74 73,315 0 73,315 65,885 26,190 92,075 60,350 25,115 85,465 –11 –3,848 102,746 240,312 224,584 –4 16 0 1 0 0 1 –9,325 160,950 92,991 98,461 –137 0 75,439 0 48,893 62,318 42,061 36,581 –13,310 339,135 444,514 401,687 0 0 8,393 –295 154,027 150,424 5,146 3,605 –13,384 420,548 695,762 641,181 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 119 KWS Group | Annual Report 2018/2019 Statement of changes in fixed assets in € thousand Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets in € thousand Patents, industrial property rights and software Goodwill Intangible assets Land and buildings Technical equipment and machinery Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets 07/01/2017 114,883 28,000 142,883 309,195 241,187 102,018 31,893 684,293 160,162 3,941 991,279 07/01/2017 55,451 0 55,451 89,072 141,769 64,106 1 294,948 8,393 873 359,665 First-time adjustment for inflation (IAS 29) at 07/01/2018 Currency translation Adjustment for inflation (IAS 29) Change in consolidated companies Additions assets Disposals assets Transfers Additions of equity- accounted Disposals of equity- accounted –2,970 –2,898 –5,868 –4,161 –4,340 –1,797 –968 –11,266 –2,649 –55 –19,838 0 0 0 0 0 2,052 0 12,164 13 12,177 9,842 11,226 12,230 25,483 2,052 58,781 0 –10 0 745 2,042 71,703 13,414 14,458 12,110 1,031,860 Amortization/depreciation Net book values First-time adjustment for inflation (IAS 29) at 07/01/2018 Currency translation Adjustment for inflation (IAS 29) Change in consolidated companies1 Planned additions Adjustment not affecting profit and Value impair- ment loss Disposals Transfers Reclassifi ca- tion in hold for sale (IFRS 5) –2,519 0 –2,519 –741 –2,311 –994 0 –4,046 0 –5 –6,570 0 0 0 0 0 323 0 323 0 0 323 11,019 0 11,019 9,533 18,303 11,286 0 39,122 0 0 50,141 Gross book values Reclassifi ca- tion in hold for sale (IFRS 5) 06/30/2018 123,885 25,115 149,000 320,754 251,271 111,217 36,581 719,823 158,817 4,220 13,414 12,110 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 418 0 418 2,044 5,746 5,964 57 13,811 0 229 27 0 0 0 0 0 0 27 0 253 280 0 0 0 0 0 0 0 0 0 226 0 226 7,922 8,944 2,678 –19,770 –226 0 –172 –172 416 0 416 1,667 4,995 5,521 1 0 0 12,184 12,600 44 –44 0 0 0 0 0 0 0 0 0 06/30/2018 06/30/2018 06/30/2017 63,535 0 63,535 60,350 25,115 85,465 59,432 28,000 87,432 96,170 224,584 220,123 152,810 98,461 99,418 69,156 0 42,061 36,581 37,912 31,892 318,136 401,687 389,345 8,393 615 150,424 151,769 3,605 3,069 390,679 641,181 631,615 120 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group Statement of changes in fixed assets in € thousand equipment and machinery 241,187 Patents, industrial property rights and Intangible assets software Goodwill Land and buildings Technical Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets in € thousand Patents, industrial property rights and Intangible assets software Goodwill Land and buildings Technical Operating and office equipment Payments on account Property, plant and equipment Equity-accounted financial assets Financial assets Assets 07/01/2017 114,883 28,000 142,883 309,195 102,018 31,893 684,293 160,162 3,941 991,279 07/01/2017 55,451 0 55,451 89,072 64,106 1 294,948 8,393 873 359,665 equipment and machinery 141,769 –2,970 –2,898 –5,868 –4,161 –4,340 –1,797 –968 –11,266 –2,649 –55 –19,838 –2,519 0 –2,519 –741 –2,311 –994 0 –4,046 0 –5 –6,570 0 0 0 0 0 0 0 0 0 0 0 0 0 0 12,164 13 12,177 9,842 11,226 12,230 25,483 2,052 2,052 58,781 0 –10 0 745 11,019 0 11,019 9,533 18,303 0 0 0 323 11,286 323 39,122 323 50,141 First-time adjustment for inflation (IAS 29) at 07/01/2018 Adjustment Change in Currency for inflation consolidated translation (IAS 29) companies Additions Additions of equity- accounted assets Disposals of equity- accounted assets Reclassifi ca- tion in hold for sale (IFRS 5) Transfers Disposals Gross book values 0 0 0 0 0 0 0 0 13,414 0 418 0 418 2,044 5,746 5,964 57 13,811 0 229 0 0 0 0 0 0 0 0 12,110 0 2,042 71,703 13,414 14,458 12,110 226 0 226 7,922 8,944 2,678 –19,770 –226 0 –172 –172 06/30/2018 123,885 25,115 149,000 320,754 251,271 111,217 36,581 719,823 158,817 4,220 1,031,860 First-time adjustment for inflation (IAS 29) at 07/01/2018 Adjustment Change in Currency for inflation consolidated translation (IAS 29) companies1 Planned additions Value impair- ment Adjustment not affecting profit and loss Disposals Transfers Reclassifi ca- tion in hold for sale (IFRS 5) Amortization/depreciation Net book values 0 0 0 0 0 0 0 0 0 0 0 0 0 0 27 0 0 0 27 0 253 280 416 0 416 1,667 4,995 5,521 1 12,184 0 0 12,600 0 0 0 0 44 –44 0 0 0 0 0 06/30/2018 06/30/2018 06/30/2017 63,535 0 63,535 60,350 25,115 85,465 59,432 28,000 87,432 96,170 224,584 220,123 152,810 98,461 99,418 69,156 0 42,061 36,581 37,912 31,892 318,136 401,687 389,345 8,393 615 150,424 151,769 3,605 3,069 390,679 641,181 631,615 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 121 KWS Group | Annual Report 2018/2019 4.1 Assets For the European and American markets, the key The statement of changes in fixed assets contains a break- assump tions on which corporate planning is based include down of assets summarized in the balance sheet and shows assumptions about price trends for seed, in addition to the how they changed in fiscal year 2018/2019. development of market shares and the regulatory frame- 4.2 Intangible assets work. Company-internal projections take the assumptions of industry-specific market analyses and company-related This item includes purchased varieties, rights to varieties growth perspectives into account. and distribution rights, software licenses for electronic data processing, and goodwill. The current additions of The discount rate at the KWS Group has been derived as €9,368 (12,177) thousand related to software licenses and the weighted average cost of capital (WACC). The WACC patents. Amortization of intangible assets amounted to before taxes is calculated using the iterative procedure and €9,720 (11,019) thousand. was 6.23% (6.61%) for the cash-generating unit Sugarbeet, 6.54% (6.67%) for Corn Europe/Asia, 6.49% (6.74%) for Corn One major intangible asset is the trait licensing agree- America and 6.91% (6.94%) for Cereals. A growth rate of ment. Its carrying amount at the balance sheet date was 1.5% (1.5%) has been assumed here beyond the detailed €18,896 thousand. Its remaining useful life is 11 years. planning horizon in order to allow for extrapolation in line with the expected inflation rate. In order to meet the requirements of IFRS 3 in combination with IAS 36 and to determine any impairment of goodwill, The impairment tests conducted at the end of cash-generating units have been defined in line with internal fiscal year 2018/2019 confirmed that the existing good- budgeting and reporting processes. In the KWS Group, will is not impaired. The Business Unit Corn America these are the Business Units. To test for impairment, the carries goodwill totaling €15,462 (14,903) thousand. The carrying amount of each Business Unit is determined by Business Unit Corn Europe/Asia carries goodwill totaling allocating the assets and liabilities, including attributable €6,308 (6,306) thousand. €3,889 (3,906) thousand of the goodwill and intangible assets. An impairment loss is goodwill is carried by the Business Unit Cereals. Sensitivity recognized if the recoverable amount of a Business Unit is analyses were also carried out for all cash-generating less than its carrying amount. The recoverable amount is the units to which goodwill is allocated. As part of that, it was higher of the fair value less costs to sell and the value in use assumed that the future cash flows would fall by 10%, the of a cash-generating unit. The impairment tests to be carried weighted average cost of capital would increase by 10% out for fiscal year 2018/2019 determine the recoverable and the long-term growth rate would fall by 1 percentage amount on the basis of the value in use of the respective point. The sensitivity analyses did not reveal the need to cash-generating unit. recognize an impairment loss for any cash-generating unit. The impairment test is based on the expected future cash flows on which the medium-term plans of the companies, which are grouped in segments, are based; these plans, which cover a period of 4 years, have been approved by the Executive Board. They are based on historical patterns and expectations about future market development. 122 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group 4.3 Property, plant, and equipment Capital expenditure amounted to €86,494 (58,781) thousand and depreciation amounted to €39,157 (39,122) thousand. Disclosures on equity-accounted joint ventures (with the partner Vilmorin) in € thousand 06/30/2019 06/30/2018 There were also impairment losses of €757 (0) thousand Stake in the joint venture in France. The main focus of our capital spending in Current assets the reporting year remained on erecting and expanding production and research & development capacities. Among other things, expansion of sugarbeet seed production and of our laboratory capacities was continued in Germany. The KWS Group invested in a new seed processing plant in France. Drying and production capacities for corn seed were increased further in Argentina and Brazil. Property, plant, and equipment to an amount of €1,216 (1,926) thousand are held as security for liabilities. 4.4 At-Equity accounted financial assets At-equity accounted joint ventures The joint ventures AGRELIANT GENETICS LLC. and 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 AGRELIANT GENETICS INC., which KWS operates together Net sales with its joint venture partner Vilmorin, are recognized at equity. In the reporting year, AGRELIANT GENETICS LLC. was classified as a significant joint venture. From the group perspective, AGRELIANT GENETICS INC. was classified as an insignificant joint venture. Both joint ventures are operating units. The main business activity of both joint ventures is the production and sale of corn and soybean seed in North America. Depreciation and amortization Net income for the year Comprehensive income (100%) Comprehensive income (50%) Group share of comprehensive income Dividend payment 50% 50% 367,892 302,250 (31,696) 243,626 345,058 (26,144) 254,586 296,704 (133,564) (156,730) 1,294 265,166 132,583 8,802 141,385 512,748 24,523 12,886 12,886 6,443 6,443 12,224 1,656 258,476 129,238 8,802 138,040 545,536 22,867 21,696 21,696 10,848 10,848 22,006 1 Thereof AGRELIANT GENETICS LLC. €13,873 (9,256) thousand. At-Equity accounted associated companies The following disclosures on the joint ventures are only The disclosures on insignificant associated companies slightly influenced by the insignificant joint venture. If in accordance with IFRS 12.21 (c) in conjunction with individual items of the information presented are materially IFRS 12.B16 are as follows: influenced by the insignificant joint venture, this information is presented separately. Disclosures on insignificant associated companies accounted for using the equity method in € thousand 06/30/2019 06/30/2018 Carrying amount for the stake in insignificant associated companies ( aggregated) Net income for the year Other comprehensive income Comprehensive income (100%) 12,601 6,069 0 6,069 12,344 5,236 0 5,236 In the reporting year, 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 asso- ciated company in accordance with the equity method. 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 123 KWS Group | Annual Report 2018/2019 4.5 Proportionately consolidated joint operations Inventories and biological assets decreased by Joint operations are based on joint arrangements that €1,916 thousand, or 1.0%, a figure that includes always exist when the KWS Group jointly conducts cumulative write-down to the net realizable value totaling operations managed together with a third party pursuant €63,091 (63,992) thousand. Immature biological assets relate to a contractual agreement. The operation is jointly to living plants in the process of growing (before harvest). The managed only if decisions on significant activities require field inventories of the previous year have been harvested the unanimous consent of the parties involved. The assets in full and the fields have been newly tilled in the reporting and liabilities and revenue and expenses from the joint year. Government grants of €1,594 (€1,289) thousand, for operations are included proportionately (at 50%) in the which all the requirements were met at the balance sheet consolidated financial statements. The main activity of the date, were granted for the total area under cultivation of proportionately consolidated GENECTIVE S.A. is develop- 4,444 (4,387) ha. Future government grants depend on the ment of its own traits for genetically improving crops. further development of European agricultural policy. AARDEVO B.V. (formerly: KWS POTATO B.V.) has been consolidated proportionately as a joint operation since 4.8 Current receivables and other assets February 1, 2019. 4.6 Financial assets This item mainly comprises the investments in the capital investment fund MLS Capital Fund II (project financing and access to biotechnological developments) totaling €4,209 thousand, which are measured at fair value through other comprehensive income due to long-term irrevocable investment. The remainder relates to a large number of financial investments that – taken individually – are insig- nificant, such as other interest-bearing loans, shares in Current receivables in € thousand Trade receivables Current tax assets Other current financial assets Other current assets Contractual assets 06/30/2019 06/30/2018 402,129 310,141 81,010 487,121 20,671 2,733 56,772 52,922 18,694 0 993,664 438,529 cooperatives, and other securities. The net carrying amount of the trade receivables was €402,129 thousand following €310,141 thousand in the 4.7 Inventories and biological assets pre vious year. This amount includes €7,318 (5,757) thou sand Inventories and biological assets in € thousand Raw materials and consumables Work in progress Immature biological assets Finished goods 06/30/2019 06/30/2018 26,642 62,528 16,087 88,146 193,403 20,524 58,979 14,339 101,477 195,319 in receivables from joint ventures and joint operations. The exposure to the risk of default at June 30, 2019, was determined using the provision matrix on the basis of the expected losses. To enable that, the receivables are grouped by the length of time they are overdue. Expected default rates of 0.33% to 2.53% are applied to receivables that are not overdue (approx. 89% of the total gross amount) and default rates of 1.01% to 15.58% to receivables that are overdue by up to 180 days (approx. 7% of the total gross amount). Receivables that are overdue by more than 360 days have been classified as uncollectible and written off in full. 124 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group The maximum exposure to the risk of default from trade receivables corresponds to the reported carrying amount and at June 30, 2019 is as follows: Credit risks 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 06/30/2019 Trade receivables 402,129 313,724 11,327 578 1,888 Other current financial assets 06/30/2018 487,121 889,250 437,819 0 751,543 11,327 0 578 0 1,888 Trade receivables 310,141 272,111 22,720 1,146 1,947 Other current financial assets 52,922 363,063 37,786 0 0 0 309,897 22,720 1,146 1,947 1 0 1 1 0 1 1,887 0 1,887 3,454 0 3,454 The credit risks were reflected by the following allowances at June 30, 2019 and in the prior year: Change in allowances on receivables in € thousand 2018/2019 (IFRS 9)1 2017/2018 (IAS 39) Change in consolida- tion scope –1,608 0 07/01 37,987 26,543 1 The opening balance was changed due to first-time adoption of IFRS 9. Addition Disposal Reversal 6,856 11,165 68 206 10,258 5,506 06/30 32,909 31,996 The clearly higher reversal of allowances in the current fiscal The receivables include an amount of €422 (606) thousand year is partly attributable to the change in customer-specific due after more than one year. probabilities of default for the purpose of the calculation of expected losses (expected-loss-model). 4.9 Securities The increase in other current financial assets is mainly due primarily to debt securities and fund shares. For details of to deposit of the purchase price of €414.7 million for the how securities are measured, please refer to section 4.16 acquisition of all the shares in the Pop Vriend Seeds Group “Financial instruments” of the Notes starting on page 134. Securities amounting to €19,944 (18,282) thousand relate in a trust account. 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 125 KWS Group | Annual Report 2018/2019 4.10 Cash and cash equivalents The other reserves and net retained profit essentially Cash and cash equivalents comprise cash on hand, checks, comprise the net income generated in the past by the and immediately available balances at banks. companies included in the consolidated financial state- Cash and cash equivalents of €139,813 (174,300) thousand retained profit. The differences from currency translation, consists of balances with banks and cash on hand. The cash the reserve for available-for-sale financial assets and flow statement explains the change in this item compared the reserve for revaluation of net liabilities/assets from with the previous year, together with the change in securities. defined benefit plans, the reserve for currency trans- ments, minus dividends paid to shareholders, and the net 4.11 Equity lation for at-equity accounted financial assets, as well as, the reserve for remeasurement gain/loss on equity Pursuant to the resolution adopted by the Annual Share- instruments (with value changes in other comprehensive holders’ Meeting on December 14, 2018, the then income), are also presented here. KWS SAAT SE carried out a stock split at a ratio of 1:5 by issuing bonus shares on March 22, 2019. As a result, the total Differences from translation of the functional currency number of shares increased from 6,600,000 to 33,000,000. of foreign business operations into the reporting To enable the stock split, the capital stock had to be currency of the group in reporting (euro) are carried in increased from €19,800 thousand to €99,000 thousand using the item Adjustments from currency translation. The company funds. That was done by means of reclassification item Revaluation of net liabilities/assets from defined of the revenue reserves to an amount of €79,200 thousand. benefit plans and associated planned assets includes The earnings per share for the previous year were adjusted the actuarial gains and losses from pensions and other accordingly. employee benefits. Differences from translation of the functional currency of at-equity accounted companies The capital reserves essentially comprise the premium into the reporting currency of the group are carried in the obtained as part of share issues. reserve for currency translation for at-equity accounted financial assets. 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 Net gain/(loss) on equity instruments designated at fair value through other comprehensive income Revaluation of net liabilities/assets from defined benefit plans Other comprehensive income 2018/2019 2017/2018 Before taxes Tax effect After taxes Before taxes Tax effect After taxes 4,345 0 1,592 2,753 –11,319 0 0 0 0 4,003 4,345 –31,238 –64 –31,302 0 325 –64 261 1,592 –28,913 2,753 –7,316 –2,650 –3,712 0 0 1,270 –28,913 –2,650 –2,442 787 –155 632 0 0 0 –12,106 –6,974 4,158 4,003 –7,948 –2,971 –3,712 –34,950 1,270 1,206 –2,442 –33,744 126 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group The objective of KWS’ capital management activities is First-time application of IAS 29 at KWS ARGENTINA S.A. to pursue the interests of shareholders and employees in increased the opening balance by €6,590 thousand. accordance with the corporate strategy and earn a reason- Conversely, the revenue reserves at June 1, 2018, were able return on investment. One main goal is to retain the adjusted by €4,755 thousand as a result of first-time trust of investors, lenders and the market so as to strengthen application of IFRS 9. Please refer to the statement of the company’s future business development. KWS’ capital changes in equity for further effects not recognized in the management activities intend to optimize the average cost income statement. of capital. Another goal is a balanced mix of equity and debt capital. Consolidated income (after taxes and minority An important indicator in capital management is the equity interests) is €104,134 (99,521) thousand. However, there ratio. It was 45.5% (58.1%) at June 30, 2019, and thus at a was a total dividend payout of €21,120 (21,120) thousand good and solid level. The significant decrease in comparison in December 2018. This ensures the adequate financing of to the prior year is due to taking a bridge loan for the further operating business expansion in the long term. Equity acquisition of Pop Vriend Seeds. The capital structure is as increased by €81,764 thousand due to annual net profit to follows: €963,547 (881,783) thousand. The increase in subscribed capital from company funds amounting to €79,200 thousand led to the issue of new shares as part of the stock split. Capital structure in € thousand Equity Long-term financial borrowings Other noncurrent liabilities Short-term borrowings Other noncurrent liabilities Liabilities classified as hold for sale Total capital 06/30/2019 963,547 182,270 182,108 475,425 309,845 1,758 2,114,953 Share of total capital 45.5% Share of total capital 58.1% 06/30/2018 881,783 168,698 165,625 61,287 240,288 0 1,517,681 The focus in selecting financial instruments is on financing with matching maturities, which is achieved by controlling the maturities. Long-term financial borrowings increased by €13,572 thousand (previous year: decrease of €32,130 thousand). This is mainly due to the increase in long-term financial loans from banks. The significant increase of the current financial liabilities mainly results from taking a bridge loan for the acquisition of Pop Vriend Seeds. 4.12 Minority interest The KWS Group does not have any minority interests that are assessed as being significant. 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 127 KWS Group | Annual Report 2018/2019 4.13 Noncurrent liabilities Noncurrent liabilities Non-current liabilities rose by €30,055 thousand ( previous year: decrease of €24,562 thousand). This is due in particular to the increase in long-term financial loans from banks in Brazil. The long-term financial borrowings include loans from banks amounting to €182,270 (168,698) thousand. They have remaining maturities through 2028. The liabilities from the borrower’s note loan agreement at June 30, 2019, were €140,451 thousand (thereof, €36,500 thousand with remaining maturity of less than in € thousand 06/30/2019 06/30/2018 Long-term provisions Long-term borrowings Trade payables 145,446 182,270 782 127,833 168,698 968 Deferred tax liabilities 16,416 19,342 Other noncurrent financial liabilities 258 288 Other noncurrent liabilities 19,206 17,194 364,378 334,323 one year). Long-term provisions in € thousand 06/30/ 2018 Changes in the consolida- ted group, currency Interest ex penses from com- pounding Pension provisions 114,121 –1,032 2,805 Tax provisions 1,545 17 0 Addi- tion 2,306 7,590 Other provisions 12,167 127,833 –607 –1,622 82 1,823 2,887 11,719 13,757 Adjust- ment not affecting profit or loss 13,757 0 0 06/30/ 2019 Con- sump- tion Rever- sal Reclassification in liabilities hold for sale 6,050 1,536 1,383 8,969 0 0 0 0 –159 125,748 0 0 7,616 12,082 –159 145,446 The other provisions mainly comprise provisions by the The following mortality tables were used at June 30, 2019: German companies for semi-retirement and loyalty bonuses. In Germany: The 2018 G mortality table of Klaus Heubeck The pension provisions are based on defined benefit Abroad: Mainly RP-2014 Mortality Table Projection Scale obligations, determined by years of service and MP-2018 and INSEE TD/TV 14-16 pensionable compensation. They are measured using the projected unit credit method under IAS 19 (2011), on A retirement age of 63 years is imputed for Germany, the basis of assumptions about future developments. a retirement age of 65 years is imputed for the U.S., and The assumptions in detail are that wages and salaries a retirement age of 66 years is imputed for France. in Germany will increase by 3.00% (3.00%) annually, in the U.S. by 3.75% (3.75%) annually and in the rest of the world by 1.80% to 2.63% (2.00% to 3.00%) annually. An annual increase in pensions of 2.00% (2.00%) is assumed in Germany. The discount rate in Germany was 0.95% compared with 1.65% the year before, 3.65% in the U.S. compared with 4.15% the year before, and between 0.35% and 2.35% (1.45% and 3.15%) in the rest of the world. 128 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group Nature and scope of the pension benefits The pension plans are mainly subject to the following risks: In Germany Investment and return The following benefits are provided under a company agree- The present value of the defined benefit obligation from the ment relating to the company retirement pension program: pension plan is calculated using a discount rate defined on the basis of the returns on high-quality fixed-income corpo- An old-age pension at the age of 65 rate bonds. If the income from the planned assets is below An early retirement pension before the age of 65, coupled this rate of interest, the result is a shortfall in the plan. The with benefits from the early retirement pension from the corporate bonds and share funds are chosen to ensure risk statutory pension insurance program diversification and managed by an external fund manager. An invalidity pension for persons who suffer from occu- pational disability or incapacity to work as defined by the Change in interest rates statutory pension insurance program The fall in the returns on corporate bonds and thus the A widow’s or widower’s pension discount rate will result in an increase in the obligations, which is only partly compensated for by a change in the For benefit obligations backed by a guarantee by an insurance value of the planned assets. company toward three former members of the Executive Board, the planned assets of €10,061 (9,428) thousand Life expectancy correspond to the present value of the obligation. In The present value of the defined benefit obligation from the accordance with IAS 19 (2011), the pension commitments are plan is calculated on the basis of the best-possible estimate netted off 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 least one year and at least 1,000 working hours to earn an entitled 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 – to backed by a guarantee. The existing obligations, which be eligible, the employee must be at least 55 and the are partly covered by planned assets, are funded from the minimum vesting period is 5 years operating cash flow and are subject to the familiar measure- A pro-rata pension if the employee reaches the minimum ment risks. vesting period of 5 years, but is below 55 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 129 KWS Group | Annual Report 2018/2019 The tables below show the changes in the accrued benefit and planned assets: Changes in accrued benefit entitlements in € thousand 2018/2019 2017/2018 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 117,928 23,642 141,570 113,345 23,680 137,025 784 1,900 11,674 1,283 905 1,541 2,067 2,805 13,215 809 2,105 6,656 1,359 800 –1,180 2,168 2,905 5,476 12,947 2,296 15,243 6,116 –1,201 4,915 –1,273 –4,885 –755 –690 465 –63 –159 –2,028 –5,575 465 –63 –159 540 –4,987 0 0 0 21 –589 –428 0 0 561 –5,576 –428 0 0 Reclassification in liabilities hold for sale 0 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 30 127,401 26,924 154,325 117,928 23,642 141,570 Germany Abroad Total Germany Abroad Total 2018/2019 2017/2018 10,061 17,388 27,449 161 703 864 614 –645 494 –561 –16 377 1,108 –1,205 –16 377 9,428 173 1,086 –626 15,700 25,128 552 725 678 –511 –305 1,274 1,764 –1,137 –305 1,274 10,191 18,386 28,577 10,061 17,388 27,449 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 2018/2019 2017/2018 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 30 127,401 26,924 154,325 117,928 23,642 141,570 10,191 117,210 18,386 8,538 28,577 125,748 10,061 107,867 17,388 27,449 6,254 114,121 130 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | 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) 2018/2019 Germany Abroad 784 1,739 1,283 202 Total 2,067 1,941 Germany Abroad 809 2,105 1,359 800 2017/2018 Total 2,168 2,905 2,523 1,485 4,008 2,914 2,159 5,073 –614 –494 –1,108 –1,086 –678 –1,764 12,947 2,296 15,243 6,116 –1,201 4,915 –1,273 –755 –2,028 540 21 561 11,060 1,047 12,107 5,570 –1,858 3,712 13,583 2,532 16,115 8,484 301 8,785 The service cost is recognized in operating income in the The fair value of the planned assets was split over the respective functional areas by means of an appropriate following investment categories: formula. Net interest expenses and income are carried in the interest result. Breakdown of the planned assets by investment category Germany Abroad Germany Abroad in € thousand Corporate bonds Equity funds Consumer industry Finance Industry Technology Health care Other 2018/2019 Total 4,655 12,906 4,655 12,906 2,356 1,731 1,681 2,531 1,458 3,149 825 18,386 2017/2018 Total 4,755 11,456 1,177 10,061 27,449 4,755 11,456 1,964 1,475 1,393 2,346 1,297 2,981 1,177 17,388 Cash and cash equivalents Reinsurance policies Planned assets on June 30 10,191 10,191 825 10,191 28,577 10,061 10,061 The planned assets abroad relate mainly to the U.S. The following sensitivity analysis at June 30, 2019, shows There is no active market for the reinsurance policies given a change in the actuarial assumptions. No correla- in Germany. There is an active market for the other tions between the individual assumptions were taken planned assets; the fair value can be derived from their into account in this, i.e. if an assumption varies, the other stock market prices. 78.2% (previous year: 83.8%) of the assumptions were kept constant. The projected unit corporate bonds have an AAA rating. credit method used to calculate the balance sheet values how the present value of the obligation would change was also used in the sensitivity analysis. 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 131 KWS Group | Annual Report 2018/2019 Sensitivity analysis in € thousand Discount rate Anticipated annual pay increases Anticipated annual pension increase Life expectancy Effect on obligation in 2018/2019 Effect on obligation in 2017/2018 Change in assumption +/– 100 basis points +/– 50 basis points +/– 25 basis points +/– 1 year Decrease Increase 28,064 –22,111 –1,236 1,407 –3,734 –5,665 3,914 5,808 Change in assumption +/– 100 basis points +/– 50 basis points +/– 25 basis points +/– 1 year Decrease Increase 26,184 –20,535 –1,229 1,327 –4,264 –5,945 4,434 6,049 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 € thou- sand 2019/2020 2020/2021 2021/2022 2022/2023 2023/2024 2024/2025– 2028/2029 2018/2019 in € thou- sand Germany 5,106 4,996 4,942 4,956 4,994 Abroad 1,020 822 925 1,124 1,088 Total 6,126 5,818 5,867 6,080 6,082 24,581 6,362 30,943 2018/2019 2019/2020 2020/2021 2021/2022 2022/2023 2023/2024– 2027/2028 Germany Abroad 5,233 5,273 5,138 5,057 5,031 798 774 1,008 947 1,086 2017/2018 Total 6,031 6,047 6,145 6,004 6,116 24,640 6,175 30,814 The weighted average time at which the pension obligations obligations above and beyond payment of the contributions are due is 16.2 (15.5) years in Germany and abroad (defined contribution plans). These comprise benefits that 18.7 (17.3) years. are funded solely by the employer and allowances for conversion of earnings by employees. Defined contribution plans Apart from the above-described pension obligations, there The total pension costs for fiscal year 2018/2019 were as are other old-age pension systems. However, no provisions follows: have to be set up for them, since there are no further Pension costs in € thousand Germany Abroad Cost for defined contribution plans 3,618 891 Service cost for the defined benefit obligations Pension costs 784 4,402 1,283 2,174 2018/2019 2017/2018 Total 4,509 2,067 6,576 Germany Abroad 3,189 1,870 809 3,998 1,359 3,229 Total 5,059 2,168 7,227 132 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group In addition, contributions of €14,786 (14,417) thousand were €2,249 (2,201) thousand. The return and income from the paid to statutory pension insurance institutions. planned assets depend on the reinsurance policy, which The costs for defined contribution plans in Germany addition, the benefit obligation from salary conversion was mainly related to the provident fund backed by a backed by a guarantee that exactly matches the present guarantee. The contributions to this pension plan were value of the obligation of €4,462 (4,322) thousand. yields guaranteed interest of between 0.9% and 2.25%. In 4.14 Current liabilities Current liabilities in € thousand Short-term provisions Current liabilities to banks Current financial liabilities to affiliates Other current financial liabilities Short-term borrowings Trade payables to affiliates Trade payables to joint ventures Trade payables Trade payables Tax liabilities Other current financial liabilities Other current liabilities Contract liabilities according to IFRS 15 06/30/2019 06/30/2018 50,192 473,789 66 1,570 42,311 60,536 65 686 475,425 61,287 2,248 0 86,247 88,495 48,927 17,392 86,035 18,804 2,903 56 72,762 75,721 39,171 11,288 71,797 0 785,270 301,575 In June 2019, the KWS Group replaced its undrawn The tax liabilities of €48,927 (39,171) thousand include syndicated credit line of €200 million, which originally ran amounts for the reporting year and the period for which the until October 2021. Ahead of the acquisition of the vegetable external tax audit has not yet been concluded. seed company Pop Vriend Seeds, it utilized bridge funding totaling €400 million from various banks for a short period of The contract liabilities amounting to €18,804 thousand are time. Short-term provisions carried for the first time in fiscal year 2018/2019 as a result of adoption of IFRS 15. This balance sheet item mainly comprises liabilities for expected returns and discounts. in € thousand 06/30/2018 06/30/2019 Obligations from sales transactions 33,826 Obligations from purchase transactions Other obligations 1,007 7,478 42,311 Changes in the consoli- dated group, currency 244 –1 –84 159 Addition Consump- tion Reversal 24,800 20,555 4,110 34,205 2,870 9,470 926 3,229 37,140 24,710 1 597 4,708 2,949 13,038 50,192 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 133 KWS Group | Annual Report 2018/2019 The obligations from sales transactions essentially relate to provisions for licenses. The obligations from purchase transactions include provisions for procurement transac- tions, 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. 4.15 Derivative financial instruments Hedging transactions in € thousand Currency hedges Interest-rate hedges 06/30/2019 06/30/2018 Nominal volume Carrying amounts Fair value Nominal volume Carrying amounts Fair value 156,172 34,000 190,172 –621 –73 –694 –621 –73 –694 199,505 34,000 233,505 3,129 –223 2,906 3,129 –223 2,906 As in the previous year, all currency hedges have a remaining that would be paid to transfer the liability, after taking into maturity of less than one year. Of the interest-rate derivatives, account transaction costs, is used. These are active and hedges with a nominal volume of €19,000 (0) thousand accessible markets for identical assets and liabilities, where have a remaining maturity of less than one year and hedges the fair value results from quoted prices that are observable with a nominal volume of €15,000 (34,000) thousand have a (level 1 input factors). At the KWS Group, this relates to remaining maturity of between one and 5 years. securities in the category measured at fair value through 4.16 Financial instruments other comprehensive income, as well as fund shares at banks and other financial assets whose price is likewise In general, the fair values of financial assets and liabilities quoted in active markets. are calculated on the basis of the market data available on the balance sheet date and are assigned to one of the three The level 2 input factors relate to derivative financial instru- hierarchy levels in accordance with IFRS 13. The principal ments that have been concluded between KWS companies market, i . e. the market with the largest volume of trading and and banks. The prices can thus be derived indirectly from the greatest business activity, is used to calculate the fair active market prices for similar assets and liabilities. The value. If this market does not exist for the asset or liabilities level 3 input factors cannot be derived from observable in question, the market that maximizes the amount that market information. would be received to sell the asset or minimizes the amount 134 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group The carrying amounts and fair values of the financial assets (financial instruments), split into the measurement categories in accordance with IFRS 9 (2018/2019) and IAS 39 (2017/2018), are as follows: Total 1,054,153 1,028,425 25,090 06/30/2019 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 Fair values 5,146 0 (0) 402,129 19,944 139,813 487,121 (638) 06/30/2018 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 3,605 1 (1) 310,141 18,282 174,300 52,922 (5,303) 559,251 Financial assets Carrying amounts At amortized cost At fair value through other comprehensive income At fair value through profit and loss Total carrying amount 0 0 (0) 402,129 0 139,813 486,483 (0) 5,146 0 (0) 0 19,944 0 0 (0) 0 0 (0) 0 0 0 638 (638) 638 5,146 0 (0) 402,129 19,944 139,813 487,121 (638) 1,054,153 Financial assets Carrying amounts Loans and receivables Financial assets held for trading Available-for-sale financial assets Total carrying amount 0 0 (0) 310,141 0 174,300 47,619 (0) 532,060 0 1 (1) 0 0 0 5,303 (5,303) 5,304 3,605 3,605 0 (0) 0 18,282 0 0 (0) 21,887 1 (1) 310,141 18,282 174,300 52,922 (5,303) 559,251 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 135 KWS Group | Annual Report 2018/2019 It is assumed that the carrying amounts are the same as The fair value of derivative financial instruments is the the fair values. The fair value of the long-term fund shares present values of the payments related to these balance and short-term securities contained in the financial assets is sheet items. These instruments are mainly forward exchange measured on the basis of the price for them quoted in their deals. They are measured on the basis of quoted exchange respective main market (level 1). rates 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 carrying amounts as a result of the short time in which these liabilities (financial instruments), split into the measurement instruments are due. categories in accordance with IFRS 9 (2018/2019) and IAS 39 (2017/2018), are as follows: 06/30/2019 in € thousand 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 Total Fair values Financial liabilities Carrying amounts At amortized cost At fair value through other comprehensive income 182,270 182,270 782 258 (0) 475,425 88,495 17,392 (1,333) 764,622 782 258 (0) 475,425 88,495 16,059 (0) 763,289 0 0 0 (0) 0 0 1,333 (1,333) 1,333 Total carrying amount 182,270 782 258 (0) 475,425 88,495 17,392 (1,333) 764,622 136 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group 06/30/2018 in € thousand Fair values Financial liabilities Carrying amounts Financial liabilities measured at amortized cost Financial liabilities held for trading Total carrying amount 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 171,032 168,698 968 288 (223) 61,287 75,721 11,288 (2,174) 968 65 (0) 61,287 75,721 9,114 (0) Total 320,584 315,853 0 0 223 (223) 0 0 2,174 (2,174) 2,397 168,698 968 288 (223) 61,287 75,721 11,288 (2,174) 318,250 The fair value of long-term borrowings was calculated on the Due to the generally short times by which trade payables and basis of discounted cash flows. To enable that, interest rates other current financial liabilities (excluding derivatives) are for comparable transactions and yield curves were used due, it is assumed that their carrying amounts are equal to (level 2). the fair value. The table below shows the financial assets and liabilities measured at fair value: Assets and liabilities measured at fair value in € thousand 06/30/2019 06/30/2018 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Derivative financial instruments not part of a hedge under IFRS 9 (prior year IAS 39) Securities and other financial assets Financial assets Derivative financial instruments not part of a hedge under IFRS 9 (prior year IAS 39) Financial liabilities 0 25,090 25,090 638 0 638 0 0 1,333 1,333 0 0 0 0 0 638 0 5,304 25,090 21,863 0 25,728 21,863 5,304 1,333 1,333 0 0 2,397 2,397 0 0 0 0 0 5,304 21,863 27,167 2,397 2,397 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 137 KWS Group | Annual Report 2018/2019 The table below presents the net gains/losses carried in The net losses from financial assets and net gains in the income statement for financial instruments in each financial liabilities measured at fair value through profit measurement category: or loss solely comprise changes in the market value of Net gain/losses of financial instruments in € thousand Financial assets measured at fair value through other comprehensive income Financial assets measured at fair value through profit or loss Financial assets measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at fair value through profit or loss Net gain/losses of financial instruments in € thousand Available-for-sale financial assets Financial assets held for trading Loans and receivables Financial liabilities measured at amortized cost Financial liabilities held for trading derivative financial instruments. 2018/2019 The net gains from financial assets measured at cost mainly include effects from changes in the allowances for impairment. The net losses from financial liabilities measured at amortized cost result mainly from interest expense. 68 –4,665 8,438 –18,425 Interest income from financial assets that are not measured 1,065 at fair value through profit or loss was €68 (3,852) thousand. Interest expenses for financial borrowings were €18,425 (11,763) thousand. 2017/2018 103 3,532 –2,829 In order to control the credit risk resulting from receivables from customers, a regular creditworthiness analysis is conducted by the responsible credit manager in accor- dance with the credit volume. Security is available for some –11,763 of these receivables and is used depending on the local circumstances. This includes, in particular, credit insurance, 1,355 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 The net gains from assets measured at fair value through financial transactions are controlled centrally by Corporate other comprehensive income include income from an Finance/Treasury. In order to minimize risks, financial trans- investment fund and securities. actions are exclusively conducted within defined limits with banks and partners who always have an investment grade. Compliance 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 manage- ment and the Executive Board. 138 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group Liquidity is managed in the euro zone by the central Treasury unit using a cash pooling system. Liquidity require- ments are generally determined by means of cash planning and are covered by cash and promised credit lines. The table below shows the KWS Group’s liquidity analysis for non-derivative and derivative financial liabilities. The table is based on contractually agreed, undiscounted pay- ment flows: Fiscal year 2018/2019 in € thousand Book value Liquidity analysis of financial liabilities 06/30/2019 06/30/2019 Total Financial liabilities Trade payables Other financial liabilities 657,695 657,695 89,277 17,650 89,277 17,650 Due in > 1 year and < 5 years Cash flows Due in > 5 years 180,820 1,450 782 258 0 0 Due in < 1 year 475,425 88,495 17,392 Nonderivative financial liabilities 764,622 764,622 581,312 181,860 1,450 Payment claim Payment obligation Derivative financial liabilities 1,333 Fiscal year 2017/2018 in € thousand Book value Liquidity analysis of financial liabilities 06/30/2018 06/30/2018 Total Financial liabilities Trade payables Other financial liabilities 262,115 226,921 76,938 14,227 76,689 14,227 91,981 93,189 1,208 91,981 93,189 1,208 0 0 0 0 0 0 Due in < 1 year 57,279 75,721 14,227 Due in > 1 year and < 5 years 166,302 968 0 Cash flows Due in > 5 years 3,340 0 0 Nonderivative financial liabilities 353,280 317,837 147,227 167,270 3,340 Payment claim Payment obligation Derivative financial liabilities 2,397 77,383 80,490 3,107 77,383 80,490 3,107 0 0 0 0 0 0 4. Notes to the Balance Sheet | Notes for the KWS Group 2018/2019 | Annual Financial Statements 139 KWS Group | Annual Report 2018/2019 The cash flows of the derivative financial liabilities mainly by €2.0 million (previous year: a fall of €0.1 million) in the relate to forward exchange deals and include both interest event of such a change in the rate of interest. A reduction payments and redemption payments. These derivative in the rate of interest of 1 percentage point would add a financial instruments are settled in gross. further €3.0 (0.2) million in income. Equity would increase The following sensitivity analysis shows the impact on the event of such a change in the rate of interest. income and equity. The calculated figures relate to the portfolio at the balance sheet date and show the hypo- 4.17 Contingent liabilities thetical effect for one year. As in the previous year, there are no contingent liabilities to by €2.0 million (previous year: an increase of €0.1 million) in report at the balance sheet date. In order to assess the risk of exchange rate changes, the sensitivity of a currency to fluctuations was determined. 4.18 Other financial obligations After the euro, the US dollar is the most important currency The obligations from uncompleted capital expenditure in the KWS Group. All other currencies are of minor impor- projects, mainly relating to property, plant, and tance. The average exchange rate in the fiscal year was equipment, and other capital commitments amount to 1.14 (1.19) USD/EUR. If the US dollar depreciated by 10%, €20,636 (45,296) thousand. the additional expense would be €10,482 (8,695) thousand. If the US dollar appreciated by 10%, the additional income Obligations under rental agreements and leases would be €10,482 (8,695) thousand. The net income for the year and equity would change accordingly. Interest rate sensitivity is a measure for showing the interest rate risk. The variable-interest components of the KWS Group’s interest expenses and interest income were determined to calculate it. An average rate of interest in € thousand Due within one year Due between 1 and 5 years Due after 5 years 06/30/2019 06/30/2018 13,411 17,696 14,474 45,581 14,071 16,516 9,007 39,594 per group company for the past fiscal year was then The KWS Group’s leases relate mainly to agreements for formed for all relevant investments and loans. This aver- fleet vehicles and rental contracts for office space. The main age rate of interest was then used in a scenario analysis leasehold obligations relate to land under cultivation. to calculate the effects on the interest result and equity if the interest rate increased by one percentage point Other guarantees with respect to third parties amount (100 base points) or decreased by the same amount. to €111,956 (48,808) thousand. The likelihood that these That yielded the following results in the past fiscal year. guarantees will be utilized is seen as slight, based on the An increase in the rate of interest of 1 percentage point experience of previous years. No claims have yet been made. would result in additional interest expense of €3.0 million (previous year: expense of €0.2 million); equity would fall 140 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 4. Notes to the Balance Sheet Annual Report 2018/2019 | KWS Group 5. Notes to the Income Statement 5.1 Net sales and function costs The write-downs relate mainly to unsold seed. They are Net sales were mainly generated from the sale of certified based on, among other things, historical information and seed. A breakdown by segments and regions is provided in expectations as to their substitution by new varieties. the segment reporting in section 3 of the Notes starting on page 113 et seq. The cost of sales increased by 2.8% to Selling expenses increased by €20,378 thousand to €221,915 (201,537) thousand, or 19.9% (18.9%) of sales. €458,534 (446,063) thousand, or 41.2% (41.8%) of sales. Research & development is recognized as an expense in The key factors in this development were lower license the year it is incurred; in the reporting year, this amounted payments and higher net sales shares from products with to €205,557 (197,696) thousand. Development costs for a relatively low cost of sales. The total material costs were new varieties are not recognized as an asset because €294,401 (275,388) thousand. evidence of future economic benefit can only be provided The write-down of inventories and the reversal of write- down, which are recognized as a reduction in the cost of General and administrative expenses increased by materials in the period, are as follows: €19,586 thousand to €115,379 thousand, representing after the variety has been officially certified. July 1 to June 30 in € thousand Impairment losses Decreases in impairment loss 2018/2019 2017/2018 9,543 3,889 14,268 2,907 10.4% of sales, after 9.0% the year before. They rose in particular due to optimization of our organizational structure and our entry into vegetable seed business. 5.2 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 valuation allowance for trade receivables and recovery of written off receivables Performance-based public grants Income relating to previous periods Income from loss compensation received Income from deconsolidation of KWS Potato B.V. Miscellaneous other operating income The other operating income mainly comprises foreign exchange gains and income from interest rate hedges, as well as income from the reversal of allowances on receivables, and government grants. The performance-based govern- ment grants mainly relate to breeding allowances and farm payments. 2018/2019 2017/2018 201 4,238 30,753 11,317 6,797 3,240 493 15,958 23,263 96,260 52 1,915 31,418 6,007 7,121 2,602 1,329 0 15,224 65,668 5. Notes to the Income Statement | Notes for the KWS Group 2018/2019 | Annual Financial Statements 141 KWS Group | Annual Report 2018/2019 The other operating income also includes the deconsolidation The gain from the net monetary position from current gains of €15,958 thousand from disposal of the shares in application of IAS 29 at KWS ARGENTINA S.A. is the subsidiary KWS POTATO B.V (now AARDEVO B.V.), which €1,400 thousand. was fully consolidated up to January 31 (see section 2.1 in the Notes). 5.3 Other operating expenses July 1 to June 30 in € thousand Expenses for change of the legal form Allowances on receivables Exchange rate losses and losses on currency and interest rate hedges Expenses relating to previous periods Other expenses 2018/2019 2017/2018 1,383 6,662 30,266 1,106 18,804 58,221 1,090 13,811 35,144 2,797 7,193 60,035 The other operating expenses mainly comprises foreign The other expenses comprise in particular the setup of exchange losses and expenses from exchange rate hedges, provisions, including a provision of €5,000 thousand in as well as allowances on receivables. In the reporting year, connection with the development of diploid hybrid potatoes allowances for receivables and counter party defaults of in the Sugarbeet Segment. €6,662 (13,811) thousand were recognized as an expense. 5.4 Net financial income/expenses July 1 to June 30 in € thousand Interest income Interest expenses Income from other financial assets Interest effects from pension provisions Interest expense for other long-term provisions Financial lease interest expense Interest result Result from equity-accounted financial assets Net income from equity investments Net financial income/expenses 2018/2019 2017/2018 4,006 17,016 68 1,956 82 1 –14,981 9,447 9,447 –5,534 3,943 9,749 103 2,154 122 1 –7,980 13,414 13,414 5,434 142 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 5. Notes to the Income Statement Annual Report 2018/2019 | KWS Group Net income from equity investments decreased in comparison to prior year by €3,967 thousand. Income from at-equity accounted financial assets decreased from €13,414 thousand to €9,447 thousand. Together with an interest result of €–14,981 (–7,980) thousand, net financial income/expenses decreased by €10,968 thousand to €–5,534 (5,434) thousand. Apart from much lower earnings from the at-equity accounted joint venture AGRELIANT GENETICS LLC., net financial income/expenses was negatively impacted in particular by higher interest expenses at the companies RIBER-KWS SEMENTES LTDA. and KWS ARGENTINA S.A. The interest effects from pension provisions comprise interest expenses (compounding) and the planned income. 5.5 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 2018/2019 2017/2018 54,196 5,182 49,014 7,545 –13,757 –5,855 –7,902 40,439 34,248 1,178 33,070 –4,275 4,085 5,677 –1,592 38,333 KWS pays tax in Germany at a rate of 29.8% (29.1%). The profits generated by group companies outside Germany Corporate income tax of 15.0% (15.0%) and solidarity tax are taxed at the rates applicable in the country in which they of 5.5% (5.5%) are applied uniformly to distributed and are based. The tax rates in foreign countries vary between retained profits. In addition, trade tax is payable on profits 9.0% (9.0%) and 35.0% (35.0%). The allocation to interest generated in Germany. Trade income tax is applied at a on tax liabilities is carried in the interest expense for the first weighted average tax rate of 14.0% (13.3%), resulting in a time this fiscal year. total tax rate of 29.8% (29.1%). 5. Notes to the Income Statement | Notes for the KWS Group 2018/2019 | Annual Financial Statements 143 KWS Group | Annual Report 2018/2019 The deferred taxes that are recognized relate to the following 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 2018/2019 2017/2018 2018/2019 2017/2018 0 740 0 1,350 25,920 8,214 23,941 480 366 0 1,383 15,971 1,785 20,344 (23,156) (19,035) 10,289 70,454 7,213 19,308 59,637 8,397 2,876 18,683 4 1,180 2,003 2,016 9 (0) 3,903 30,675 0 2,476 16,756 4 6,549 1,088 10,326 271 (92) 658 38,128 0 –14,259 –18,787 –14,259 –18,787 63,408 49,247 16,416 19,341 Due to the use of tax loss carryforwards and temporary No deferred taxes were recognized for temporary differ- differences on which no deferred taxes were recognized in ences amounting to €37.654 (35,633) thousand related to the past, the actual tax expense fell by €809 (13) thousand. shares in subsidiaries in keeping with IAS 12.39. There is a deferred tax expense of €802 (684) thousand In the year under review, there were surpluses of deferred tax from the allowance for deferred taxes on tax loss carry- assets from temporary differences and loss carry forwards forwards and temporary differences in the year under totaling €21.088 (20,913) thousand at group companies that review. The first-time recognition of deferred taxes and made losses in the past period or the previous period. These use of deferred taxes on loss carryforwards that had not were considered recoverable, since it is assumed that the previously been recognized result in deferred tax income companies in question will post taxable profits in the future. of €584 (320) thousand. The fact is taken into account here that the KWS Group may realize income with a delay due to the long-term nature of No deferred taxes were formed for tax loss carryforwards research & development spending. totaling €13,893 (17,704) thousand that have not yet been utilized. Of these, €0 (4,053) thousand must be utilized The reconciliation of the expected income tax expense to within a period of 5 years. Loss carryforwards totaling the reported income tax expense is derived on the basis of €13,893 (13,650) thousand can be utilized without any time the consolidated income before taxes and the nominal tax limit. rate for the Group of 29.8% (29.1%), taking into account the Deferred taxes were formed for all deductible differences. following effects. 144 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 5. Notes to the Income Statement Annual Report 2018/2019 | KWS Group 2018/2019 2017/2018 144,459 43,092 –7,246 797 4,238 –12,719 497 –283 –535 12,500 99 40,439 28.0% 137,990 40,190 460 –4,183 6,100 –7,895 365 7,938 –374 –4,275 7 38,333 27.8% 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: 29.8 % (29.1 %) The increase in tax-free income is mainly due to realization of income from sale of the shares in KWS POTATO B.V. Income taxes relating to other periods include in particular effects from field tax audits that have been completed worldwide and future field tax audits. Other taxes, primarily real estate tax, are allocated to the relevant functions. 5. Notes to the Income Statement | Notes for the KWS Group 2018/2019 | Annual Financial Statements 145 KWS Group | Annual Report 2018/2019 5.6 Personnel costs/employees 5.7 Share-based payment July 1 to June 30 in € thousand Wages and salaries Social security contributions, expenses for pension plans and benefits 2018/2019 2017/2018 223,298 202,912 57,358 51,017 280,656 253,929 Employee Stock Purchase Plan KWS has established an Employee Stock Purchase Plan. All employees who have been with the company for at least one year without interruption and have a permanent employment relationship that has not been terminated at a KWS Group company that participates in the program are eligible to take part. That also includes employees who are on maternity leave or parental leave or who are in semi-retirement. Personnel costs went up by €26,727 thousand to After the stock split each employee can acquire up to €280,656 thousand, an increase of 10.5%. The number of 2,500 shares. A bonus of 20% is deducted from the purchase employees increased from 3,852 to 4,126, or by 7.1%. Of price, which depends on the price applicable on the key the 4,126 (3,852) employees, 3,791 (3,533) are permanent date. The shares are subject to a lock-up period of 4 years employees, 236 (213) are temporary employees and beginning when they are posted to the employee’s securities 98 (105) are trainees. account. The right to a dividend, if KWS SAAT SE & Co. KGaA pays one out, exists during the lock-up period. Holders can Compensation increased by 10.0% from €202,912 thou- also exercise their right to participate in the Annual Share- sand in the previous year to €223,298 thousand. Social holders’ Meeting during the lock-up period. They can dispose security contributions, expenses for pension plans and freely of the shares after the lock-up period. benefits were €6,341 thousand higher than in the previous year. Employees by region1 54,094 (49,160) shares were repurchased for the Employee Stock Purchase Plan at a total price of €3,101 (3,388) thou- sand in the reporting year. The total cost for issuing shares 2018/2019 2017/2018 at a reduced price was €715 thousand in the past fiscal year Germany Europe (excluding Germany) North and South America Rest of world Total 1,800 1,315 832 179 4,126 1,624 1,291 773 164 3,852 1 At the beginning of the 2018/2019 financial year, the KWS Group changed to FTE according to its internal reporting and adjusted the previous year's figures. (previous year: €699 thousand). 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 trans- actions with cash compensation, which are measured at fair With our joint ventures and associated company value at every balance sheet date. Members of the Executive consolidated proportionately, the number of employees Board are obligated to acquire shares in KWS SAAT SE & was 4,592 (4,328). The reported number of employees is Co. KGaA every year in a freely selectable amount ranging greatly influenced by seasonal labor. between 20% and 50% of the gross performance- related bonus. Along with that, members of the first management level below the Executive Board likewise take part in an 146 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 5. Notes to the Income Statement Annual Report 2018/2019 | KWS Group LTI program. As part of this program, they are obligated to invest in shares in KWS SAAT SE & Co. KGaA every year in a 6. Notes to the Cash Flow Statement freely selectable amount ranging between 10% and 40% of The cash flow statement shows the changes in cash and the gross performance-related bonus. The shares acquired cash equivalents of the KWS Group in the three categories within the LTI-Program may be sold at the earliest after a of operating activities, investing activities and financing regular holding period of 5 years beginning at the time they activities. The effects of exchange rate changes and changes are acquired (end of the quarter in which the shares were in the consolidated group have been eliminated from the acquired). In addition to the unblocking of the share package respective balance sheet items, except those affecting cash the entitled persons are paid a long-term incentive (LTI) in and cash equivalents. the form of cash compensation after the holding period for the tranche in question. Its level is calculated on the basis of 6.1 Net cash from operating activities KWS SAAT SE & Co. KGaA’s share performance and on the The net cash from operating activities was KWS Group’s return on sales (ROS), measured as the ratio of €72,850 (98,062) thousand, a year-on-year reduction operating income to net sales, over the holding period. For of 25.7%. persons with contracts as of July 1, 2014, the cash compen- sation for members of the Executive Board is a maximum The cash proceeds from operating activities also include of one-and-half times (for the Chief Executive Officer two interest income of €3,964 (3,943) thousand and interest times), and for members of the first management level below expense of €15,686 (8,418) thousand. Income tax pay- the Executive Board a maximum of two times their own ments amounted to €63,074 (16,451) thousand. The investment (LTI cap). The costs of this compensation are dividends received from the joint ventures are also carried recognized in the income statement over the period and, here and total €8,566 (12,110) thousand. taking the cash compensation in January 2019 into account, were €1,037 (1,038) thousand in the period under review. The 6.2 Net cash from investing activities provision for it at June 30, 2019, was €2,490 (2,440) thousand. A net total of €95,235 (68,071) thousand was required to The LTI fair values are calculated by an external expert. finance investing activities. 5.8 Net income for the year 6.3 Net cash from financing activities The KWS Group’s net income for the year was Financing activities resulted in cash proceeds of €104,020 (99,657) thousand on operating result of €404.502 (–25,284) thousand. €149,993 (132,556) thousand and negative (in prior year – positive) net financial result of €5,534 (5,434) thousand. 6.4 Supplementary information on the cash flow The return on sales was thus 9.3% and so virtually at the statement same level as the previous year (9.3%). Net income for the Of the changes in cash and cash equivalents caused by year after minority interest was €104,134 (99,521) thousand. exchange rate, consolidation scope and measurement Earnings per share in the year under review were €3.15 changes, a total of €109 (–3,494) thousand results from (after adjustment to reflect the stock split: €3.02). exchange rate-related adjustments. The €415 million deposited in a trust account for acquisition of the Pop Vriend Seeds Group are deducted from the cash and cash equivalents and carried under the other financial assets. As in previous years, cash and cash equivalents are composed of cash (on hand and balances with banks) and current securities. 6. Notes to the Cash Flow Statement | Notes for the KWS Group 2018/2019 | Annual Financial Statements 147 KWS Group | Annual Report 2018/2019 7. Other Notes 7.1 Proposal for the appropriation of net retained profits 7.3 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 & Co. KGaA’s net are all business dealings that are conducted with the retained profit of €22,912 (22,172) thousand, an amount reporting entity by entities or natural persons or their close of €22,110 (21,120) thousand should be distributed as a family members, if the party or person in question controls dividend of €0.67 (3.20 before the stock split) for each of the reporting entity or is a member of its key management the 33,000,000 shares. personnel, for example. There were no business trans- actions or legal transactions that required reporting for The balance of €802 (1,052) thousand is to be carried this group of persons in fiscal 2018/2019. As part of its forward to the new account. operations, KWS procures goods and services world- wide from a large number of business partners. They also 7.2 Total remuneration of the Supervisory Board include companies in which KWS has an interest and on and the Executive Board and of former members of which representatives of KWS’ Supervisory Board exert the Super visory Board and the Executive Board of a significant influence. Business dealings with these KWS SAAT SE & Co. KGaA companies are always conducted on an arm’s length basis The compensation of the members of the Super visory Board and are not material in terms of volume. As part of Group was converted to a purely fixed compensation pursuant to financing, short- and medium-term term loans are taken out the resolution adopted by the Annual Shareholders’ Meeting from and granted to subsidiaries at market interest rates. in December 2017. Members of the Supervisory Board who The compensation of members of the Executive Board are members of a committee – with the exception of the comprises short-term employee benefits, share-based pay- Chairman of the Supervisory Board – receive an additional ment benefits and post-employment benefits. fixed payment therefor. The total compensation for members of the Supervisory Board amounts to €620 (610) thousand, Individualized disclosures on the compensation of members excluding value-added tax. of the Executive Board and the Supervisory Board are presented in the Compensation Report, which is part of the In fiscal year 2018/2019, total Executive Board compensation audited Combined Management Report. amounted to €4,316 (4,016) thousand. The variable compen- sation, which is calculated on the basis of the net profit for the No other related parties have been identified for whom there period of the KWS Group, is made up of a bonus and a long- is a special reporting requirement under IAS 24. term incentive. The bonus totals €2,032 (1,899) thousand; there are contributions from the long-term incentive tranche for 2018/2019 totaling €766 thousand (tranche for 2017/2018: €741 thousand). Pension provisions totaling €1,566 (1,291) thousand were formed for two members of the Executive Board at KWS SAAT SE & Co. KGaA. Compensation of former members of the Executive Board and their surviving dependents amounted to €1,479 (1,575) thou- sand. Pension provisions recognized for this group of persons amounted to €6,674 (7,315) thousand as of June 30, 2019, before being netted off with the relevant planned assets. 148 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 7. Other Notes Annual Report 2018/2019 | 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 2018/2019 2017/2018 2018/2019 2017/2018 2018/2019 2017/2018 2018/2019 2017/2018 0 0 0 0 0 0 1,991 1,664 11,640 14,736 22,579 11,364 0 0 0 0 4,920 111 7,461 111 695 0 487 0 0 0 23 0 0 0 223 0 7.4 Disclosure The non-audit services in the fiscal year comprised the The following subsidiaries with the legal form of a corpo- voluntary audit of the Non-Financial Declaration and the ration within the meaning of Section 264 (3) of the German company formation audit of KWS SAAT SE & Co. KGaA. Commercial Code (HGB) have utilized the exemption pro- vided in Section 264 (3) of the German Commercial Code 7.6 Report on events after the balance sheet date (HGB) as regards preparation of financial statements and The KWS Group completed acquisition of the shares in their publication: the Pop Vriend Seeds Group on July 1, 2019, taking over all of the shares of Birika B.V, Andijk, the Netherlands, KWS LOCHOW GMBH, Bergen the parent company of the POP VRIEND SEEDS Group. KWS LANDWIRTSCHAFT GMBH, Einbeck Pop Vriend Seeds is a leading company in the production BETASEED GMBH, Frankfurt and distribution of vegetable seed and supplies customers DELITZSCH PFLANZENZUCHT GMBH, Einbeck in more than 100 countries, including the U.S., China KANT-HARTWIG & VOGEL GMBH, Einbeck and Russia. Pop Vriend Seeds is the world market leader AGROMAIS GMBH, Everswinkel in spinach seed as well as a leading vendor of seed for KWS SERVICES DEUTSCHLAND GMBH, Einbeck various other vegetable crops. The purchase price for all KWS BERLIN GMBH, Berlin the shares was €414.7 million. The €400 million in bridge KWS SAAT SE & Co. KGaA prepares the consolidated by the issue of medium- and long-term borrower’s notes financial statements for the largest and smallest group of with a total volume of €400 million. With the acquisition of companies. Pop Vriend Seeds, the KWS Group has entered the new funding utilized in June was replaced at the end of August business segment of vegetable seed. 7.5 Audit of the annual financial statements On December 14, 2018, the Annual Shareholders’ Meeting The Pop Vriend Seeds Group was not acquired until after of KWS SAAT SE & Co. KGaA elected the accounting firm the period under review and its recognition on the balance Ernst & Young GmbH, Hanover, to be the Group’s auditors sheet was not completed by the time the consolidated for fiscal year 2018/2019. Fee paid to the external auditors under Section 314 (1) No. 9 HGB financial statements were published. Persuant to IFRS 3.B66, the disclosures in accordance with IFRS 3.B64 €, (g) to (l) and (q) are omitted for the acquisition of Pop Vriend Seeds. in € thousand 2018/2019 2017/2018 7.7 Declaration of compliance with the German a) Audit of the consolidated financial statements b) Other certification services c) Tax consulting d) Other services Total fee paid 1,488 69 0 0 669 63 0 0 Corporate Governance Code KWS SAAT SE & Co. KGaA has issued the declaration of compliance with the German Corporate Governance Code required by Section 161 of the Aktiengesetz (AktG – German Stock Corporation Act) and made it accessible to its share- 1,557 732 holders on the company’s home page at www.kws.com. 7. Other Notes | Notes for the KWS Group 2018/2019 | Annual Financial Statements 149 KWS Group | Annual Report 2018/2019 7.8 Supervisory and Executive Boards of KWS SAAT SE & Co. KGaA in fiscal 2018/2019 Other seats Membership of comparable German and foreign oversight boards: DR. SCHNELL Chemie GmbH, Munich (member of the Advisory Board) Membership of comparable German and foreign oversight boards: Givaudan SA (member of the Board of Directors, the Audit Committee and the Compensation Committee) CEVA Logistics AG, Baar, Switzerland (member of the Executive Board and Chairman of the Audit Committee – until April 2019) Medacta International SA, Switzerland (member of the Board of Directors and Chairman of the Audit Committee – since April 2019) Hemro AG, Switzerland (member of the Management Board) Sika AG, Switzerland (member of the Board of Directors and Chairman of the Audit Committee – since March 2019) Louis Dreyfus Holding B.V., Amsterdam (member of the Supervisory Board and Audit Committee) Swiss Federal Audit Supervision Authority, Switzerland (member of the Board of Directors) Membership of other legally mandated supervisory boards: CLAAS KGaA mbH, Harsewinkel (Chairwoman) Membership of comparable German and foreign oversight boards: CLAAS KGaA mbH, Harsewinkel (Deputy Chairwoman of the Shareholders’ Committee) Supervisory Board Members Dr. Drs. h. c. Andreas J. Büchting Einbeck Agricultural Biologist Chairman of the Supervisory Board of KWS SAAT SE & Co. KGaA Dr. Marie Theres Schnell Munich Graduate in Communications Deputy Chairman of the Supervisory Board of KWS SAAT SE & Co. KGaA Victor W. Balli Zurich (Switzerland) Chemical Engineer Chairman of the Audit Committee of KWS SAAT SE & Co. KGaA Jürgen Bolduan Einbeck Seed Breeding Employee Chairman of the Central Works Council of KWS SAAT SE & Co. KGaA Cathrina Claas-Mühlhäuser Frankfurt am Main Businesswoman Chairwoman of the Supervisory Board of CLAAS KGaA mbH, Harsewinkel Christine Coenen Einbeck Interpreter Chairwoman of the European Employees’ Committee (EEC) of KWS SAAT SE & Co. KGaA Dr. Arend Oetker Berlin Honorary member of the Supervisory Board of KWS SAAT SE & Co. KGaA 150 Annual Financial Statements | Notes for the KWS Group 2018/2019 | 7. Other Notes Annual Report 2018/2019 | KWS Group Supervisory Board Committees Committee Audit Committee Chairman/Chairwoman Members Victor W. Balli Andreas J. Büchting Jürgen Bolduan Marie Theres Schnell Cathrina Claas-Mühlhäuser Andreas J. Büchting Cathrina Claas-Mühlhäuser Other seats Membership of comparable German and foreign oversight boards: Hero AG, Lenzburg (Switzerland) (member of the Board of Administration) Committee for Executive Board Affairs Andreas J. Büchting Nominating Committee Marie Theres Schnell Executive Board Members Dr. Hagen Duenbostel Einbeck Chief Executive Officer Corn, Strategy, Compliance Governance & Risk Management Dr. Léon Broers Einbeck Research & Breeding Dr. Peter Hofmann Einbeck Sugarbeet, Corn, Cereals (until 12/31/2018), Marketing Eva Kienle Göttingen Finance, Controlling, Global Services, IT, Legal, Human Resources (until 12/31/2018) Dr. Felix Büchting Einbeck Cereals, Oilseed Rape/Special Crops & Organic Seed, Human Resources, Farming (since 01/01/2019) 7. Other Notes | Notes for the KWS Group 2018/2019 | Annual Financial Statements 151 KWS Group | Annual Report 2018/2019 Independent auditor’s report To KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) Basis for the opinions Report on the audit of the consolidated financial ments and of the group management report in accordance statements and of the group management report with Sec. 317 HGB and the EU Audit Regulation (No 537/2014, We conducted our audit of the consolidated financial state- Opinions referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for We have audited the consolidated financial statements Financial Statement Audits promulgated by the Institut der of KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE), Wirtschaftsprüfer [Institute of Public Auditors in Germany] Einbeck, and its subsidiaries (the Group), which comprise (IDW). Our responsibilities under those requirements and the consolidated statement of comprehensive income principles are further described in the “Auditor’s responsi- for the fiscal year from 1 July 2018 to 30 June 2019, and bilities for the audit of the consolidated financial statements the consolidated statement of financial position as at and of the group management report” section of our auditor’s 30 June 2019, consolidated statement of changes in equity report. We are independent of the group entities in accor- and consolidated statement of cash flows for the fiscal dance with the requirements of European law and German year from 1 July 2018 to 30 June 2019, and notes to the commercial and professional law, and we have fulfilled our consolidated financial statements, including a summary of other German professional responsibilities in accordance significant accounting policies. In addition, we have audited with these requirements. In addition, in accordance with the group management report of KWS SAAT SE & Co. KGaA Art. 10 (2) f) of the EU Audit Regulation, we declare that (formerly KWS SAAT SE), which was combined with the we have not provided non-audit services prohibited under management report of the Company, for the fiscal year from Art. 5 (1) of the EU Audit Regulation. We believe that the audit 1 July 2018 to 30 June 2019. In accordance with the German evidence we have obtained is sufficient and appropriate to legal requirements, we have not audited the content of the provide a basis for our opinions on the consolidated financial parts of the group management report listed in the appendix statements and on the group management report. to the auditor’s report. Key audit matters in the audit of the consolidated In our opinion, on the basis of the knowledge obtained in the financial statements audit, Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the the accompanying consolidated financial statements consolidated financial statements for the fiscal year from comply, in all material respects, with the IFRSs as 1 July 2018 to 30 June 2019. These matters were addressed adopted by the EU, and the additional requirements of in the context of our audit of the consolidated financial state- German commercial law pursuant to Sec. 315e (1) HGB ments as a whole, and in forming our opinion thereon; we do [“Handelsgesetzbuch”: German Commercial Code] and, in not provide a separate opinion on these matters. compliance with these requirements, give a true and fair view of the assets, liabilities and financial position of the Below, we describe what we consider to be the key audit Group as at 30 June 2019 and of its financial performance matters: for the fiscal year from 1 July 2018 to 30 June 2019, and the accompanying group management report as a whole (1) Revenue recognition from the sale of seeds provides an appropriate view of the Group’s position. In all material respects, this group management report is Reasons why the matter was determined to be a key consistent with the consolidated financial statements, audit matter complies with German legal requirements and appropriately In the consolidated financial statements of KWS SAAT SE & presents the opportunities and risks of future development. Co. KGaA (formerly KWS SAAT SE), revenue from the sale of Our opinion on the group management report does not seeds is recognized when risk passes, taking contractually cover the content of the parts of the group management agreed return deliveries into consideration. In light of the report listed in the appendix to the auditor’s report. large number of different contractual agreements and Pursuant to Sec. 322 (3) Sentence 1 HGB, we declare that return deliveries, we consider revenue recognition to be our audit has not led to any reservations relating to the legal complex and therefore to pose an elevated risk of incorrect the resulting judgment exercised in assessing expected compliance of the consolidated financial statements and of recognition. the group management report. 152 Annual Financial Statements | Notes for the KWS Group 2018/2019 | Independant Auditor's Report Annual Report 2018/2019 | KWS Group Auditor’s response (2) Impairment testing of goodwill During our audit, we considered, based on the criteria defined in IFRS 15, the accounting policies applied in accordance Reasons why the matter was determined to be a key with the internal accounting instructions in the consolidated audit matter financial statements of KWS SAAT SE & Co. KGaA ( formerly Pursuant to IAS 36, the internal management and reporting KWS SAAT SE) for the recognition of revenue. Our response structure serves as the basis for designating cash-generating included an examination of whether control passed to units to which the respective items of goodwill are allocated. the b uyers upon the sale of the seeds. We analyzed the process implemented by the management board of At KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE), KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) and the goodwill is monitored and managed at divisional level. accounting and valuation requirements for the recognition of seed sales, in particular taking into account the findings Goodwill is tested for impairment as of 30 June each year. from actual return deliveries. Based on analytical procedures The result of these tests is highly dependent on the Executive defined group-wide, we examined whether the significant Directors’ estimate of future cash flows and the respective revenue items for fiscal year 2018/2019 correlate with the discount rates used. corresponding trade receivables to identify any irregularities in the development of revenue. With a view to the recognition In light of the definition of the cash-generating units, the of revenue on an accrual basis, we also obtained balance complexity of the valuation and the judgment exercised confirmations from customers and performed data analyses to during valuation, the goodwill impairment test was a key identify any irregularities in comparison with the prior year. We audit matter. analyzed the recognition of revenue based on the contractual arrangements on a sample basis with regard to the require- Auditor’s response ments of IFRS 15. Based on analytical procedures carried out During our audit, among other things, we obtained an on historical data and the analysis of the underlying contracts, understanding of the methods used to carry out the impair- we examined the calculation of expected return deliveries of ment tests including an examination of the suitability of the seeds and their deduction from revenue. Overall, our proce- procedure for performing an impairment test in accordance dures relating to the recognition of revenue from the sale of with IAS 36. In doing so, we analyzed the planning process seeds did not lead to any reservations. and the operating effectiveness of the controls implemented therein. We discussed the significant planning assumptions Reference to related disclosures with the Executive Directors and compared these with the With regard to the recognition and measurement policies results and cash inflows realized in the past. Our assess- applied for the recognition of revenue from the sale of ment of the results of the impairment tests as of 30 June was seeds, refer to the disclosure on the recording of income based among other things on a comparison with general and and expenses in section 1.5 “Accounting policies” in the industry-specific market expectations underlying the expected notes to the consolidated financial statements. cash inflows. Based on our understanding that even relatively small changes in the discount rates used can at times have significant effects on the amount of the business value calcu- lated, we analyzed the inputs used to determine the discount rates and reperformed the calculation with regard to the relevant requirements of IAS 36. In addition, we analyzed the sensitivity analyses performed by the Executive Directors of KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) in order to estimate any potential impairment risk associated with a reasonably possible change in one of the significant assump- tions used in the valuation. Independant Auditor's Report | Notes for the KWS Group 2018/2019 | Annual Financial Statements 153 KWS Group | Annual Report 2018/2019 We obtained evidence that the divisions represent the lowest In connection with our audit, our responsibility is to read the level within the Group at which independent cash inflows are other information and, in so doing, to consider whether the generated and goodwill is monitored for internal management other information purposes. Our procedures did not lead to any reservations relating to statements, with the group management report or our is materially inconsistent with the consolidated financial the valuation of goodwill. Reference to related disclosures knowledge obtained in the audit, or otherwise appears to be materially misstated. With regard to the recognition and measurement policies Responsibilities of the Executive Directors and the applied for goodwill, refer to the disclosure on intangible Supervisory Board for the consolidated financial assets in section 1.5 “Accounting policies” in the notes statements and the group management report to the consolidated financial statements. For the related The Executive Directors are responsible for the preparation disclosures on judgments by the Executive Directors and of the consolidated financial statements that comply, in all sources of estimation uncertainty as well as the disclosures material respects, with IFRSs as adopted by the EU and the on goodwill, refer to note 2 “Intangible assets” in section 4 additional requirements of German commercial law pursuant “Notes to the statement of financial position” in the notes to to Sec. 315e (1) HGB, and that the consolidated financial the consolidated financial statements. statements, in compliance with these requirements, give a Other information true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the The Supervisory Board is responsible for the Supervisory Executive Directors are responsible for such internal control Board report. In all other respects, the Executive Directors as they have determined necessary to enable the preparation are responsible for the other information. The other informa- of consolidated financial statements that are free from tion comprises the parts of the group management report mate rial misstatement, whether due to fraud or error. listed in the appendix to the auditor’s report as well as the other parts of the annual report, except for the audited In preparing the consolidated financial statements, the consolidated financial statements and group management Executive Directors are responsible for assessing the Group’s report and our auditor’s report, in particular the responsi- ability to continue as a going concern. They also have the bility statement pursuant to Sec. 297 (2) Sentence 4 HGB, the responsibility for disclosing, as applicable, matters related to “Foreword by the management board” section of the annual going concern. In addition, they are responsible for financial report and the Supervisory Board’s report pursuant to Sec. reporting based on the going concern basis of accounting 171 (2) AktG [“Aktiengesetz”: German Stock Corporation unless there is an intention to liquidate the Group or to cease Act]. We obtained a version of this other information prior to operations, or there is no realistic alternative but to do so. issuing our auditor’s report. Our opinions on the consolidated financial statements and on preparation of the group management report that, as a whole, the group management report do not cover the other informa- provides an appropriate view of the Group’s position and tion, and consequently we do not express an opinion or any is, in all material respects, consistent with the consolidated other form of assurance conclusion thereon. financial statements, complies with German legal require- Furthermore, the Executive Directors are responsible for the ments, and appropriately presents the opportunities and risks of future development. In addition, the Executive Directors are responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report. 154 Annual Financial Statements | Notes for the KWS Group 2018/2019 | Independant Auditor's Report Annual Report 2018/2019 | KWS Group The Supervisory Board is responsible for overseeing the Obtain an understanding of internal control relevant Group’s financial reporting process for the preparation of the to the audit of the consolidated financial statements consolidated financial statements and of the group manage- and of arrangements and measures (systems) relevant ment report. to the audit of the group management report in order to design audit procedures that are appropriate in the Auditor’s responsibilities for the audit of the circumstances, but not for the purpose of expressing an consolidated financial statements and of the group opinion on the effectiveness of these systems. management report Evaluate the appropriateness of accounting policies used Our objectives are to obtain reasonable assurance about by the Executive Directors and the reasonableness of whether the consolidated financial statements as a whole estimates made by the Executive Directors and related are free from material misstatement, whether due to fraud disclosures. or error, and whether the group management report as a Conclude on the appropriateness of the Executive whole provides an appropriate view of the Group’s position Directors’ use of the going concern basis of accounting and, in all material respects, is consistent with the consoli- and, based on the audit evidence obtained, whether a dated financial statements and the knowledge obtained in material uncertainty exists related to events or conditions the audit, complies with the German legal requirements and that may cast signifi cant doubt on the Group’s ability to appropriately presents the opportunities and risks of future continue as a going concern. If we conclude that a material development, as well as to issue an auditor’s report that uncertainty exists, we are required to draw attention in the includes our opinions on the consolidated financial state- auditor’s report to the related disclosures in the consolidated ments and on the group management report. financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective Reasonable assurance is a high level of assurance, but is opinions. Our conclusions are based on the audit evidence not a guarantee that an audit conducted in accordance obtained up to the date of our auditor’s report. However, with Sec. 317 HGB and the EU Audit Regulation and in future events or conditions may cause the Group to cease to compliance with German Generally Accepted Standards be able to continue as a going concern. for Financial Statement Audits promulgated by the Institut Evaluate the overall presentation, structure and content der Wirtschaftsprüfer (IDW) will always detect a material of the consolidated financial statements, including the misstatement. Misstatements can arise from fraud or error disclosures, and whether the consolidated financial state- and are considered material if, individually or in the aggre- ments present the underlying transactions and events in a gate, they could reasonably be expected to influence the manner that the consolidated financial statements give a economic decisions of users taken on the basis of these true and fair view of the assets, liabilities, financial position consolidated financial statements and this group manage- and financial performance of the Group in compliance ment report. with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to We exercise professional judgment and maintain Sec. 315e (1) HGB. professional skepticism throughout the audit. We also: Obtain sufficient appropriate audit evidence regarding the Identify and assess the risks of material misstatement of within the Group to express opinions on the consolidated the consolidated financial statements and of the group financial statements and on the group management management report, whether due to fraud or error, design report. We are responsible for the direction, supervision and perform audit procedures responsive to those risks, and performance of the group audit. We remain solely and obtain audit evidence that is sufficient and appro- responsible for our audit opinions. financial information of the entities or business activities priate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre- sentations, or the override of internal control. Independant Auditor's Report | Notes for the KWS Group 2018/2019 | Annual Financial Statements 155 KWS Group | Annual Report 2018/2019 Evaluate the consistency of the group management report We declare that the opinions expressed in this auditor’s with the consolidated financial statements, its conformity report are consistent with the additional report to the audit with [German] law, and the view of the Group’s position it committee pursuant to Art. 11 of the EU Audit Regulation provides. (long-form audit report). Perform audit procedures on the prospective information presented by the Executive Directors in the group German Public Auditor responsible for the engagement manage ment report. On the basis of sufficient appropriate The German Public Auditor responsible for the engagement audit evidence we evaluate, in particular, the significant is Dr. Christian Janze. assumptions used by the Executive Directors as a basis for the prospective information, and evaluate the proper Appendix to the auditor’s report: derivation of the prospective information from these Parts of the group management report whose content is assumptions. We do not express a separate opinion on unaudited the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that We have not audited the content of the following parts of the future events will differ materially from the prospective group management report: information. We communicate with those charged with governance KWS SAAT SE & Co. KGaA (formerly KWS SAAT SE) and regarding, among other matters, the planned scope and the KWS Group contained in section 2.9.2 “Combined timing of the audit and significant audit findings, including non-financial statement for the KWS Group” of the group any significant deficiencies in internal control that we management report, including any information in other identify during our audit. sections referred to in this statement. The respective The combined non-financial statement for sections are marked “NFD” in the margin. We also provide those charged with governance with a The information in section 2.6.1 “Corporate governance statement that we have complied with the relevant inde- report and statement on corporate governance.” pendence requirements, and communicate with them all The information in section 2.6.2 “Declaration of conformity relationships and other matters that may reasonably be in accordance with Sec. 161 AktG.” thought to bear on our independence and where applicable, the related safeguards. Neither have we audited the content of the following information that is not typical or required for a group manage- From the matters communicated with those charged with ment report. This relates to any information whose disclosure governance, we determine those matters that were of most in the group management report is not required pursuant to significance in the audit of the consolidated financial state- Secs. 315, 315a HGB or Secs. 315b to 315d HGB. ments of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report Section 2.5.3 “Good working conditions” and unless law or regulation precludes public disclosure about Section 2.5.4 “Social commitment.” the matter. Other legal and regulatory requirements Further information pursuant to Art. 10 of the EU Audit Regulation We were elected as group auditor by the annual general Hanover, 24 September 2019 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft meeting on 14 December 2018. We were engaged by the Ludwig Dr. Janze Supervisory Board on 14 July 2019. We have been the Wirtschaftsprüfer Wirtschaftsprüfer group auditor of KWS SAAT SE & Co. KGaA ( formerly [German Public Auditor] [German Public Auditor] KWS SAAT SE) without interruption since fiscal year 2016/2017. 156 Annual Financial Statements | Notes for the KWS Group 2018/2019 | Independant Auditor's Report Annual Report 2018/2019 | KWS Group Independent Auditor’s Limited Assurance Report The assurance engagement performed by Ernst & Young (EY) relates exclusively to the German PDF version of the combined non-financial statement 2018/2019 of KWS SAAT SE & Co. KGaA. The following text is a translation of the original German Independent Assurance Report. To KWS SAAT SE & Co. KGaA, Einbeck We have performed a limited assurance engagement on the Auditor’s declaration relating to independence and group non-financial statement of KWS SAAT SE & Co. KGaA quality control according to § 315b HGB (“Handelsgesetzbuch”: German We are independent from the Company in accordance Commercial Code), which is combined with the non- financial with the provisions under German commercial law and statement of the parent company according to § 289b HGB, professional requirements, and we have fulfilled our other consisting of the chapter “2.9.2 Combined Non-Financial professional responsibilities in accordance with these Declaration for the KWS Group” in the combined manage- requirements. ment report and the chapters “2.1 Fundamentals of the KWS Group”, “2.4.1 Product Innovations”, “2.4.2 Manage- Our audit firm applies the national statutory regulations ment of Genetic Resources”, “2.4.3 Plant and Process Safety”, and professional pronouncements for quality control, in “2.5.2 Recruitment and Qualification” and “2.6.3 Business particular the by-laws regulating the rights and duties of Ethics and Compliance” in the combined management report Wirtschaftsprüfer and vereidigte Buchprüfer in the exercise being incorporated by reference (hereafter combined non- of their profession [Berufssatzung für Wirtschaftsprüfer financial statement), for the reporting period from 1 July 2018 und vereidigte Buchprüfer] as well as the IDW Standard on to 30 June 2019. Quality Control 1: Requirements for Quality Control in audit firms [IDW Qualitätssicherungsstandard 1: Anforderungen Management’s responsibility an die Qualitätssicherung in der Wirtschaftsprüferpraxis The legal representatives of the Company are responsible (IDW QS 1)]. for the preparation of the combined non-financial state- ment in accordance with §§ 315c in conjunction with Auditor’s responsibility 289c to 289e HGB. Our responsibility is to express a limited assurance conclusion on the combined non-financial statement based This responsibility includes the selection and application of on the assurance engagement we have performed. appropriate methods to prepare the combined non-financial statement as well as making assumptions and estimates We conducted our assurance engagement in accordance related to individual disclosures, which are reasonable in the with the International Standard on Assurance Engagements circumstances. Furthermore, the legal representatives are (ISAE) 3000 (Revised): Assurance Engagements other than responsible for such internal controls that they have con- Audits or Reviews of Historical Financial Information, issued sidered necessary to enable the preparation of a combined by the International Auditing and Assurance Standards Board non-financial statement that is free from material misstate- (IAASB). This Standard requires that we plan and perform ment, whether due to fraud or error. the assurance engagement to obtain limited assurance about whether the combined non-financial statement of the Company has been prepared, in all material respects, in accordance with §§ 315c in conjunction with 289c to 289e HGB. In a limited assurance engagement the assurance procedures are less in extent than for a reasonable assurance engagement and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the auditor's professional judgment. Independant Auditor's Report | Notes for the KWS Group 2018/2019 | Annual Financial Statements 157 KWS Group | Annual Report 2018/2019 Within the scope of our assurance engagement, which has Intended use of the assurance report been conducted between July and September 2019, we We issue this report on the basis of the engagement agreed performed amongst others the following assurance and with KWS SAAT SE & Co. KGaA. The assurance engage- other procedures: ment has been performed for the purposes of the Company and the report is solely intended to inform the Company as Inquiries of employees and inspection of documents to the results of the assurance engagement and must not be regarding the selection of topics for the combined non- used for purposes other than those intended. The report is financial statement, the risk assessment and the concepts not intended to provide third parties with support in making of the parent company and the group for the topics that (financial) decisions. have been identified as material, Inquiries of employees responsible for data capture and Engagement terms and liability consolidation as well as the preparation of the combined The “General Engagement Terms for Wirtschaftsprüfer non-financial statement, to evaluate the reporting and Wirtschaftsprüfungsgesellschaften [German Public processes, the data capture and compilation methods Auditors and Public Audit Firms]” dated 1 January 2017 are as well as internal controls to the extent relevant for the applicable to this engagement and also govern our relations assurance of the combined non-financial statement, with third parties in the context of this engagement Identification of likely risks of material misstatement in the (www.de.ey.com/general-engagement-terms). In addition, combined non-financial statement, please refer to the liability provisions contained there in Inspection of relevant documentation of the systems no. 9 and to the exclusion of liability towards third parties. and processes for compiling, analyzing and aggregating We assume no responsibility, liability or other obligations relevant data in the reporting period and testing such towards third parties unless we have concluded a written documentation on a sample basis, agreement to the contrary with the respective third party or Analytical evaluation of disclosures in the combined liability cannot effectively be precluded. non-financial statement, Inquiries and inspection of documents on a sample basis We make express reference to the fact that we do not update relating to the collection and reporting of selected state- the assurance report to reflect events or circumstances ments and data, arising after it was issued unless required to do so by law. It Evaluation of the presentation of disclosures in the is the sole responsibility of anyone taking note of the result combined non-financial statement. of our assurance engagement summarized in this assurance Assurance conclusion report to decide whether and in what way this result is useful or suitable for their purposes and to supplement, verify or Based on our assurance procedures performed and update it by means of their own review procedures. assurance evidence obtained, nothing has come to our attention that causes us to believe that the combined Munich, 24 September 2019 non- financial statement of KWS SAAT SE & Co. KGaA for the period from 1 July 2018 to 30 June 2019 has not been Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft prepared, in all material respects, in accordance with §§ 315c in conjunction with 289c to 289e HGB. Nicole Richter Annette Johne Wirtschaftsprüferin Wirtschaftsprüferin (German Public Auditor) (German Public Auditor) 158 Annual Financial Statements | Notes for the KWS Group 2018/2019 | Independant Auditor's Report Annual Report 2018/2019 | 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 applicable group accounting principles, and that an accurate picture of the course of business, including business results, and the Group’s situation is conveyed by the Group Management Report, which is combined with the Management Report of KWS SAAT SE & Co. KGaA, and that it describes the main opportunities and risks of the Group’s anticipated development. Einbeck, September 24, 2019 KWS SAAT SE & Co. KGaA THE EXECUTIVE BOARD Hagen Duenbostel Felix Büchting Léon Broers Eva Kienle Peter Hofmann KWS Group | Annual Report 2018/2019 Declaration by Legal Representatives 159 Additional Information Financial calendar Date November 26, 2019 December 17, 2019 February 25, 2020 May 19, 2020 October 23, 2020 November 24, 2020 December 16, 2020 KWS share Key data of KWS SAAT SE & Co. KGaA 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 0.60 0.60 0.60 0.60 0.56 0.46 Quarterly Report Q1 2019/2020 Annual Shareholders’ Meeting in Einbeck Semiannual Report 2019/2020 Quarterly Report 9M 2019/2020 Publication of 2019/2020 financial statements, annual press and analyst conference in Frankfurt Quarterly Report Q1 2019/2020 Annual Shareholders’ Meeting in Einbeck 707400 DE0007074007 KWS Prime Standard SDAX Individual share certificates 33,000,000 0.64 0.64 0.67 Dividend proposal 2019 Dividend payment in € Dividend ratio (total dividends/net income) in % 0.38 24.3 25% 20% 20.8 19.6 21.7 24.7 23.6 23.2 21.6 21.2 21.3 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 160 Additional Information Annual Report 2018/2019 | 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 Peter Vogt Stephan Krings press@kws.com Sustainability Marcel Meyer Editor KWS SAAT SE & Co. KGaA sustainability@kws.com Grimsehlstrasse 31 investor.relations@kws.com Phone: +49 5561 311 1540 Phone: +49 5561 311 393 P.O. Box 1463 Phone: +49 30 209136 217 Safe harbor statement 37555 Einbeck Germany This Annual Report includes forward-looking statements based on the assumptions and estimates of KWS SAAT SE & Co. KGaA’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 deviations 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 & Co. KGaA 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 & Co. KGaA 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 Jens Anders Florian Gahre Christian Bruch Marcelo Coelho Jan Eric Euler Frank Stefan Kimmel Julia Lormis Pat Nabong Roman Pawlowski Thorsten Schmidtkord Jens Scholz Spieker & Woschek Alex Telfer Roman Thomas Karsten Türnau Frank Tusch Sascha Voges Sebastian Vollmert Fotos by Pop Vriend Date of publication: October 23, 2019 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. 9 1 0 2 | 8 1 0 2 t r o p e R l a u n n A KWS SAAT SE & Co. KGaA Grimsehlstrasse 31 P.O. Box 1463 37555 Einbeck/Germany www.kws.com
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